Strategic Management in Action Ch. 6 Andrew Etlinger Ashley Harris Blake Green David Styers Carolynn Schnaubelt Competitive Advantage • Competitive Advantage is a key concept in strategic management • “Getting it and keeping it what managing is all about” • Competitive Advantage- when an organization does something that others cant or does it better than others do (distinctive capability). Or, an organization has something that other competitors don’t (unique resources) Understanding Competition • Competition- occurs when organizations battle or vie for some desired object or outcome, typically customers, market share, survey rankings, or needed resources • What competition might an organization face? Who are competitors? • There are three approaches to defining an organization’s competition – Industry – Market – Strategic Groups Industry Approach and Market Approach • Industry: Identifies competitors who make the same or very similar goods and services • Example: video rental industry, automobile industry, credit card industry, or the spa industry • Market: Identifies competitors who offer the same customer needs • Example: Entertainment Industry Strategic Groups Approach • Identifies not only a firms competitors but shows which are most relevant • Based on the Strategic Groups covered in Ch.3 • Figure 6.2 Competitive Strategy • Organizations attempt to create a sustainable competitive advantage. An organization does this by using its competitive strategy, which is based on the competitive advantages that the firm has developed. • Examples: Netflix Approaches to Defining Competitive Strategy • Miles & Snow’s Adaptive Strategies – Prospector Strategy – Defender Strategy – Analyzer Strategy – Reactor Strategy • Porter’s Generic Competitive Strategies – Cost Leadership Strategy – Differentiation Strategy – Focus Strategy Miles & Snow’s Adaptive Strategies • Prospector Strategy- an organization that continually innovates by finding and exploiting new product and market opportunities. – Constantly innovating, developing, and testing new products. – Creates uncertainty for the prospector’s competitors because they never know what to expect next. – Examples: Fox Broadcasting Network & MTV Miles & Snow’s Adaptive Strategies (Cont.) • Defender Strategy- used to protect current market share by emphasizing existing products and producing only a limited product line. – Prevent competitors from stealing ideas from their company. • Analyzer Strategy- strategy of analysis and imitation. Analyzers look for and copy the ides of successful prospectors. – Ex. Suave Shampoo and skin care Miles & Snow’s Adaptive Strategies (Cont.) • Reactor Strategy- characterized by the lack of a coherent strategic plan or apparent means of competing. – Reactors react to environmental changes and make adjustments only when finally forced to do so by environmental pressures. – Can be thought of as a “default” strategy because it is not a recommended competitive strategy for developing competitive advantage. Porter’s Generic Competitive Strategies • Porter believes competitive advantage can only come from 2 sources: – Having the lowest costs in the industry – Possessing significant and desirable differences from competitors. • Cost Leadership Strategy- an organization strives to have the lowest costs in its industry and produces products for a broad customer base. – Main objective is to keep costs as low as possible. – Ex. Wal-Mart Porter’s Generic Competitive Strategies • Differentiation Strategy- an organization competes by providing unique products with features that customers value, perceive as different , and are wiling to pay a premium for. – Try to create brand loyalty: when customers consistently seek out, purchase, and use a particular brand. – Ex. Pottery barn used to be unique in their industry. Focus Strategy • It’s when an organization pursues either a cost of differentiation advantage but within a limited (narrow) customer group or segment. • There are three broad ways to segment specialized market niches: – Geographical – Type of customer – Product line segment • What’s involved in a focus strategy? – Cost focuser competes by having lower costs than the overall industry cost leader in specific and narrow niches. – Differentiation focuser uses whatever forms of differentiation the broad differentiator might use and specializes in one or a few segments. Focus Strategy (cont.) • Advantages: – Focuser knows its market niche well and can stay close to customers and respond quickly to their changing needs. – They can develop strong brand loyalty by effectively and efficiently responding to customers needs. • Drawbacks: – Focuser can often operates on a small scale making it difficult to lower costs significantly. – The niche customers might change their tastes or needs. – There’s always the threat of a broad-based differentiator taking notice of the focuser’s market niche. • Stuck in the middle – Happens when an organization hasn’t developed a low cost or a differentiation competitive advantage. Contemporary Views on Competitive Strategy • Integrated low cost-differentiation strategy involves simultaneously achieving low costs and high levels of differentiation. – This is not easy to pursue because an organization basically has to be good at everything. – Technology is what makes this strategy possible – Increasing affordability of information technology has made it easier for organizations to pursue product and service differentiation and still keep their costs low. Contemporary Views on Competitive Strategy (cont.) • Mintzberg’s Generic Competitive Strategies were developed because he felt they better reflected the increasing complexity of the competitive environment. – Differentiation by price: having the lowest costs didn’t provide a competitive advantage by itself but the advantage came from the fact that is allowed the organization to charger below-average market prices. – Differentiation by marketing image: create a certain image in customers’ minds and use it as a competitive weapon. – Differentiation by product design: compete on the basis of providing desirable product features and design configurations. Contemporary Views on Competitive Strategy (cont.) – Differentiation by quality: compete by delivering a higher reliability and performance at a comparable price. – Differentiation by product support: emphasized the customer support services provided by the organization. – Undifferentiated strategy: situations in which an organization had no basis for differentiation or when it deliberately followed a copycat strategy. Strategy Implementation • If a strategy is not implemented, then it is only an idea • Once it is implemented, it must be evaluated and changed if necessary • The organization’s functional strategies play a major role in strategy implementation Roles • Dual Roles – 1st choice depends on the organization’s resources and capabilities being acquired and developed through functional strategies – Once the competitive strategy is determined, the resources, capabilities and competencies found are HOW they are implemented Offensive Competitive Actions • An organization’s attempt to exploit and strengthen its competitive position through attacks • Different types: – Frontal assault – going head to head with competitor and matching them in everything – Attach competitor’s weakness – All out attack – hitting them from product and market segment side – Maneuvering around competitor and changing rules of the game – Guerilla attacks Defensive Competitive Actions • An organization’s attempt to exploit and strengthen its competitive position through attacks • Different types: – Don’t give them areas to attack – Increase competitor’s beliefs that retaliation will occur if they are attacked – Lower incentive for competitor to attack Evaluating Competitive Strategies • Ask questions: – What are the results? – Are they having the intended effect? – Are we successfully exploiting our competitive advantage? • Don’t ONLY look at results • You must determine what happened and why – Pinpoint areas of competitive weakness • If levels of performance haven’t been reached, change might need to occur Takeaways (Conclusions) • Competitive Advantage • Approaches to defining a competitor are: – Industry perspective – Market perspective – Strategic groups concept Takeaways (Cont.) • Miles and Snow’s Four Adaptive Strategies – Prospector, Defender, Analyzer, and Reactor • Porter’s three strategies – Cost leadership, differentiation, and focus • Two Contemporary views on competitive strategy: integrated low cost-differentiation vs. Mintzberg’s generic competitive strategies.