Presentation on theme: "Chapter 4.The nature and sources of competitive advantage"— Presentation transcript:
1 Chapter 4.The nature and sources of competitive advantage Foundations of StrategyChapter 4.The nature and sources of competitive advantageYetunde Oyinwola, Eric Carstens, Alex Kollaritsch, Laura Padilla, Taylor Mullings
2 Objectives Understand the term “Competitive Advantage” Predict potential for competition to wear away competitive advantageRecognize how resource conditions create imperfections in the competitive process that offer opportunities for competitive advantageDistinguish the two primary types: cost advantage and differentiation advantageUse value chain framework to analyse potential sources of cost and differentiation advantage to recommend strategies for enhancing competitivenessAppreciate the pitfalls of being ‘stuck in the middle’ and the challenge of achieving effective differentiation and low cost
3 Opening Case: Singapore Airlines ‘World’s Best Airline’ by Conde Nast TravelerRanked 27th in Fortune Magazine’s ‘World’s Most Admired Companies’ 2010Based on two main strategies: its planes and its peoplePlanes‘Young’ fleetsFirst airline to launch Airbus A380Cost AdvantagePeopleAttracts first class university graduates110 hours of retraining for every employee annuallyFocus on customer serviceDifferentiation AdvantageMaintaining both is difficult!!
4 Emergence of Competitive Advantage How does competitive advantage emerge?External sources of changeChanging customer demandChanging PricesTechnological changeInternal sources of changeResource heterogeneity among firms means differential impactSome firms faster and more effective in exploiting changeSome firms have greater creative and innovative capability
5 C.A From Responsiveness to Change Involves one of two key capabilities:The ability to anticipate changes in the external environmentSpeedMarkets have become turbulent and unpredictable, so speed of response through greater flexibility has become increasingly importantTwo requirements for quick response:InformationShort cycle times
6 Competitive Advantage from Innovation Innovation generates changes that create competitive advantage.Overturns other firms competitive advantagesStrategic innovation: a new approach to doing business including new business modelsNovel productsExperiencesModes of product delivery
7 Novel Organisational Designs Southwest AirlinesPoint-to-pointNo frills airlines serviceSingle type planeFlexible non-union employees.AppleReinvention of record musiciTunesNew product launch
8 Pioneering Dimensions of Strategy New industriesXerox: plain-paper copier industryNew customer segmentsVCRs and video cassetteXboxNew sources of competitive advantageCirque du soleilDell
9 Sustaining Competitive Advantage Imitation is the most direct form of competition; for long term sustainability barriers to imitation must exist.Sources of isolating mechanismsIdentificationIncentiveDiagnosisResource acquisition
10 Identification: Obscuring Superior Performance According to George Stalk of BCG, “one way to throw competitors off balance is to mask high performance so rivals fail to see your success until its too late”.Dominate a niche marketRemain private: avoid disclosing financial performance
11 PepsiCo “Power of One” Introduced in September, 2011 Full coordination across the food and beverage operating systems.Unlock opportunities and create value across the business.Long-term strategy to strengthen and extend global leadership position in snacks and leverage the power of PepsiCo combined food and beverage businesses.Help extend competitive advantage around the world
12 Deterrence and Pre-emption If a firm can persuade rivals that imitation will be unprofitable, it may be able to avoid competitive challenges.• Proliferation of product varieties by a market leader• Large investments in production capacity ahead of growth of demand• Patent proliferation
13 Diagnosing Competitive Advantage If a firm is to imitate the competitive advantage of another, it must understand the basis of its rival’s success.• Causal Ambiguity: The more multidimensional a firm’s competitive advantage, the more difficult it is to diagnose the determinants for success• Uncertain Imitability: Where there is ambiguity, imitation leads to uncertain success
14 Acquiring Resources and Capabilities •The imitator can mount a competitive challenge only if they can assemble the required resources•Imitation is fast when the competitive advantage does not require complex, firm-specific resources•First-mover advantage: Where the initial occupant of a strategic position gains access to resources and capabilities that a follower cannot match
15 Ex: Urban Outfitters•Self description: “Targeting well-educated, urban-minded, young adults aged through its unique merchandise mix and compelling store environment.”•Each store has a unique design•Store layouts are changed every two weeks to provide a new shopping experience for returning customers•Emphasizes community with its customers through blogs and word-of-mouth transmissions for advertising•Attempts to imitate would likely fail because of the difficulty of replicating every aspect of the strategy then integrating them in the right manner.
16 Is SIA’s Competitive Advantage Sustainable? • Other airlines could invest in new aircraft, staff training, and ticketing and check-in technologies• Culture of cost-effective services is ingrained in the company• They want to be the most profitable rather than the largest airline• Cabin crew members work together for significant periods of time• All of these things put together with the new fleet makes it tough to imitate
18 Strategy and Cost Advantage Cost DriversEconomies of ScaleEconomies of LearningProduction TechniquesProduct DesignInput CostsCapacity UtilizationResidual Efficiency
19 Value Chain Analysis Break down the firm into separate activities. Establish the relative importance of different activities in the total cost of the product.Compare costs by activity.Identify cost drivers.Identify linkages.Identify opportunities for reducing costs.
20 Strategy and Differentiation Advantage Differentiation- capturing a price premium in the market that exceeds the cost of providing the differentiation.
21 Stages of Value Chain Analysis for Differentiation Advantage Construct a value chain for the firm and the customerIdentify the drivers of uniqueness in each activityExamine each activity in the firms value chainIdentify variables that contribute to uniqueness
22 Stages of Value Chain Analysis... 3. Selecting the most promising differentiation variables for the firma. Greatest potential for differentiationb. Identify linkages between activitiesc. Sustainability
23 Stages of Value Chain Analysis... 4. Locate linkages between the value chain of the firm and that of the buyera. Create value for the consumerb. Reorganize product distributioni. Proctor and Gamble
24 Singapore Airlines’ Value Chain Analysis Porter’s Generic CategoryExampleDifferentiation InitiativesOperationsTicketing, Flight SchedulingEmploys more cabin crew than other airlines = more personal attentionOutbound LogisticsFlight connections, partnershipsIntroduced non-stop business class only service between Singapore and NYServicePre and post flight serviceLoyalty marketing
25 SummaryMaking money in business requires establishing and sustaining competitive advantageRecognise how resource conditions create imperfection in the competitive processDistinguish two types of competitive advantage: cost advantage & differentiationUse value chain framework to analyse potential sources of cost and differentiation advantage