Presentation on theme: "Chapter 6. Competitive strategy: The analysis of strategic position"— Presentation transcript:
1 Chapter 6. Competitive strategy: The analysis of strategic position
2 Outline The market positioning school The nature and source of cost advantageThe nature and source of differentiation advantageThe concept of competitive advantageThree major routes to competitive advantageMarket segmentation analysisValue creation and value analysisStrategic group analysisIndustry transformationBusiness models
3 The Market Positioning School Competitive advantage is based on the positioning of the firm in its markets versus competitors
4 The Sources of Cost Advantage Economies of ScaleIndivisibilities and the spreading of fixed costs (costs per unit diminish after the initial investment until a new block of investment is needed)The engineering characteristics of production (eg. the cube square rule)The Experience CurveUnit cost reductions arising from experience of productionBenefits accrue to first movers and those who facilitate learningVertical IntegrationEnhances buying power
7 The Sources of Differentiation Advantage Risks of investment in differentiationProduct quality may fail to improveA competitor may do it betterCustomers may fail to respond to the new propositionCosts may outweigh the gainsReputation is easily lost
10 Competitive Advantage The delivering of superior value to customers and, in doing so, earning an above average return for the company and its stakeholders.Requires a firm to be sustainably different from its competitors in a way that customers are prepared to purchase at a sufficiently high price.
12 Sustainable Competitive Advantage Power – maintaining resource commitments relative to competitorsCatching-up – ease of copying & nullifying the advantageKeeping ahead – productivity of search for new advantagesThe changing game – rate of change of customer requirementsThe virtuous circle –mutual reinforcement of existing advantages.
22 Value Creation and Value Analysis KeyB – perceived gross benefit, P – price paid, C – cost price, RM – cost of raw materials
23 Du Pont’s calculation of its cost advantage capital charge = investment requirements per lb multiplied by hurdle rate (say 15%)learning effect =79% learning curve and double the experiencescale effect = 85% doubling effect and twice the scalecapacity effect = differences in capacity utilisationSource: Du Pont in Titanium Dioxide (A), Harvard Business School case (1984) exhibits 2 and 3.
25 Strategic Group Analysis Strategic groups – supply side cost and product similarities leading to similar strategiesMobility barriers – factors which deter movement of a firm from one strategic position to another; a limitation on replicability or imitation
26 Mobility Barriers in the European Food Processing Industry
27 Strategic Space Analysis of the European Food Processing Industry
32 Achieving a Sustainable and Defensible Strategic Position The Five Forces model indicates the attractiveness of the industry.Sustainability involves protection of cash flows from responses of competitors and new entrants.Isolating mechanisms limit the extent to which competitive advantage can be neutralized or duplicated.Legal restrictionsSuperior access to inputs or to customersIntangible barriersEarly mover advantages promote scale economies & market share creating entry barriers for latecomers
33 Concluding RemarksEstablishing and defending strategic position in the marketplace requires an understanding of:Economic drivers of the firmCost positionApproach to differentiationAbility to exploit economies of scale and scopeFirms can analyse their position in terms of:Strategic market segments (demand side)Strategic groups (supply side)These underpin pricing, value and the sustainability of value over time.A business model provides the means to turn competitive strategy into sustained cash flow.