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Strategy: Analysis and Practice Slide 1/1 ©The McGraw-Hill Companies, 2005 Chapter 6. Competitive strategy: The analysis of strategic position.

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Presentation on theme: "Strategy: Analysis and Practice Slide 1/1 ©The McGraw-Hill Companies, 2005 Chapter 6. Competitive strategy: The analysis of strategic position."— Presentation transcript:

1 Strategy: Analysis and Practice Slide 1/1 ©The McGraw-Hill Companies, 2005 Chapter 6. Competitive strategy: The analysis of strategic position

2 Strategy: Analysis and Practice Slide 1/2 ©The McGraw-Hill Companies, 2005 Outline The market positioning school The nature and source of cost advantage The nature and source of differentiation advantage The concept of competitive advantage Three major routes to competitive advantage Market segmentation analysis Value creation and value analysis Strategic group analysis Industry transformation Business models

3 Strategy: Analysis and Practice Slide 1/3 ©The McGraw-Hill Companies, 2005 The Market Positioning School Competitive advantage is based on the positioning of the firm in its markets versus competitors

4 Strategy: Analysis and Practice Slide 1/4 ©The McGraw-Hill Companies, 2005 The Sources of Cost Advantage Economies of Scale Indivisibilities 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 Curve Unit cost reductions arising from experience of production Benefits accrue to first movers and those who facilitate learning Vertical Integration Enhances buying power

5 Strategy: Analysis and Practice Slide 1/5 ©The McGraw-Hill Companies, 2005 Economies of Scale

6 Strategy: Analysis and Practice Slide 1/6 ©The McGraw-Hill Companies, 2005 The learning curve

7 Strategy: Analysis and Practice Slide 1/7 ©The McGraw-Hill Companies, 2005 The Sources of Differentiation Advantage Risks of investment in differentiation – Product quality may fail to improve – A competitor may do it better – Customers may fail to respond to the new proposition – Costs may outweigh the gains – Reputation is easily lost

8 Strategy: Analysis and Practice Slide 1/8 ©The McGraw-Hill Companies, 2005 Cost Leadership & Differentiation Comparison

9 Strategy: Analysis and Practice Slide 1/9 ©The McGraw-Hill Companies, 2005 Identifying Differentiation Potential

10 Strategy: Analysis and Practice Slide 1/10 ©The McGraw-Hill Companies, 2005 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.

11 Strategy: Analysis and Practice Slide 1/11 ©The McGraw-Hill Companies, 2005 Bases of Unfair Advantage

12 Strategy: Analysis and Practice Slide 1/12 ©The McGraw-Hill Companies, 2005 Sustainable Competitive Advantage Power – maintaining resource commitments relative to competitors Catching-up – ease of copying & nullifying the advantage Keeping ahead – productivity of search for new advantages The changing game – rate of change of customer requirements The virtuous circle –mutual reinforcement of existing advantages.

13 Strategy: Analysis and Practice Slide 1/13 ©The McGraw-Hill Companies, 2005 Three Major Routes to Competitive Advantage

14 Strategy: Analysis and Practice Slide 1/14 ©The McGraw-Hill Companies, 2005 Is More than one Generic Strategy Possible?

15 Strategy: Analysis and Practice Slide 1/15 ©The McGraw-Hill Companies, 2005 The Differentiation Strategy

16 Strategy: Analysis and Practice Slide 1/16 ©The McGraw-Hill Companies, 2005 The Cost Leadership Strategy

17 Strategy: Analysis and Practice Slide 1/17 ©The McGraw-Hill Companies, 2005 The Focus Strategy

18 Strategy: Analysis and Practice Slide 1/18 ©The McGraw-Hill Companies, 2005 How Industry Dynamics Shape Competitive Threats

19 Strategy: Analysis and Practice Slide 1/19 ©The McGraw-Hill Companies, 2005 Industry Dynamics and Competitive Advantage

20 Strategy: Analysis and Practice Slide 1/20 ©The McGraw-Hill Companies, 2005 Market Segmentation Analysis A market can be divided into strategic segments on the basis of product and price differentials.

21 Strategy: Analysis and Practice Slide 1/21 ©The McGraw-Hill Companies, 2005 Bases for Segmentation

22 Strategy: Analysis and Practice Slide 1/22 ©The McGraw-Hill Companies, 2005 Value Creation and Value Analysis Key B – perceived gross benefit, P – price paid, C – cost price, RM – cost of raw materials

23 Strategy: Analysis and Practice Slide 1/23 ©The McGraw-Hill Companies, 2005 Du Ponts calculation of its cost advantage Source: Du Pont in Titanium Dioxide (A), Harvard Business School case (1984) exhibits 2 and 3. capital charge = investment requirements per lb multiplied by hurdle rate (say 15%) learning effect =79% learning curve and double the experience scale effect = 85% doubling effect and twice the scale capacity effect = differences in capacity utilisation

24 Strategy: Analysis and Practice Slide 1/24 ©The McGraw-Hill Companies, 2005 Pricing, Advantage and Profits

25 Strategy: Analysis and Practice Slide 1/25 ©The McGraw-Hill Companies, 2005 Strategic Group Analysis Strategic groups – supply side cost and product similarities leading to similar strategies Mobility barriers – factors which deter movement of a firm from one strategic position to another; a limitation on replicability or imitation

26 Strategy: Analysis and Practice Slide 1/26 ©The McGraw-Hill Companies, 2005 Mobility Barriers in the European Food Processing Industry

27 Strategy: Analysis and Practice Slide 1/27 ©The McGraw-Hill Companies, 2005 Strategic Space Analysis of the European Food Processing Industry

28 Strategy: Analysis and Practice Slide 1/28 ©The McGraw-Hill Companies, 2005 Mapping strategic groups over time

29 Strategy: Analysis and Practice Slide 1/29 ©The McGraw-Hill Companies, 2005 Industry Transformation

30 Strategy: Analysis and Practice Slide 1/30 ©The McGraw-Hill Companies, 2005 Business Models

31 Strategy: Analysis and Practice Slide 1/31 ©The McGraw-Hill Companies, 2005 The 2G Business Model

32 Strategy: Analysis and Practice Slide 1/32 ©The McGraw-Hill Companies, 2005 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 restrictions Superior access to inputs or to customers Intangible barriers Early mover advantages promote scale economies & market share creating entry barriers for latecomers

33 Strategy: Analysis and Practice Slide 1/33 ©The McGraw-Hill Companies, 2005 Concluding Remarks Establishing and defending strategic position in the marketplace requires an understanding of: Economic drivers of the firm Cost position Approach to differentiation Ability to exploit economies of scale and scope Firms 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.


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