Foundations of Strategy: Ch. 4. Ashleigh Wright, Blair Barnhill, Danielle Zamora, Lucas Raney, Marshall Lester, Michael Greene

Transcription

1 Foundations of Strategy: Ch. 4 Ashleigh Wright, Blair Barnhill, Danielle Zamora, Lucas Raney, Marshall Lester, Michael Greene

2 Competitive Advantage Two+ firms compete within the same market, one firm possesses a competitive advantage over its rivals when it earns a persistently higher rate of profit May not always be revealed in higher profitability A firm may forego profit in favor of an: Investment in market share Technology Customer loyalty Executive perks External and internal changes can create short-term opportunities for creating an advantage

3 External Sources of Change To create competitive advantage: must have differential effects on companies because of different resources, capabilities, or strategic positioning. Depends on the magnitude of the change and the the extent of the firm's positioning.

4 Chart Industries: GTLS Global brand for the design and manufacture of highly engineered cryogenic equipment used from the beginning to the end in the liquid gas supply chain Organized in three operating segments Energy and chemicals Hydrocarbon and industrial gases Biomedical Products are critical components of nitrogen, oxygen, and noble gases from air and in the processing and liquefaction of natural gas Equipment plays critical role in making liquefied natural gas available around the world as safe, clean, and less costly fuel Lightweight portable oxygen concentrators help respiratory patients breathe easier and live better World's leading single-source supplier of equipment and solutions for LNG

5 Industrial Gas Industry What does Chart and their competitors make possible? Cryosaunas Cryo video TTU Museum Tissue Preservation LIN Ice Cream

6 Competitive Advantage From Responsiveness to Change External changes create more opportunities for profit Two Capabilities involved in responsiveness 1. The ability to anticipate changes in the external environment 2. Speed Ex. Ford s assembly line

7 Competitive Advantage from Innovation Innovation helps create competitive advantage Innovation is more than new technology and products Innovation can be strategic - new approaches to doing business New industries - New products can create new market space New Customer Segments - Ex. Ford s Model T New sources of competitive advantage - Ex. Cirque du Soleil new approach to creating customer value

8 Sustaining Competitive Advantage Imitation is the most direct form of competition; thus, for competitive advantage to be sustained over time, barriers to imitation must exist. Isolating mechanisms - Rumelt s term to describe barriers that protect a firm s profits from being driven down from competition.

9 4 Conditions to successfully imitate another firm Identification Incentive Diagnosis Resource acquisition

10 Sustaining Competitive Advantage Deterrence A firm may avoid a competition by undermining the incentives for competition. If a firm can persuade rivals that imitation would be unprofitable, they may be able to avoid competitive challenges. Pre-emption Proliferation of product varieties Large investments in production capacity Patent proliferation

11 Sustaining Competitive Advantage Causal Ambiguity The more multidimensional a firm's competitive advantage, and the more it is based on complex bundles of organisational capabilities, the more difficult it is to imitate. Uncertain Imitability Where there is ambiguity associated with the causes of a competitor's success, any attempt to imitate that strategy is subject to uncertain success. Which management practices are generic and which are complementary to other management practices.

12 Sustaining Competitive Advantage Acquiring Resources and Capabilities Buy Them Build Them First Mover Advantage- Initial occupant of a strategic position gains access to resources and capabilities that a follower cannot match. Amazon online book store

13 Types of Competitive Advantage Competitive Advantage Similar Product At Lower Cost Price Premium From Unique Product Cost Advantage Differentiation Advantage

14 Competitive advantage for Chart Industries Cost Leadership Liquified Natural Gas for vehicle fueling Differentiation Qdrive Cryogenic Coolers

15 Strategy & Cost Advantage Consists of 7 determinants known as Cost Drivers Utilizing Cost Drivers gives us the ability to examine a firm s costs to competitors in order to find inefficiency and recommend changes Coincides with breaking down a company s value chain to find: importance of each activity with respect to cost cost drivers within each activity how cost drivers influence one another what to outsource within a company and what to keep in-company

16 Cost Drivers Economies of Scale: Technical input-output relationships, specialization, and indivisibilities (production methods which incur high cost for first unit made, essentially making it possible only to be made by larger, more capable firms) Economies of Learning: Increased individual skills and improved organizational routines Production Techniques: Process innovation and reengineering of business processes Product Design: Standardization of designs and components as well as design for manufacture

17 Cost Drivers Input Costs: Location advantages, Ownership of low-cost inputs, non-union labor, and bargaining power. Capacity Utilization: Ratio of fixed to variable costs as well as fast and flexible capacity adjustment Residual Efficiency: organizational slack and X-inefficiency (the ability of a firm to get the maximum output from its inputs)

18 The 6 Stages of Value Chain Analysis, 1-3 Break down the firm into separate activities: Requires understanding of the process chain, utilizing the divisional or departmental structure is generally a good rule of thumb. Establish the importance of each activity relative to cost: Assign specific costs to each process, a lengthy process but nets good results. Without specific assignment, critical activities can still generally be identified. Compare costs by activity: Benchmark your company s costs against competitors Utilized as a measure of efficiency; those which cost more than competitors may not be as efficient

19 The 6 Stages of Value Chain Analysis, 4-6 Identify cost drivers: Determine what your business does particularly well, or what causes its efficiency to suffer utilizing the cost drivers listed above. Identify linkages: Activity costs can be effected by the way other activities in the chain are performed, thus affecting their cost. Identify opportunities for reducing cost: Utilize comparative efficiencies and determine how the areas you experience inefficiency can be altered to reduce cost.

20 Starbucks Coffee Value Chain Inbound Logistics: Starbucks excels in quality due to its refusal to outsource its bean procurement process. Operations: Starbucks maintains a huge network of stores, many of which are company run, thus not franchised. Outbound Logistics: Due to a minute amount of intermediaries, their outbound logistic chain is small. Most of their product is sold in-store, with very little going to other sales locations. Marketing: Starbucks focuses on high quality and good customer service over aggressive marketing, allowing for good relationships

21 Starbucks Coffee Value Chain Service: A major emphasis for Starbucks, aims to create customer loyalty via customer service and high-quality coffee. Infrastructure: The store s level of cohesiveness from store to store is highly consistent, allowing for customer to feel familiar in each store. Human Resource Management: Starbucks utilizes sizeable incentives to workers, and as such, has a low turnover rate. Also has a high-quality training program. Technology Development: Not only utilizes high-end equipment to insure consistent flavor and quality in their coffee products, but also is active on many forms of social media to keep in contact with its customers. Procurement: Done in house, Starbucks sources only high-quality coffee and direct contact is maintained between the suppliers and the company.

22 Strategy and Differentiation Advantage Differentiation Advantage - Occurs when a firm is able to obtain from its differentiation a price premium in the market that exceeds the cost of providing the differentiation. This is not just offering a new product, but enhancing or changing current interactions. Analysing differentiation requires looking at both the firm(supply side) and the customers(the demand side).

23 Stages of Value Chain Analysis for Differentiation Advantage Construct a value chain for the firm and the customer Firms are not limited to one customer Identify the drivers of uniqueness in each activity Examining each activity in the firm s value chain Identifying the variables and actions can achieve uniqueness compared to competition Select the most promising differentiation variables for the firm Find where the firm has greatest potential to differentiate at a lower cost than rivals Understand how the differentiation variables may change other activities Locate linkages between the value chain of the firm and that of the buyer Make sure that the differentiation will add actual value for customers

24 Porter s Generic Strategies Cost Leadership Strategy - Firm winning over customers due to low cost. Differentiation Strategy - When a firm has unique resources and capabilities used to target a niche market where cost is not an issue. Cost leaders are usually not market leaders. Do not want to be stuck in the middle.

25 Summary Find your competitive advantage and keep it up To keep a competitive advantage make barriers Understand what a competitive advantage Cost advantage v.s. differentiation advantage Get out of being stuck in the middle

26 Works Cited What is X-efficiency?. Retrieved from What are indivisibilities?. Retrieved from Bajpai, Prableen. (2016, February 19). Starbucks As An Example Of The Value Chain Model. Retrieved from FIRST-MOVER ADVANTAGE. (n.d.). Retrieved March 09, 2016, from com/management/ex-gov/first-mover-advantage.html#ixzz42laxe6nv