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Business strategy for competitive advantage

Criticisms of Generic Strategies:
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Can be dangerous to specialise - too inflexible? Could leave gaps in product offerings, for rivals to fill,
could ignore changing customer needs
Can facilitate imitation by rivals (compared to a more complex, mixed strategy – long-term competitive
advantage tends to be based on complex balance of differentiation and cost focus, which is more
difficult for rivals to duplicate)
Can weaken innovation capabilities – focus on one approach, difficult to adapt?
Can lead to a psychological reliance on ‘successful formula’
Can it be OK to be stuck in the middle?

What Is competitive advantage?
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When two or more firms compete within the same market and one firm earns (or has the potential to
earn) a persistently higher rate of profit (Gant)
...
, 2017,p
...

Overall, we can conclude that competitive advantage is creating value (e
...

In 2014 crude oil price dropped from $108 to $58 per barrel, thus giving conventional automobile
manufacturers a competitive advantage over electric car producers like Tesla
The greater the magnitude of external change, the greater the propensity for external change to
generate competitive advantage
...


Blue Ocean Strategy:

Internal Sources of change
In most cases, this occurs as a result of innovation
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This can be in form of new products or new processes using latest technologies and

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Strategic innovation which involves creating value for customers from novel products, experiences or
modes of product delivery
...


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Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating
market spaces that are not currently being served
...


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companies A and B perform well on cost, service, reliability and quality, but less well on testing
...

They are poorly differentiated and occupy a space in the market where profits may be hard to get
because of excessive rivalry between the two

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Company C, has a radically different value curve, characteristic of a ‘value innovator’

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Value innovation is the creation of new market space by excelling on established critical success factors
on which competitors are performing badly
...


Four key cost drivers that can help deliver cost leadership:
Lower input costs:
For example lower cost of labour and raw materials
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e
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Primark produces in India where labour cost is low
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Experience:
The cumulative experience gained by an organisation with each unit of output leads to reduction in unit
costs
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g production of electronics and cars

Economies of scale and the experience curve

Product/process design:
Engineers can decide to build a product from cheap standard components
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g Argos value range products

Porters requirement for cost based strategies:
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A business that will pursue a low cost strategy needs to have the lowest cost because having the second
lowest cost implies a competitive disadvantage
Low cost should not be pursued in total disregard for quality
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g low cost Chinese cars should meet
minimum required standards
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Organisations need to identify key areas of differentiation in order to make a difference in their
businesses

Differentiation strategies require clarity about two key factors
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The strategic customer on whose needs the differentiation is based
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g for a news paper business, the
strategic customers could be readers

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Key competitors – who are the rivals and who may become a rival
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g Benetton did not wake up on
time to key rivals like M&S on colourful pullovers
...


Two types of focus strategy:

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Cost-focus strategy (e
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Ryan Air targeting price-conscious holiday travellers)
Differentiation focus strategy (e
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Evans targeting large size clothing for only women at higher prices)
...


TANGIBLE DIFFERENTIATION
observable product/service characteristics:
• size, colour, materials, etc
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g
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g
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g
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e
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e
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It has two distinct features:
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It is focused on the prices to customers rather than the costs to organisations
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Strategy clock – Differentiation:
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Strategies in this zone seeks to provide products that offer perceived benefits that differ from
those offered by competitors
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― differentiation with price premium (1 o’clock) – used to increase profit margins
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Strategy clock – low cost:
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Low price combined with low perceived value
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Needs a cost advantage (such as economies of scale) to be sustainable, e
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Asda/Walmart in
grocery retailing
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Strategy clock – Hybrid:
• Seeks to simultaneously achieve higher benefits and lower prices relative to those of
competitors
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Why are Hybrid strategies used?

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to enter markets and build position quickly

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as an aggressive attempt to win market share

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to build volume sales and gain from mass production
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Strategy Clock – non-competitive strategies:
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Increased prices with low perceived product or service benefits
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In competitive markets, such strategies will be doomed to failure
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Lock-in can be achieved in two main ways:
Controlling complementary products or services
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Creating a proprietary industry standard
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For a business to switch to another OS, it will require
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Retaining staff and translating files onto the new system
Training staff which will mean incurring large costs
Re orientating customers which may eventually lead to loss of some customers
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Drivers of costs of advantage:

Economies of scale
exist wherever proportionate increases in the amounts of inputs employed in a production process result in
lower unit costs
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Indivisibilities: Many resources and activities are lumpy and unavailable in small sizes

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Specialisation: Most production processes require breaking tasks which are performed by specialised
workers
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Repetition develops both individual skills and organisational routines

Production Techniques:
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Improved production techniques are an important source of competitive advantage
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Capacity Utilisation:
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Capacity utilisation measures the extent to which a company is utilising its production potential
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There are several
sources of lower input costs
Locational differences in input prices: The prices of inputs and wage rate vary between locations
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Bargaining power: Negotiation abilities varies across firms which is a key determinant for input costs
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Residual Efficiency:

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These are excess costs that requires conscious efforts to minimise or totally eliminate in order to remain
competitive
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Week 3

Competitive advantage:
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When two or more firms compete within the same market and one firm earns (or has the potential to
earn) a persistently higher rate of profit (Grant, 2016)

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A state whereby a business unit’s successful strategies cannot be easily duplicated by its competitors
(Parnell, 2014)

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When an organisation is implementing a value creating strategy that is not being implemented by
competitors (Henry, 2018)

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How a company, business unit or organisation creates value for its users both greater than the costs of
supplying them and superior to that of rivals (Johnson et al
...
210)

Treacy and wiersema value disciplines:
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While Porter argues that a person should pursue one strategy to avoid being ‘stuck in the middle, Treacy
and Wiersman argues that a person can pursue three different kinds of strategy but major on one
...
e providing reasonable quality for the benefit of
consumers

Examples are Skoda, Toyota

Product Leadership
This strategy aims to provide:
An outstanding product that distinguishes itself from other products
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Customer Intimacy
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This strategy aims to provide:

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Maximum service by providing everything your customer needs

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Customers are willing to pay

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Both service and quality are outstanding because customers are willing to pay
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These include:
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Porter’s Generic Strategies

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Faulkner and Bowman’s Clock

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Treacy and Wiersema’s value discipline

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Blue Ocean Strategies

Other strategies include:
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Ansoff’s Matrix

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Mergers & Acquisition

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Takeovers etc

Describing strategy:

STRATEGY AS POSITIONING
Where are we competing?

Corporate
Strategy

Product market scope
Geographical scope
Vertical scope

Business
Strategy

How are we competing?
What is the basis of
our competitive advantage

STRATEGY AS
DIRECTION
What do we want to become?
Vision statement
What do we want to achieve?
Mission statement
Performance goals
How will we get there?
Guidelines for development
Priorities for capital expenditure, R&D
Growth modes: organic growth, M&A, alliances

Strategy model:

Strategic position:
The strategic position is concerned with the impact of strategy on the external environment, the organisation’s
strategic capability (resources and competences), the organisation’s goals and the organisation’s culture
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Fundamental questions for Strategic choice
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How should individual business units compete?
Which businesses to include in the portfolio?
Where should the organisation compete

internationally?
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Is the organisation innovating appropriately?
Should the organisation buy other companies, form alliances or go it alone?

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Strategy in action is about how strategies are formed and how they are implemented
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What is the value of creation?
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Value creation refers to the performance of actions that increase the worth of goods, services or even
a business
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Different industries will have different key success factors (e
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in low-cost airlines the KSFs will be
punctuality and value for money whereas in full-service airlines it is all about quality of service)
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5 forces weak
Growth – need supply/little competition/ barriers low
Shake-out – increased rivalry/weaker new entrants die
Maturity – customers more powerful and switch
Decline – low growth

Week 7
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Key success factors: factors within an industry that influence a firms ability to outperform its
rivals

Resource based view:

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Appraise resources and capabilities
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Which are most important
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Relative strength compared with competitors

Why the prevalence of the Resource Based View ?
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Resources and capabilities are the primary sources of profitability

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Volatility in the Industry Life Cycle

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Schumpeter – creative disruption in industry

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Things change in the external environment, it’s critical that your business has the ‘inner strength’ to
adapt and/or seek new solutions or industries
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Helps identify potential sources of competition advantage to address the industry key success
factors
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Looking for ways to enhance value or
decrease cost in value activities (e
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outsourcing)

Corporate behaviour:
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Pattern of behaviour
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‘in organisations there are deep-set beliefs about the way work should be organised, the way
authority should be exercised, people rewarded, people controlled
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Schein, 1985
‘the pattern of basic assumptions that a group has invented, discovered or developed, to cope
with its problems of external adaptation or internal integration …
… that have worked well and are taught to new members as the way to perceive, think, feel,
and behave’
Company practices & behaviours - procedures, reward systems, office layout, public
documents, myths & legends
Explicit statement of values & beliefs - statements and speeches by senior execs, also more
personal expressions of values
Basic assumptions & beliefs - operate unconsciously, ‘taken-for-granted’ view of the
organisation
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MD McKinsey & Company (1950 to 1967)

Types of Organisational culture:
Role culture
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Highly specialised
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Typical of bureaucracy

Power culture
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Based on central source of power - key individual(s)
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Found in
smaller organisations, or small units in larger companies

Task culture
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Achievement-oriented, values teamwork, adaptability & co-operation

Person culture
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Values the people in an organisation, rather than focused on production of goods/services
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g
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delivery, order
processing, warehousing
MARKETING & SALES: advertising, promotion, sales, channel selection & relations, pricing
SERVICE: installation, repair, supplying parts

Support activities:
… support the efficiency & effectiveness of primary activities
PROCUREMENT: purchasing inputs e
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raw materials, office supplies, even buildings
TECHNOLOGY DEVELOPMENT: the ‘know-how’ of the firm incl
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g

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