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Strategies for competitive advantage
The document discusses strategies for achieving competitive advantage. It introduces Porter's value chain model which views a firm as a collection of primary and support activities that add value. The value chain can be used to identify processes that add or reduce value for customers. Developing strategies may involve planning better ways to meet customer demands, identifying value-adding processes, and looking beyond the firm's boundaries to its supply chain. Maintaining a competitive advantage requires being efficient, aware of competition, innovating technology, and recognizing that advantages are temporary.
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Strategies for competitive advantage
- 1. Strategies in Action “Even if you’re on the right track, you’ll get run over if you just sit there.” - Will Rogers Strategies for Competitive Advantage – Rajiv B Deo 1/135
- 2. Fundamentals of CompetitiveStrategy Superior Long-Run Performance The central goal Attractive Industry Structure Competitive Advantage High returns for the average Outperform the average industry participant participant Superior Competitive Operational Position Effectiveness Do different things than rivals Do the same things as rivals but better Strategies for Competitive Advantage – Rajiv B Deo
- 3. Hierarchies of Strategy CorporateStrategy: is concerned primarily with answering the question: What set of businesses should we be in? Scope and resource deployments among businesses are the primary components of corporate level strategy. The major policy decisions are financial structure and organizational structure. Business Strategy: is concerned primarily with answering the question: How to compete in a particular industry or product/market segment. Distinctive competences and competitive advantage are the most important components of business level strategy. The major policy decisions are product/market segmentation and evolution. Functional Area Strategy: At the functional area level, the principal focus of strategy is on the maximization of resource productivity Strategies for Competitive Advantage – Rajiv B Deo Ref.: Hofer and Schendel, 1978
- 4. Common pitfalls Strategists shouldavoid – Managing by Extrapolation Managing by Crisis Managing by Subjectivism Managing by Hope Strategies for Competitive Advantage – Rajiv B Deo 4/135
- 5. Strength of Competition-Five Forces Model Strategies for Competitive Advantage – Rajiv B Deo
- 6. Effective Cost Leaderscan remain profitable even when the Five Forces appear unattractive Can mitigate Supplier Power by: Can frighten off New Entrants due to the Low cost position makes them better Threat of need to: * able to absorb cost increases New * Enter at Large Scale to be Cost Competitive * More likely to make very large Entrants * Take time to move down the purchases which reduces chance of “Learning Curve” supplier power Bargaining Rivalry Among Bargaining Power of Competing Firms in Power of Suppliers Industry Buyers Well positioned relative to Substitutes in order to: Can mitigate Buyer Power by: * Make investments to create substitutes Driving prices far below Can buy patents developed by potential Threat of competitors which may cause * exit and shift power back to substitutes Substitute firm * Lower prices to maintain value position Products Ref.: Porter, 1985 Strategies for Competitive Advantage – Rajiv B Deo
- 7. Applying 5 forcesmodel to Coke & Pepsi Strategies for Competitive Advantage – Rajiv B Deo
- 8. Michael Porter’s GenericStrategies Strategies for Competitive Advantage – Rajiv B Deo 8/135
- 9. Risks of GenericCompetitive Strategies Risks of Cost Leadership Risks of Differentiation Risks of Focus Cost leadership is not Differentiation is not sustained: The focus strategy is imitated: sustained: • Competitors imitate. The target segment becomes • Competitors imitate. • Bases for differentiation structurally unattractive: • Technology changes. become less important to • Structure erodes. • Other bases for cost buyers. • Demand disappears. leadership erode. Cost proximity is lost. Broadly targeted competitors Proximity in differentiation is Differentiation focusers achieve overwhelm the segment: lost. even greater differentiation in • The segment’s Cost focusers achieve even segments. differences from other lower cost in segments. segments narrow. • The advantages of a broad line increase. New focusers sub-segment the industry. Strategies for Competitive Advantage – Rajiv B Deo 9/135
- 10. Business Level Strategy The resources and capabilities that have been determined to Core be a source of competitive advantage for a firm over its rivals. Competency An integrated and coordinated set of actions taken to exploit Strategy core competencies and gain a competitive advantage. Actions taken to provide value to customers Business Level and gain a competitive advantage by exploiting Strategy core competencies in specific, individual product markets. Strategies for Competitive Advantage – Rajiv B Deo
- 11. Value Chain Analysis Firm Infrastructure Support Human Resource Management Activities Technological Development Procurement Service Outbound Operations Marketing Logistics Logistics & Sales Inbound Primary Activities Ref.: Porter, 1985 Strategies for Competitive Advantage – Rajiv B Deo
- 12. Value Creating Activitiescommon to a Cost Leadership Business Simplified Planning Relatively Few Cost Effective Practices to Reduce Management Layers to MIS Systems Planning Costs Reduce Overhead Activities Support Consistent Policies to Effective Training Programs to Reduce Turnover Costs Improve Worker Efficiency and Effectiveness Easy-to-Use Manufacturing Investments in Technology in order to Technologies Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Frequent Evaluation Processes to Lowest Cost Products to Purchase Raw Monitor Suppliers’ Performances Materials Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product Systems to Link Scale to Minimize that Reduces Trained Sales Force Installations to Suppliers’ Products Manufacturing Costs Reduce Frequency with the Firm’s Costs and Severity Production Selection of Low Products Priced to of Recalls Processes Cost Transport Generate Sales Timing of Asset Carriers Volume Purchases Located in Close Policy Choice of Efficient Order Sizes National Scale Proximity with Plant Technology Advertising Suppliers Organizational Interrelationships Learning with Sister Units Ref.: Porter, 1985 Primary Activities Strategies for Competitive Advantage – Rajiv B Deo
- 13. Three Key Questions 1 How can an activity be performed differently or even eliminated? 2 How can a group of linked value activities be regrouped or reordered? 3 How might coalitions with other firms lower or eliminate costs? Strategies for Competitive Advantage – Rajiv B Deo
- 14. TOWS Matrix Strategies forCompetitive Advantage – Rajiv B Deo 14/135
- 15. Business Strategies Business Strategy: Focuses on improving the competitive position of a company’s or business unit’s products or services within the specific industry or market segment that the firm serves. Strategies for Competitive Advantage – Rajiv B Deo 15/135
- 16. Porter’s Competitive Strategies Competitive Strategy: Low cost? Differentiation? Compete head to head in large market? Focus on niche? Strategies for Competitive Advantage – Rajiv B Deo 16/135
- 17. Michael Porter’s GenericCompetitive Strategies Strategies for Competitive Advantage – Rajiv B Deo
- 18. Porter’s Competitive Strategies Generic Competitive Strategies: Lower cost strategy Design, produce, market more efficiently than competitors Differentiation strategy Unique and superior value in terms of product quality, features, service Strategies for Competitive Advantage – Rajiv B Deo 18/135
- 19. Porter’s Competitive Strategies Competitive Advantage: Determined by Competitive Scope Breadth of the company’s target market Strategies for Competitive Advantage – Rajiv B Deo 19/135
- 20. Porter’s Competitive Strategies Cost Leadership: Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficient-scale facilities Cost reductions Cost minimization Strategies for Competitive Advantage – Rajiv B Deo 20/135
- 21. Porter’s Competitive Strategies Differentiation: Broad mass market Unique product or service Charge premiums Lower customer sensitivity to price Strategies for Competitive Advantage – Rajiv B Deo 21/135
- 22. Porter’s Competitive Strategies Cost focus: Low cost competitive strategy Focus on particular buyer group or market Niche focused Seek cost advantage in target market Strategies for Competitive Advantage – Rajiv B Deo 22/135
- 23. Porter’s Competitive Strategies Differentiation focus: Focus on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market Strategies for Competitive Advantage – Rajiv B Deo 23/135
- 24. Porter’s Competitive Strategies Stuck in the middle: No competitive advantage Below-average performance Strategies for Competitive Advantage – Rajiv B Deo 24/135
- 25. Competitive Strategy Industry Structure: Fragmented Industry Many small and medium-sized local companies compete for small shares of total market Focus strategies predominate Strategies for Competitive Advantage – Rajiv B Deo 25/135
- 26. Competitive Strategy Industry Structure: Consolidated industry Mature industry dominated by a few large companies Cost Leadership or Differentiation predominate Strategies for Competitive Advantage – Rajiv B Deo 26/135
- 27. Dimensions of Quality Dimensions • Performance • Features • Reliability Quality • Conformance • Durability • Serviceability • Aesthetics • Perceived Quality Strategies for Competitive Advantage – Rajiv B Deo 27/135
- 28. Competitive Strategy Strategic rollup: Quickly consolidate fragmented industry Money from venture capital Entrepreneur acquires hundreds of owner-operated firms Creates large firm with economies of scale Strategies for Competitive Advantage – Rajiv B Deo 28/135
- 29. Competitive Strategy Strategic rollup: Differ from Conventional M&A’s Large number of firms Owner-operated firms Goal to reinvent entire industry Strategies for Competitive Advantage – Rajiv B Deo 29/135
- 30. Competitive Tactics Tactic: Specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action. Timing tactics Market location tactics Strategies for Competitive Advantage – Rajiv B Deo 30/135
- 31. Competitive Tactics Timing Tactics: First mover (pioneer) Reputation as industry leader High profits Sets standards for subsequent products in the industry Late mover Able to imitate technological advances of others Keeps R&D costs down Keeps risks down Strategies for Competitive Advantage – Rajiv B Deo 31/135
- 32. Competitive Tactics Market Location Tactics: Offensive Tactics Frontal assault Flanking maneuver Bypass attack Encirclement Guerrilla warfare Strategies for Competitive Advantage – Rajiv B Deo 32/135
- 33. Competitive Tactics Market Location Tactics: Defensive Tactics Raise structural barriers Increase expected retaliation Lower the inducement for attack Strategies for Competitive Advantage – Rajiv B Deo 33/135
- 34. Cooperative Strategies Cooperative Strategies: Collusion Active cooperation of firms to reduce output and raise prices Explicit Tacit Strategies for Competitive Advantage – Rajiv B Deo 34/135
- 35. Cooperative Strategies Cooperative Strategies: Strategic Alliance: Partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial. Strategies for Competitive Advantage – Rajiv B Deo 35/135
- 36. Cooperative Strategies Obtain technology Access to markets Strategic Alliance Reduce financial risk Reduce political risk Achieve competitive advantage Strategies for Competitive Advantage – Rajiv B Deo 36/135
- 37. Continuum of StrategicAlliances Mutual Service Joint Venture Value-Chain Consortia Licensing Arrangement Partnership Weak and Distant Strong and Close Source: Suggested by R. M. Kanter, “Collaborative Advantage: The Art of Alliances,” Harvard Business Review (July-August 1994), pp. 96–108. Strategies for Competitive Advantage – Rajiv B Deo 37/135
- 38. Introduction • Competitive advantage – a company provides a product or service in a way that customers value more than what the competition is able to do. • Application architect - information technology professional who can design creative technology-based business solutions. Strategies for Competitive Advantage – Rajiv B Deo
- 39. Developing A StrategyFor The Internet Age • Business process - a standardized set of activities that The Value Chain accomplishes a specific task, such as processing a customer’s order. • Value chain - views the organization as a chain – or series – of processes, each of which adds value to the product or service for the customer. Strategies for Competitive Advantage – Rajiv B Deo
- 40. The Value Chainmodel Strategies for Competitive Advantage – Rajiv B Deo
- 41. Using Value Chainmodel to develop a Strategy •Plan for a better way of meeting customer demands. •Identifying processes that add value. •Identifying processes that reduce value. Strategies for Competitive Advantage – Rajiv B Deo
- 42. Developing A StrategyFor The Internet Age The Value Chain Strategies for Competitive Advantage – Rajiv B Deo
- 43. Developing A StrategyFor The Internet Age The Value Chain Strategies for Competitive Advantage – Rajiv B Deo
- 44. Developing A StrategyFor The Internet Age • Just-in-time - an approach that produces or delivers a product or service just at Looking Beyond The Four Walls Of The Company the time the customer wants it. • Supply chain - consists of the paths reaching out to all of a company’s suppliers of parts and services. • Collaborative planning, forecasting, and replenishment (CPFR) - a concept that encourages and facilitates collaborative processes between members of a supply chain. Strategies for Competitive Advantage – Rajiv B Deo
- 45. Summing It Up Importantconsiderations you should keep in mind as you work to bring an IT competitive advantage to your organization include: Be efficient and effective. Competition is all around you. Push the state-of-the-art. IT competitive advantages are only temporary. Strategies for Competitive Advantage – Rajiv B Deo