UNIT 6- Competitive Advantage Flashcards
Strategic choices
- Business strategy- choices about business positioning relative to competitors
- Strategic directions- choices of products, industries and markets to pursue
- Strategy methods- how to pursue strategies: organic, acquisition or alliance
What is a Strategic Business Unit (SBU)?
A strategic business unit (SBU) is a part of an organisation for which there is a distinct market from another SBU
SBU
Generic strategies
- cost leadership
- differentiation
- focus
- hybrid strategies
Interactive strategies
- hypercompetitive strategy
- cooperation
- game theory
Key cost drivers
- lower input costs
- economies of scale
- experience
- product/process design
Generic strategies
Costs, prices and profit
Key differentiation drivers
- identify the strategic customer- on whose needs the differentiation should be based
- key competitors- who are the rivals and who may become a rival
“Stuck in the middle”
Porter suggests that is better to choose which generic strategy to adopt to avoid the danger of being ‘stuck in the middle’ – doing no strategy well.
- The argument for pure generic strategies is controversial. Porter acknowledges that the strategies can be combined (e.g. if being unique costs nothing).
The strategy clock
The Strategy Clock is focused on the prices to customers rather than the costs to organizations.
1- No frills- example Ryanair, Lidl, EasyJet
2. Low price
3. Hybrid- example Mercadona
4. Differentiation
5. Focused differentiation
6, 7 & 8- Strategies destined for ultimate failure
Strategy Clock- 1: no frills
- Low price combined with low perceived product benefits focusing on price-sensitive market segments
– Commodity markets
– Price-sensitive customers
– High power, low switching costs among buyers
– Opportunity to avoid major competitors
Strategy Clock- 2: Low price strategy
- Lower price than competitors while offering similar product benefits
- Pitfalls
i. Margin reductions
ii. Inability to reinvest
Strategy Clock- 3: Hybrid
Seeks to simultaneously achieve differentiation and low price relative to competitors
Advantageous when:
i. Greater volumes can be achieved
ii. Cost reductions outside differentiated activities are available
iii. Used as an entry strategy
Strategy Clock- 4: Differentiation Strategy
- Seeks to provide products that offer benefits that differ from those offered by competitors
- Dependent upon
i. Identifying and understanding strategic customer needs
ii. Identifying key competitors’ strategies
Strategy clock- 5: Focused differentiation
- Seeks to provide high perceived product benefits, justifying price premiums
Key issues:
i. Choice between focus strategy and broad differentiation
ii. Tensions between focus strategy and other strategies
iii. Market changes
Strategy Clock- 6-8: Failure Strategies
- 6 - Increase prices without increasing service/product benefits
- 7 - Reduction in product/service benefits with increase in relative price
- 8 - Reduction in benefits whilst maintaining price
Achieving low prices
- Operate with lower margins
- Develop a unique cost structure
- Create efficiency in organizational capabilities
- Focus on market segment with low expectations
Dangers of low price strategies
- Competitors might follow suit and do the same.
- Customers associate low price with low benefits.
- Cost reductions may result in inability to pursue differentiation strategy.
Sustaining advantage through differentiation
- Create difficulties of imitation
- Imperfect mobility- capabilities that sustain differentiation cannot be traded
- Lower- cost position than competitors can allow an organization to sustain better margins that can be reinvested to achieve and maintain differentiation
Establishing strategic lock-in (becomes an industry standard)
- Size or market dominance- others will seek to conform to such standards
- First-mover dominance- likely to set early in life cycles of markets
- Self-reinforcement commitment- when one or more firms support the standard, more come on board, then others are obliged to and so on
- Insistence on the preservation of the lock-in position- insistence on conformity to the standard
Hypercompetition
Hypercompetition describes markets with continuous disequilibrium and change.
- It may be impossible to plan for long-term sustainable competitive advantage.
- Planning may actually destroy competitive advantage by slowing down responses.
- Successful hypercompetition demands speed and initiative rather than defensiveness.
Characteristics of successful hyper competitive strategies
- cannibalise bases of success
- smaller moves may be more effective than bigger ones
- disruption of the status quo
- be unpredictable
- mislead the competition
