ANALYZING THE COMPETITIVE ADVANTAGE

Transcription

1 INTRODUCTION ANALYZING THE COMPETITIVE ADVANTAGE 2 fundamental strategic choices : o what business strategy? o what business model should a company, business unit or other organisation adopt in its market? *Strategic business unit (SBU) : supplying goods or services for a distinct domain of activity GENERIC COMPETITIVE STRATEGIES *Competitive strategy : how a company, business unit or organisation achieves competitive advantage in its domain of activity *Competitive advantage : how a company, business unit or organisation creates value for its users which is both greater than the costs of supplying them and superior to that of rivals >> 2 important features : be competitive (customers see sufficient value that they are prepared to pay more than the cost of supply) and have an advantage (create greater value than competitors) Cost-leadership strategy *Involves becoming the lowest-cost organisation in a domain of activity >> 4 key cost drivers : x input costs : example : labour or raw materials x economies of scale : how increasing scale usually reduces the average costs of operation over a particular time period, taking also into account *fixed costs : costs necessary for a level of output / can reduce input costs / it exists a minimum efficient scale Attention! Diseconomies of scale are possible

2 x experience source of cost efficiency : allow the company to reduce its unit costs by the time o 2 kinds of efficiencies : + learning curve effect : do things more cheaply over time + saving costs through more efficient designs or equipment o 3 implications for business strategy : + time into a market : early vs later => difference of experience and cost advantage + market share : greater volumes allow a company to gain experience + experience x product / process design : notion of *whole-life cost : the costs to the customer not just of purchase but of subsequent use and maintenance Differentiation strategy *Involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium >> 3 primary differentiation drivers : o product and service attributes : providing better or unique features than comparable products or services / product innovation or introduction can be a basis of differentiation = identify clearly the customer on whose needs the differentiation is based o customer relationships : relationship between the organisation providing the product and the customer / notion of perceived value which can increase through customer services and responsiveness / customization for specific customer needs / marketing and reputation = another basis of differentiation o complements : linkages to other products or services : example : use products in tandem Important condition for a successful differentiation strategy : additional investments and additional cost in the price < gains in price Focus strategy (3 rd generic strategy according to Porter) *Targets a narrow segment or domain of activity and tailors its products or services to the needs of that specific segment to the exclusion of others >> 2 variants x cost focus strategy x differentiation focus strategy = Achieving the consumer by serving its target segments better than others >> Weak spots o cost focusers identify broader ost-based strategies which are failing because of the added costs of trying to satisfy a wide range of needs o differentiation focuser look for specific needs that broader differentiators don t serve so well >> 3 key factors for successful focus strategy x distinct segment needs x distinct segment value chain : make distinctive value chains expensive to copycat by rivals x viable segment economics : make sure segments are a right size to serve economically if demand or supply conditions change Hybrid strategy *Combines different generic strategies Complex and pursued with caution

3 The Strategy Clock >> another way of approaching generic strategies, focus on price o 2 distinctive features x focus on prices to customers rather than costs to the organisation x adjustments can be done by a company o 3 zones of feasible strategies Differentiation : feasible strategies for building on high perceptions of product or service benefits among customers > close to the 12 o clock position : differentiation without price premium = high-perceived benefits and moderate costs > movement toward 1 or 2 o clock : focused differentiation strategy = sustainable higher prices and reduced prices Low-price : different combination of low prices low perceived value > close to 9 o clock position : standard low-price strategy = low prices and reasonable value + economies of scale > close to 7 o clock position : no-frills strategy = low prices and low benefits Hybrid strategy : lower prices than differentiation strategies and higher benefits than lowprice strategies > used to make aggressive bids for increased market share Non-competitive strategies : zone of unfeasible economics = low benefits and high prices More dynamic view on strategy than Porter s generic strategies

4 Michael Porter > 2 fundamental means of achieving competitive advantage o lower costs than its competitors o differentiated products or services from competitors products and services > Competitive strategies : adding a dimension => scope of customers that the business chooses to serve > Requirements for cost-based strategies : x a business s cost structure needs to be lowest cost : it is more secure than being 2 nd or 3 rd x low cost should not be pursued in total disregard for quality : the cost-leader has to be able to meet market standards => 2 options : parity or equivalence with competitors in product or service features valued by customers proximity to competitors in terms of features > 3 rd generic strategy : competitive scope > Hybrid strategy is possible under circumstances : o organizational separation : create separate business units pursuing different generic strategies and with different cost structures / prevent spill-overs o technological or managerial innovation : allow radical improvements in cost and in quality ex : Internet => reduce the costs of bookselling and increase differentiation by greater product range o competitive failures : less competitive pressure or domination of a particular market INTERACTIVE STRATEGIES Business strategy choices interact with those of competitors Interactive price and quality strategies Richard D Aveni : x competitor interactions : movements against the variables of price and perceived quality // Strategy clock x appliance of this analysis with the very fast-moving hypercompetitive environments through moves and counter-moves >> 4 key principles : kill the basis of its own old advantage and success / smaller moves can create a series of temporary advantages / apparent irrationality / signal particular moves 3 key decisions : o threat assessment : is the threat substantial or not? if yes, high-cost organisation needs a sophisticated response o differentiation response : if enough consumers are prepared to pay for them, the highcost organisation can seek out new points of differentiation o cost response : merger with high-cost organisation >> reduce costs and match prices with economies of scale Cooperative strategy >> Question of restraining competition to protect competitors from each other x collaboration may give advantage over other competitors in the same market or potential new entrants x explicit or tacit collaboration x notion of tacit collusion :companies agree on a certain strategy without any explicit communication between them

5 Various kinds of benefits between firms in terms of Michael Porter s five forces o Suppliers : increased purchasing power against suppliers and standardization benefits with suppliers o Buyers : increased supplier power against buyers and standardization benefits with buyers o Rivals : improved competitiveness versus other rivals o Entrants :improved costs or benefits reduces entry threat o Substitute : improved costs or benefits reduces substitution threat Game theory *Encourages an organisation to consider competitors likely moves and the implications of these moves for its own strategy 2 kinds of interaction o how a competitor response to a strategic move o strategic signals >> relevant theory when interdependent competitors (one decision impacts other decisions) 2 guiding principles when interdependence x get in the mind of the competitors = understand competitors game-plan x think forwards and reason backwards = understand the likely responses of competitors to act now 2 methods o war gaming where it is important to get stakeholders t deeply appreciate each other s positions through actually playing out their respective roles o mathematical game theory where there is a clear but limited range of outcomes >> cf. prisoner s dilemma BUSINESS MODEL Explain more complex business interrelationships that generate value and profits for more parties than just a buyer and seller *Business model describes a value proposition for customers and other participants, an arrangement of activities that produces this value, and associated revenue and cost structures Value creation, configuration and capture >> 3 interrelated components x *value creation : a proposition that addresses a specific customer segment s needs and problems and those of other participants x *value configuration : resources and activities that produce this value x *value capture : revenue streams and cost structures that allow the organisation and other stakeholders to gain a share of total value generated

6 2 points to be emphasized o business models often taken for granted in an industry and become institutionalized and part of an industry s recipe o business models in common but different business strategy Business model patterns >> used competitively >> 3 typical patterns x razor and blade : focus on the value capture : built on Gillette s classic model = selling razors at a very low price and the compatible replacement blades at a quite high price x freemium : how a basic version of a service or product is offered for free so as to build a high volume of customers x multi-sided platforms : 2 or more distinct but interdependent groups of customers on one platform and the value of a platform increases for both customer types as more customers use it ( network effect)