Slide of strategic management w6

Learning Objectives• Identify the circumstances in which a company can create a competitive advantage and understand the contribution of responsiveness and innovation • Describe the vari

Learning Objectives

• Identify the circumstances in which a company can create a competitive advantage and understand the contribution of responsiveness and innovation

• Describe the variation of competitive advantage in different market settings

• Recognise the different stages of industry

development and understand the factors that drive the process of industry evolution

Learning Objectives

• Distinguish between slow-, standard-, and fast

cycle market characteristics that promote

temporal responses to competitive attacks based

on unique capabilities and competencies

• Analyse various levels of strategy and describe how strategic advantage can be sustained at

each level

• Identify and explain how different kinds of

strategies create competitive advantage

The Emergence of Competitive

Advantage

• To understand how competitive advantage

emerges, we must first understand what is

competitive advantage

• Defining competitive advantage is not easy At a basic level, we can define it as follows:

• Competitive advantage is a characteristic,

feature or opportunity that an organisation

possesses which will make it more attractive than its competitors

The Emergence of Competitive

Advantage

Fig 6.1

Competitive Advantage From

Responsiveness to Change

• External changes create opportunities (and

threats) for organisations

• Responsiveness to change has become

increasingly important as a source of competitive advantage

• The ability to identify and respond to change is a key management capability of entrepreneurship

• Information and flexibility are essential to deal

effectively with environmental change

Competitive Advantage From Innovation

• Innovation is a powerful tool in terms of

• Enhancing organisational competitive advantage and

• Overturning the competitive advantage of

competitors

• Innovation should be viewed in a broader context

to include ‘new approaches to doing business

• Management literature suggests several

approaches of formulating innovative strategies

Sustaining Competitive Advantage

Fig 6.2

First-Mover Advantage

• A company’s ability to challenge an incumbent

depends on the extent and the sources of

first-mover advantage in the market

• First-mover refers to the initial occupant of a strategic position or niche gains access to resources and

capabilities that a follower cannot match

Competitive Advantage in Different

Market Settings

Fig 6.3

Efficient Markets

• Efficient markets are characterised by perfect

competition where there are many buyers and sellers,

no product differentiation, no barriers to entry or exit, and free flow of information

• An efficient market is one in which prices reflect all available information

• In other words, competitive advantage is absent

Competitive Advantage in Trading

Markets

• For competitive advantage to emerge, there must

be some imperfections that exist in the trading

markets

• Four specific sources of imperfections include:

• Superior access to information

• Transaction costs

• Systemic behavioural trends

• Overshooting

Competitive Advantage in Production

Markets

• Production activities require complex

combinations of resources and capabilities, and these resources and capabilities are highly

differentiated

• The result is that each producer possesses a

unique combination of resources and capabilities

• Differences in resources of companies have an important impact on the process by which

competitive advantage is eroded

Industry Conditions and Competitive

Advantage

• The opportunities for establishing competitive

advantage in production markets depend on the number and diversity of the sources of change in the business environment

• The extent to which competitive advantage is

eroded through imitation depends on the

characteristics of the industry including:

• Information complexity;

• Opportunities for deterrence and pre-emption

• Difficulties of resource acquisition

Industry Evolution and Strategic

Advantage

• Everything is in a state of constant change — the

business environment especially

• The greatest challenge of management is to ensure that adaptation of the enterprise matches the changes

occurring within the business environment, while

upholding the company’s strategic advantage

• Change in the industry environment is driven by a number

of forces - technology, consumer preferences, economic growth and a host of other influences

Industry Life Cycle

• While products have life cycles, so too the industries that produce them.

• The industry life cycle is the supply-side equivalent of the product life cycle and is likely to be of longer duration than that of a single product

• The life cycle comprises four phases:

• introduction (or emergence)

• growth

• maturity

• decline

Industry Life Cycle

Fig 6.5

Driving Forces of Industry Life Cycle

• Two major forces drive industry life cycle

Industry life cycle and cycle markets

• It is useful to think of industry life cycle in terms of cycle markets Three types exist:

• Slow cycle markets

• Standard cycle markets

• Fast cycle markets

Competitive advantage at the introduction

and growth stages

• In emerging industries at the introduction and growth

stages, nurturing and exploiting innovation is the

fundamental source of competitive advantage

• A common problem in emerging industries is the speed of change and the difficulty of forecasting change

• Strategies aimed at the exploitation of innovation, choices

of whether to be a leader or a follower, and the

management of risk must take careful account of

organisational characteristics

Strategic Innovation

• At the early growth stage of a company, the

pressure of competition and the opportunities for technology-based advantage create impetus for innovation in competitive strategy

• Strategic innovation refers to the development of new strategies of offering new products or

services that will generate significant new value for customers and have the potential to change market demand

Competitive Advantage in Mature

• There is shift in the emphasis from

differentiation to cost based approaches

• There is often a downward pressure on

profitability due to overcapacity and international competition

Strategies for Declining Industries

• Key features of declining industries include:

― Excess capacity

― Lack of technical change (reflected in lack of new

product introduction and stability of process

technology)

― A declining number of competitors, but some entry

as new companies acquire the assets of exiting

Strategies for Declining Industries

to declining demand is the key to stability

and profitability during the decline phase

pattern of decline can obscure the

existence of pockets of demand that are

not only comparatively resilient, but also

price inelastic

Competitive advantage at various levels of

a company

Fig 6.7

Competitive advantage at the network

level

to the establishment of networks

strategy used by several organisations to

form multiple partnerships based on shared objectives

organisational development

Competitive advantage from a global perspective

been removed during last couple of

decades

globalisation than others

dynamics of global competition is important

to gain competitive advantage

Developing global market entry methods

• An important part of a global-level strategy is the method that the company will use to enter the

• Imperfection in the competitive process is required for

competitive advantage to be possible

• The relationship between strategies and competitive advantage needs to be considered at different levels

• Competitive advantage can also considered further in terms of industry life cycle and levels of strategies

• Competitive advantage is the base on which companies can

compete in the market