Chapter 3 Positioning and Competitiveness Designing a Competitive Business Model and Building a Solid Strategic Plan

3 What Is a Competitive Advantage? Your book’s definition: A collection of factors that set you apart “Honda’s competitive advantage is their engine technology.” Everyone else in the free world: The status of having superior performance over your competitors (through some collection of factors) You either have a competitive advantage or you don’t It’s not what you have, it’s the fact that you have something that makes you better. “Toyota has a competitive advantage over Ford” Toyota’s 2012 profit margin: 4.36% on $247 B in sales; Ford’s: 4.22% on $134 B sales What makes Toyota better?

What Can Make You Better (and give you a competitive advantage) Products you sell Technology Inexpensive inputs (labor, parts) Rareness Service you provide Hours open Convenience of location Friendliness and helpfulness Pricing you offer Reasonable, NOT NECESSARILY LOWEST

Entrepreneurs of the Day Greg Watkins (producer) and Chuck Creekmur (journalist) #1 urban website in ten years of existence (started in 1998) Originally wanted to promote a fledgling production label (Oblique Recordings) Also wanted to provide a one-stop shop for urban content (downloads) Used by industry great Russell Simmons for keeping up with news In 2003, site made enough money so that both entrepreneurs could quit their jobs. Revenue exceeded $4 million in 2007

Value Rareness Imitability Organization The Sustainable Competitive Advantage – The VRIO Framework (NOT IN THE TEXT) Value The factor has to provide value to customers Rareness Not everyone can have this factor Imitability The factor must be hard to copy or substitute Organization The business must have the right policies and operational know-how to nurture the factor.

The Sustainable Competitive Advantage – The VRIO Framework Let’s take this through an example – how about McDonald’s fries? Are they a source of competitive advantage for McDonalds? Can they be a sustainable source of competitive advantage over others? How do we know if McDonald’s even has a competitive advantage over other restaurants? What other things might be factors for competitive advantage in the fast food subindustry?

What Types of Things Can Bring About a Competitive Advantage? Superior customer intimacy Understanding exactly the mix of things customers want in your product or service Focus Fewer product lines; better understanding Cost control Knowing your financials and controlling them, not the other way around

The Purpose of a Strategic Plan To set up your business to achieve competitive advantage status How? Planning of resource allocation (budgets, time, attention, etc.) Resources build key competitive factors Factors build your competitive advantage

What Does a Strategic Plan Look Like? Has mission, vision, and values Has company goals and objectives Has SWOT analysis Has short-term and long-term plans for Marketing (promotion, distribution, product development) Management development and succession Market or locale dominance

The Strategic Management Process Develop mission, vision, values, goals, and objectives. Do an environmental scan. Set appropriate strategies that take scan into consideration. Implement the strategies. Evaluate whether you hit your objectives, feedback and learn.

Environmental Scan Internal Environment External Environment Strengths and weaknesses Management, marketing, human resources, capital External Environment Opportunities and threats Competitors, suppliers, customers, ability to meet the demands of your environment

Strategy Forming and Implementing Come up with plans for the next 5 years for: Keeping high quality management Expanding product lines and pricing them Expanding impact in the market Expanding locations Keeping cost levels down Promoting yourself Break these down into to-do lists with deadlines; assign responsibilities.

Types of Strategic Positions Business-level strategies and market segments Cost leadership Differentiation Focus Focused cost leadership Focused differentiation Last step: create a control system to monitor when things are not going to plan.