To accompany contemprory strategy analysis concepts techiniques application chapter07slides

The Nature and Sources of Competitive Advantage The Nature and Sources of Competitive Advantage • The emergence of competitive advantage • Sustaining competitive advantage • Competitive

The Nature and Sources of Competitive Advantage

The Nature and Sources of Competitive Advantage

• The emergence of competitive advantage

• Sustaining competitive advantage

• Competitive advantage in different market

settings

• Types of competitive advantage: cost and

differentiation

OUTLINE

How does competitive advantage emerge?

External sources of

change e.g.:

•Changing customer demand

•Changing prices

•Technological change

Internal sources

of change

Resource heterogeneity

among firms means

differential impact

Some firms faster and more effective

in exploiting change

Some firms have greater creative and innovative capability

The Emergence of Competitive Advantage

Competitive Advantage from Internally-Generated Change: Strategic Innovation

Competitive Advantage from

Internally-Generated Change: Strategic Innovation

Characteristics of innovatory strategies:

– Associated with new entrants to an industry (e.g Nucor in steel, IKEA in furniture, Enron in energy, Home Depot in DIY, Dell in PCs)

– Reconcile conflicting performance goals (e.g Toyota’s lean production system combines low cost, high quality, and flexibility Richardson Sheffield in kitchen knives is low cost, innovative and customer responsive.)

– Reconfiguring the value chain

e.g. -• Nike’s system for manufacturing and distributing shoes totally

different from traditional shoe manufacturer

• Southwest Airlines simplification of the normal airline value chain

• Zara’s system of design, manufacture, and distribution

REQUIREMENT FOR IMITATION

Identification - Obscure superior performance

- Deterrence signal aggressive

Incentives for imitation intentions to imitators

- Pre-emption exploit all available

investment opportunities

- Rely upon multiple sources of Diagnosis competitive advantage to create

“causal ambiguity”

- Base competitive advantage upon Resource acquisition resources and capabilities that are

immobile and difficult to replicate

ISOLATING MECHANISM

Sustaining Competitive Advantage Against Imitation

Sustaining Competitive Advantage Against Imitation

Competitive Advantage in Different

Market Settings

Competitive Advantage in Different

Market Settings

SOURCE OF IMPERFECTION

OF COMPETITION

COMPETITIVE ADVANTAGE

TRADING

MARKETS

•None (efficient markets)

•Imperfect information availability

•Transactions costs

•Systematic behavioral trends

•Overshooting

None Insider trading Cost minimization Superior diagnosis (e.g chart analysis) Contrarianism

PRODUCTION

MARKETS

•Barriers to imitation

•Barriers to innovation

Identify barriers to imitation (e.g deterrence, preemption, causal ambiguity, resource immobility,barriers to resource replication) & base strategy upon them.

Difficult to influence or exploit.

TRADING

MARKETS

•None (efficient markets)

•Imperfect information availability

•Transactions costs

•Systematic behavioral trends

•Overshooting

None Insider trading Cost minimization Superior diagnosis (e.g chart analysis) Contrarianism

PRODUCTION

MARKETS

•Barriers to imitation

•Barriers to innovation

Identify barriers to imitation (e.g deterrence, preemption, causal ambiguity, resource immobility,barriers to resource replication) & base strategy upon them.

Difficult to influence or exploit.

MARKET

TYPE

SOURCE OF IMPERFECTION

OF COMPETITION

OPPORTUNITY FOR COMPETITIVE ADVANTAGE

Competitive Advantage in Different Industry Settings:

Trading Markets and Production Markets

Competitive Advantage in Different Industry Settings:

Trading Markets and Production Markets

Sources of Competitive Advantage

COST ADVANTAGE

COST ADVANTAGE

DIFFERENTIATION ADVANTAGE

DIFFERENTIATION ADVANTAGE

COMPETITIVE

ADVANTAGE

COMPETITIVE

ADVANTAGE

Sim ilar

pro duc

t

at l ow er c

ost

Price

prem ium

from uniq

ue p rodu ct

Porter’s Generic Strategies

SOURCE OF COMPETITIVE ADVANTAGE

Low cost Differentiation

Industry-wide COST DIFFERENTIATION

COMPETITIVE LEADERSHIP

SCOPE

Single Segment F O C U S

Features of Cost Leadership and

Differentiation Strategies

Features of Cost Leadership and

Differentiation Strategies

Generic strategy Key strategy elements Resource & organizational

requirements

COST Scale-efficient plants Access to capital Process

LEADERSHIP Design for manufacture engineering skills Frequent

Control of overheads & reports Tight cost control R&D Avoidance of Specialization of jobs and marginal customer functions Incentives for accounts quantitative targets.

DIFFERENTIATION Emphasis on branding Marketing Product

and brand advertising, engineering Creativity.

design, service, and Product R&D quality Qualitative measurement

and incentives Strong

cross-functional coordination.