Competitive strategy Flashcards
Generic Competitive Strategies
Cost leadership
Cost focus
Differentiation
Differentiation focus
Cost leadership
- Scale-efficient plants
- Design for manufacture
- Control of overheads and R&D
- Process innovation
- Outsourcing (especially overseas)
- Avoidance of marginal customer accounts
- Operations, process
Differentiation
Emphasis on branding, advertising, design, service, quality and new product development
Innovation; market driven, product development
Resource and organisational requirements of Cost leadership
- Access to capital
- Process engineering skills
- Frequent reports
- Tight cost control
- Specialisation of jobs and functions
- Insentives linked to quantiative accounts targets
Resource and organisational requirements of Differentiation
- Marketing abilities Segmentation
- Product engineering skills
- Cross-functional coodination
- Creativity
- Research capability
- Incentives linked to qualitative
- Performance targets
Cost leadership success factors
-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
Risks of Cost leadership
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
Sources of Cost advantage
- Input costs
- Scale economies
- Experience curve advantages
- Product/process design
Differentiation success factors: Ability to achieve differentiation:
–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
Differentiation success factors: Ability to sustain differentiation:
-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
Differentiation Focus’ strategy
Seeks to serve specific market segments (niches) better than broad differentiators
Variations of Differentiation focus strategy
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
Limitations of Differentiation focus strategy
-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’.
‘Cost focus’ strategy
Seeks to achieve cost leadership within a specific market niche
Cost savings come from:
Reduced variety and complexity
Concentrated expertise
Limitations of Cost focus strategy
Scale may be smaller than firms using broad cost leadership or hybrid strategies
Firms that are ‘forced into’ this strategyperform poorly
Hybrid strategies may work:
-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
Limitations of Hybrid strategy
Stuck in the middle’ strategy is ineffective
A clear, positive strategy is beneficial:
Helps ensure incremental decisions are all aligned with the strategy
Criticisms of generic strategy frameworks
They focus attention too narrowly:
They are too static for dynamic competitive conditions:
They focus attention too narrowly:
Good competitive strategy is typically more complex and multi-dimensional
Use generic strategy model in conjunction with complementary perspectives
They are too static for dynamic competitive conditions:
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.
The Delta Model
Based on closer bonds with customers and/or complementors
System lock in
Competition based on system economics
Customer lock-in, complementor lock-in, competitor lock-out, proprietary standard
Total customer solution
Competition based on customer economics
Reducing customer costs or increasing their profits
Best product
Competition based on product economics
Low cost or differentiation
Proprietary standards:lock in
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
Dominant exchange: Lock in
Value grows exponentially with the number of users
One player tends to dominate the market
Visa/Mastercard (financial transactions)
Trademe or eBay
Restricted access:Lock in
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
Large horizontal breadth: one-stop-shop: Total customer solutions
Amazon
Leveraging a large customer base
Achieving lock-in effect (convenience)
Also NZ Rural Services industry (smaller effect)
Customer integration: Total customer solutions
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)
Redefined customer experience: Total customer solutions
Wall Street Journal Interactive:
Website customised to individual news needs of business people and investors
Draws on data/systems from multiple partners
