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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
Fundamentals of Competitive Strategy Superior Long-Run Performance
Attractive Industry Structure Competitive Advantage
Superior Competitive Position
Operational Effectiveness
Do different things than rivals Do the same things as rivals but better
The central goal
High returns for the average participant
Outperform the average industry participant
Strategies for Competitive Advantage – Rajiv B Deo
Hierarchies of Strategy
Corporate Strategy: 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
Ref.: Hofer and Schendel, 1978
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Common pitfalls
Strategists should avoid –
Managing by Extrapolation Managing by Crisis Managing by Subjectivism Managing by Hope
Strategies for Competitive Advantage – Rajiv B Deo
Strength of Competition -Five Forces Model
Strategies for Competitive Advantage – Rajiv B Deo
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of New
Entrants
Bargaining Power of Suppliers
Threat of Substitute Products
Can frighten off New Entrants due to the need to:
Enter at Large Scale to be Cost Competitive
*
Take time to move down the “Learning Curve”
*
Well positioned relative to Substitutes in order to:
Make investments to create substitutes * Can buy patents developed by potential substitutes
*
Lower prices to maintain value position *
Rivalry Among Competing Firms in
Industry
Can mitigate Buyer Power by:
Bargaining Power of Buyers
Driving prices far below competitors which may cause exit and shift power back to firm
Can mitigate Supplier Power by:
Low cost position makes them better able to absorb cost increases
*
More likely to make very large purchases which reduces chance of supplier power
*
Ref.: Porter, 1985
Strategies for Competitive Advantage – Rajiv B Deo
Applying 5 forces model to Coke & Pepsi
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Michael Porter’s Generic Strategies
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Risks of Generic Competitive Strategies Risks of Cost Leadership Cost leadership is not sustained: • Competitors imitate. • Technology changes. • Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments.
Risks of Differentiation Differentiation is not sustained: • Competitors imitate. • Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments.
Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: • Structure erodes. • Demand disappears. Broadly targeted competitors overwhelm the segment: • The segment’s differences from other segments narrow. • The advantages of a broad line increase. New focusers sub-segment the industry.
Strategies for Competitive Advantage – Rajiv B Deo
Strategy An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.
Business Level Strategy
Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets.
Core Competency
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Business Level Strategy
Strategies for Competitive Advantage – Rajiv B Deo
Value Chain Analysis
Support Activities
Primary Activities
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inbo
und
L
ogis
tics
Ope
ratio
ns
Out
boun
d L
ogis
tics
Mar
ketin
g
& S
ales
Serv
ice
Ref.: Porter, 1985
Strategies for Competitive Advantage – Rajiv B Deo
Value Creating Activities common to a Cost Leadership Business
Primary Activities
Supp
ort
Act
iviti
es
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Timing of Asset Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Ref.: Porter, 1985
Strategies for Competitive Advantage – Rajiv B Deo
Three Key Questions
2 How can a group of linked value activities be regrouped or reordered?
3 How might coalitions with other firms lower or eliminate costs?
1 How can an activity be performed differently or even eliminated?
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TOWS Matrix
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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.
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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
Michael Porter’s Generic Competitive Strategies
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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
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Porter’s Competitive Strategies
Competitive Advantage: Determined by Competitive Scope
Breadth of the company’s target market
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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
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Porter’s Competitive Strategies
Differentiation: Broad mass market
Unique product or service
Charge premiums
Lower customer sensitivity to price
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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
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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
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Porter’s Competitive Strategies
Stuck in the middle: No competitive advantage
Below-average performance
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Competitive Strategy
Industry Structure: Fragmented Industry
Many small and medium-sized local companies compete for small
shares of total market
Focus strategies predominate
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Competitive Strategy
Industry Structure: Consolidated industry
Mature industry dominated by a few large companies
Cost Leadership or Differentiation predominate
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Dimensions of Quality
Quality
• Performance • Features • Reliability • Conformance • Durability • Serviceability • Aesthetics • Perceived Quality
Dimensions
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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
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Competitive Strategy
Strategic rollup: Differ from Conventional M&A’s
Large number of firms
Owner-operated firms
Goal to reinvent entire industry
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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
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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
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Competitive Tactics
Market Location Tactics: Offensive Tactics
Frontal assault
Flanking maneuver
Bypass attack
Encirclement
Guerrilla warfare
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Competitive Tactics
Market Location Tactics: Defensive Tactics
Raise structural barriers
Increase expected retaliation
Lower the inducement for attack
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Cooperative Strategies
Cooperative Strategies: Collusion
Active cooperation of firms to reduce output and raise prices
Explicit
Tacit
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Cooperative Strategies
Cooperative Strategies: Strategic Alliance:
Partnership of two or more corporations or business units
to achieve strategically significant objectives that are
mutually beneficial.
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Cooperative Strategies
Strategic Alliance
Access to markets
Achieve competitive advantage
Obtain technology
Reduce financial risk
Reduce political risk
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Continuum of Strategic Alliances
Mutual Service Consortia
Joint Venture Licensing Arrangement
Weak and Distant
Value-Chain Partnership
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
• 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.
Introduction
Strategies for Competitive Advantage – Rajiv B Deo
Developing A Strategy For The Internet Age The Value Chain • Business process - a standardized set of activities that
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
The Value Chain model
Strategies for Competitive Advantage – Rajiv B Deo
Using Value Chain model 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
Developing A Strategy For The Internet Age The Value Chain
Strategies for Competitive Advantage – Rajiv B Deo
Developing A Strategy For The Internet Age The Value Chain
Strategies for Competitive Advantage – Rajiv B Deo
Developing A Strategy For The Internet Age Looking Beyond The Four Walls Of The Company • Just-in-time - an approach that produces or delivers a product or service just at
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
Summing It Up
Important considerations 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.