Competitive strategy

Question 1

Generic Competitive Strategies

Answer 1

Cost leadership
Cost focus
Differentiation
Differentiation focus

Question 2

Cost leadership

Answer 2

• Scale-efficient plants
• Design for manufacture
• Control of overheads and R&D
• Process innovation
• Outsourcing (especially overseas)
• Avoidance of marginal customer accounts
• Operations, process

Question 3

Differentiation

Answer 3

Emphasis on branding, advertising, design, service, quality and new product development
Innovation; market driven, product development

Question 4

Resource and organisational requirements of Cost leadership

Answer 4

• Access to capital
• Process engineering skills
• Frequent reports
• Tight cost control
• Specialisation of jobs and functions
• Insentives linked to quantiative accounts targets

Question 5

Resource and organisational requirements of Differentiation

Answer 5

• Marketing abilities Segmentation
• Product engineering skills
• Cross-functional coodination
• Creativity
• Research capability
• Incentives linked to qualitative
• Performance targets

Question 6

Cost leadership success factors

Answer 6

-The firm must have lower internal costs than competitors:
Cost leadership must pervade the organisation
Its cost advantage must be sustainable against attempts to imitate it
-The market must be price sensitive.
May need to focus on a price sensitive market segment

Question 7

Risks of Cost leadership

Answer 7

The firm’s product or service comes to have low perceived value
Customer preference moves towards higher added value
Domestic ‘low cost’ activity can be undermined by international competition

Question 8

Sources of Cost advantage

Answer 8

• Input costs
• Scale economies
• Experience curve advantages
• Product/process design

Question 9

Differentiation success factors: Ability to achieve differentiation:

Answer 9

–Clear identification of who the customer is
Understanding what is valued by the customer and what they will pay a premium for
-Clear identification of who the competitors are and the value they offer

Question 10

Differentiation success factors: Ability to sustain differentiation:

Answer 10

-RBV: how hard to imitate is the basis of differentiation?
-Need to cope with continuously changing basis of differentiation
“Hypercompetition”
Dynamic capabilities
-Need to sustain differentiation at low enough cost

Question 11

Differentiation Focus’ strategy

Answer 11

Seeks to serve specific market segments (niches) better than broad differentiators

Question 12

Variations of Differentiation focus strategy

Answer 12

Focused offering to a global market
Propitious niche
Highly specific product or service that is not worthwhile for a new entrant unless they can displace the incumbent.
May focus on several niches

Question 13

Limitations of Differentiation focus strategy

Answer 13

-Relies on clear distinction between segments in terms of both customer needs and value chain.
Differences between segments may be eroded, making basis of focus redundant.
-Narrow focus may limit growth.
Small size may threaten viability.
Temptation to broaden - risks becoming ‘stuck in the middle’.

Question 14

‘Cost focus’ strategy

Answer 14

Seeks to achieve cost leadership within a specific market niche

Question 15

Cost savings come from:

Answer 15

Reduced variety and complexity

Concentrated expertise

Question 16

Limitations of Cost focus strategy

Answer 16

Scale may be smaller than firms using broad cost leadership or hybrid strategies
Firms that are ‘forced into’ this strategyperform poorly

Question 17

Hybrid strategies may work:

Answer 17

-When a firm’s distinctive competence supports a hybrid strategy
E.g. a new more efficient business model
-When the middle ground constitutes the major market
“Good food costs less at Sainsbury’s”
-When cost efficiency and differentiation are pursued through different business functions

Question 18

Limitations of Hybrid strategy

Answer 18

Stuck in the middle’ strategy is ineffective
A clear, positive strategy is beneficial:
Helps ensure incremental decisions are all aligned with the strategy

Question 19

Criticisms of generic strategy frameworks

Answer 19

They focus attention too narrowly:

They are too static for dynamic competitive conditions:

Question 20

They focus attention too narrowly:

Answer 20

Good competitive strategy is typically more complex and multi-dimensional
Use generic strategy model in conjunction with complementary perspectives

Question 21

They are too static for dynamic competitive conditions:

Answer 21

May be better to focus on continued evolution than present competitive position
Use generic strategy model in conjunction with life cycle and dynamic competition models
Look inside the firm for sources of more sustained advantage.

Question 22

The Delta Model

Answer 22

Based on closer bonds with customers and/or complementors

Question 23

System lock in

Answer 23

Competition based on system economics

Customer lock-in, complementor lock-in, competitor lock-out, proprietary standard

Question 24

Total customer solution

Answer 24

Competition based on customer economics

Reducing customer costs or increasing their profits

Question 25

Best product

Answer 25

Competition based on product economics

Low cost or differentiation

Question 26

Proprietary standards:lock in

Answer 26

Positive reinforcing cycle of users, complementors, and manufacturers enhance the value of the standard
One standard dominates one or many segments
Microsoft in PCs, office software and PC networking

Question 27

Dominant exchange: Lock in

Answer 27

Value grows exponentially with the number of users
One player tends to dominate the market
Visa/Mastercard (financial transactions)
Trademe or eBay

Question 28

Restricted access:Lock in

Answer 28

Exploits constrained distribution and supply chains
Coca-Cola dominance of soft drink bottling and retail chiller units
Wal-Mart meeting all retail needs within a rural area

Question 29

Large horizontal breadth: one-stop-shop: Total customer solutions

Answer 29

Amazon
Leveraging a large customer base
Achieving lock-in effect (convenience)
Also NZ Rural Services industry (smaller effect)

Question 30

Customer integration: Total customer solutions

Answer 30

Use direct links with customers, integrate ordering processes, use information about customer needs/behaviour
Dell custom ordering
Managing maintenance and support (medical imaging, aircraft engines)

Question 31

Redefined customer experience: Total customer solutions

Answer 31

Wall Street Journal Interactive:
Website customised to individual news needs of business people and investors
Draws on data/systems from multiple partners