Competitive Strategy
Prof. Raveendra Chittoor
Indian School of Business, Hyderabad
Value Creation
Supplier
Opportunity
Cost
Cost
Supplier share
Price
Firm’s share
Willingness
to pay
Buyer’s share
2
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?
3
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
4
Role of Strategy To Create Successful Companies
Strategy
Successful
Performance
- ROA
- Shareholder Value
Strategy is all about ‘winning’
5
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
6
Cost Value Trade-off
7
Generic Competitive Strategies
Source of Competitive
Advantage
Low Cost
IndustryCompetitive wide
Scope
Single
Differentiation
Cost
Differentiation
Leadership
Focus
Segment
8
The Business System
and Competitive Advantage
Purchase/Inputs
- One type of
Plane (737)
- Productive
employees
Logistics
-Point-to-Point
direct service
- Small airports
Operations
Sales/Marketing
-Short flights
-No food
-No assigned seats
-No bag transfer
- Low pricing
-No travel agents
Distinctive/Innovative Activities across the Business System
Should support the
chosen competitive
position
Cost Leadership
Position
Should be
consistent and
should mutually
reinforce each other
Competitive Advantage
9
Porter’s Value Chain
10
Value Chain (contd.)
11
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
12
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
13
Drivers of Value
 Quality
 Brand / reputation
 Geography (Tea, Wine); Location (Retail stores)
 Delivery / service
 Customization
 Pioneering technologies
 And so on
14
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
15
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
16
Thank You
17