Strategic Management in Action Ch. 6 Andrew Etlinger Ashley Harris Blake Green David Styers Carolynn Schnaubelt

Competitive Advantage Competitive Advantage is a key concept in strategic management “Getting it and keeping it what managing is all about” Competitive Advantage- when an organization does something that others cant or does it better than others do (distinctive capability). Or, an organization has something that other competitors don’t (unique resources)

Understanding Competition Competition- occurs when organizations battle or vie for some desired object or outcome, typically customers, market share, survey rankings, or needed resources What competition might an organization face?

Who are competitors? There are three approaches to defining an organization’s competition Industry Market Strategic Groups

Industry Approach and Market Approach Industry: Identifies competitors who make the same or very similar goods and services Example: video rental industry, automobile industry, credit card industry, or the spa industry Market: Identifies competitors who offer the same customer needs Example: Entertainment Industry

Strategic Groups Approach Identifies not only a firms competitors but shows which are most relevant Based on the Strategic Groups covered in Ch.3 Figure 6.2

Competitive Strategy Organizations attempt to create a sustainable competitive advantage. An organization does this by using its competitive strategy, which is based on the competitive advantages that the firm has developed. Examples: Netflix

Approaches to Defining Competitive Strategy Miles & Snow’s Adaptive Strategies Prospector Strategy Defender Strategy Analyzer Strategy Reactor Strategy Porter’s Generic Competitive Strategies Cost Leadership Strategy Differentiation Strategy Focus Strategy

Miles & Snow’s Adaptive Strategies Prospector Strategy- an organization that continually innovates by finding and exploiting new product and market opportunities. Constantly innovating, developing, and testing new products. Creates uncertainty for the prospector’s competitors because they never know what to expect next. Examples: Fox Broadcasting Network & MTV

Miles & Snow’s Adaptive Strategies (Cont.) Defender Strategy- used to protect current market share by emphasizing existing products and producing only a limited product line. Prevent competitors from stealing ideas from their company. Analyzer Strategy- strategy of analysis and imitation. Analyzers look for and copy the ides of successful prospectors. Ex. Suave Shampoo and skin care

Miles & Snow’s Adaptive Strategies (Cont.) Reactor Strategy- characterized by the lack of a coherent strategic plan or apparent means of competing. Reactors react to environmental changes and make adjustments only when finally forced to do so by environmental pressures. Can be thought of as a “default” strategy because it is not a recommended competitive strategy for developing competitive advantage.

Porter’s Generic Competitive Strategies Porter believes competitive advantage can only come from 2 sources: Having the lowest costs in the industry Possessing significant and desirable differences from competitors. Cost Leadership Strategy- an organization strives to have the lowest costs in its industry and produces products for a broad customer base. Main objective is to keep costs as low as possible. Ex. Wal-Mart

Porter’s Generic Competitive Strategies Differentiation Strategy- an organization competes by providing unique products with features that customers value, perceive as different , and are wiling to pay a premium for. Try to create brand loyalty: when customers consistently seek out, purchase, and use a particular brand. Ex. Pottery barn used to be unique in their industry.

Focus Strategy It’s when an organization pursues either a cost of differentiation advantage but within a limited (narrow) customer group or segment. There are three broad ways to segment specialized market niches: Geographical Type of customer Product line segment What’s involved in a focus strategy? Cost focuser competes by having lower costs than the overall industry cost leader in specific and narrow niches. Differentiation focuser uses whatever forms of differentiation the broad differentiator might use and specializes in one or a few segments.

Focus Strategy (cont.) Advantages: Drawbacks: Stuck in the middle Focuser knows its market niche well and can stay close to customers and respond quickly to their changing needs. They can develop strong brand loyalty by effectively and efficiently responding to customers needs. Drawbacks: Focuser can often operates on a small scale making it difficult to lower costs significantly. The niche customers might change their tastes or needs. There’s always the threat of a broad-based differentiator taking notice of the focuser’s market niche. Stuck in the middle Happens when an organization hasn’t developed a low cost or a differentiation competitive advantage.

Contemporary Views on Competitive Strategy Integrated low cost-differentiation strategy involves simultaneously achieving low costs and high levels of differentiation. This is not easy to pursue because an organization basically has to be good at everything. Technology is what makes this strategy possible Increasing affordability of information technology has made it easier for organizations to pursue product and service differentiation and still keep their costs low.

Contemporary Views on Competitive Strategy (cont.) Mintzberg’s Generic Competitive Strategies were developed because he felt they better reflected the increasing complexity of the competitive environment. Differentiation by price: having the lowest costs didn’t provide a competitive advantage by itself but the advantage came from the fact that is allowed the organization to charger below-average market prices. Differentiation by marketing image: create a certain image in customers’ minds and use it as a competitive weapon. Differentiation by product design: compete on the basis of providing desirable product features and design configurations.

Contemporary Views on Competitive Strategy (cont.) Differentiation by quality: compete by delivering a higher reliability and performance at a comparable price. Differentiation by product support: emphasized the customer support services provided by the organization. Undifferentiated strategy: situations in which an organization had no basis for differentiation or when it deliberately followed a copycat strategy.

Strategy Implementation If a strategy is not implemented, then it is only an idea Once it is implemented, it must be evaluated and changed if necessary The organization’s functional strategies play a major role in strategy implementation

Roles Dual Roles 1st choice depends on the organization’s resources and capabilities being acquired and developed through functional strategies Once the competitive strategy is determined, the resources, capabilities and competencies found are HOW they are implemented

Offensive Competitive Actions An organization’s attempt to exploit and strengthen its competitive position through attacks Different types: Frontal assault – going head to head with competitor and matching them in everything Attach competitor’s weakness All out attack – hitting them from product and market segment side Maneuvering around competitor and changing rules of the game Guerilla attacks

Defensive Competitive Actions An organization’s attempt to exploit and strengthen its competitive position through attacks Different types: Don’t give them areas to attack Increase competitor’s beliefs that retaliation will occur if they are attacked Lower incentive for competitor to attack

Evaluating Competitive Strategies Ask questions: What are the results? Are they having the intended effect? Are we successfully exploiting our competitive advantage? Don’t ONLY look at results You must determine what happened and why Pinpoint areas of competitive weakness If levels of performance haven’t been reached, change might need to occur

Takeaways (Conclusions) Competitive Advantage Approaches to defining a competitor are: Industry perspective Market perspective Strategic groups concept

Takeaways (Cont.) Miles and Snow’s Four Adaptive Strategies Prospector, Defender, Analyzer, and Reactor Porter’s three strategies Cost leadership, differentiation, and focus Two Contemporary views on competitive strategy: integrated low cost-differentiation vs. Mintzberg’s generic competitive strategies.