1. Competitive Strategy Prof. Raveendra Chittoor Indian School of Business, Hyderabad

2. 2 Value Creation Supplier Opportunity Cost CostPrice Willingness to pay Supplier shareFirm’s shareBuyer’s share

3. 3 Value and Added Value  Value – the difference between the customer’s willingness to pay and the suppliers opportunity cost  Added value – maximum value created by all the participants in a transaction minus the maximum value that could be created without the firm In other words,  If your company ceases to exist tomorrow, what will the customers miss?

4. 4 Strategy  Strategy is all about being ‘different’  It is deliberately choosing a different set of activities to deliver a unique mix of value  Examples: Harley Davidson, eBay, Apple

5. 5 Role of Strategy - To Create Successful Companies Strategy Successful Performance - ROA - Shareholder Value Strategy is all about ‘winning’

6. 6 Competitive Strategy  Strategy – from the Greek word ‘strategos’ meaning ‘military commander’  Competitive Strategy is a broad formula for how a business is going to compete (Porter)  ‘An integrated and coordinated set of commitments and actions’ Aimed at  Delivering unique value to customers  Gaining competitive advantage  In specific product markets

7. 7 Cost Value Trade-off

8. 8 Generic Competitive Strategies Source of Competitive Advantage Low Cost Differentiation Competitive Scope Industry- wide Cost Leadership Differentiation Single Segment Focus

9. 9 The Business System and Competitive Advantage - One type of Plane (737) - Productive employees Purchase/Inpu ts -Point-to-Point direct service - Small airports Logistics -Short flights -No food -No assigned seats -No bag transfer Operation s - Low pricing -No travel agents Sales/Market ing Distinctive/Innovative Activities across the Business System Should support the chosen competitive position Cost Leadership Position Competitive Advantage Should be consistent and should mutually reinforce each other

10. 10 Porter’s Value Chain

11. 11 Value Chain (contd.)

12. 12 McKinsey Generic Value Chain  Technology development - Patents, product / process choices  Product design - Function, physical characteristics, quality  Manufacturing - Integration, raw materials, capacity, location, procurement, assembly  Marketing - Brand, sales and distribution, advertising and promotion  Distribution - Channels, inventory management, transport  Service - Warranty speed, costs, captive/third party

13. 13 Drivers of Low Cost  Economies of scale and scope  Economies of learning - Increase in individual skills - Improved organizational routines  Production techniques and product design  Low input costs - Location advantages, ownership of low cost inputs, non-union labor, bargaining power  Capacity utilization - Ratio of fixed to variable costs - Fast and flexible capacity adjustments

14. 14 Drivers of Value  Quality  Brand / reputation  Geography (Tea, Wine); Location (Retail stores)  Delivery / service  Customization  Pioneering technologies  And so on

15. 15 Sustaining Competitive Advantage  Erect entry barriers and imitation barriers - Numerous value-chain activities creating ‘causal ambiguity’ - Base competitive advantage on resources and capabilities that are immobile and difficult to replicate overcapacity, R&D capabilities, Geographic monopoly, Psychological bonding (brand equity), Unique culture  Continuous and incremental innovations

16. 16 Strategic Innovation  Innovation is not only new products or processes  New approaches to doing business – Strategic Innovation  Creating value for customers from novel experiences, products, or product delivery or bundling

17. 17 Thank You