SUMMARY OF LESSONS: 2
Presentation By:
Courtney Karcasinas, Adam Hall, Robert Brinkmann, Justin Weden, & Stephen Gonzalez
Objectives
1.
2.
3.
4.
5.
6.
Understand the term “Competitive Advantage”
Predict potential for competition to wear away competitive advantage
Recognize how resource conditions create imperfections in the competitive
process that offer opportunities for competitive advantage
Distinguish the two primary types: cost advantage and differentiation
advantage
Use value chain framework to analyse potential sources of cost and
differentiation advantage to recommend strategies for enhancing
competitiveness
Appreciate the pitfalls of being ‘stuck in the middle’ and the challenge of
achieving effective differentiation and low cost
1. Understand the term “Competitive Advantage”
When two or more firms compete within the same market, one
firm possesses a competitive advantage over its rivals when it
earns (or has the potential to earn) a persistently higher rate of
profit. nderstand the term “Competitive Advantage”
2. Predict potential for competition to wear away competitive advantage
In the long run competition wears away differences in
profitability between firms but eternal and internal change can
both create opportunities for advantage and destroy them.
3. Recognize how resource conditions create imperfections in the
competitive process that offer opportunities for competitive advantage
Firms owning resources or having capabilities that are in
some way unique and offer the firms some protection against
imitation by rivals.
4. Distinguish the two primary types: cost advantage and differentiation advantage
Cost Advantage
Competitive Advantage
Differentiation
Advantage
5. Use value chain framework to analyse potential sources of cost and
differentiation advantage to recommend strategies for enhancing competitiveness
1) Break down the firm into separate activities.
2) Establish the relative importance of different activities in
the total cost of the product.
3) Compare costs by activity.
4) Identify cost drivers.
5) Identify linkages.
6) Identify opportunities for reducing costs.
6. Appreciate the pitfalls of being ‘stuck in the middle’ and the
challenge of achieving effective differentiation and low cost
Cost leadership and differentiation are mutually exclusive
strategies and firms that are ‘stuck in the middle’ are almost
guaranteed low profitability.
The most successful forms are often those who have managed
to differentiate themselves in a highly cost-effective way.
Industry Life Cycle

ILC driving factors
 Demand
Growth
 Production Knowledge
Demand Growth

Introduction
 Sales

Growth
 Rapid

are often small
market penetration
Maturity Stage
 Increased

market saturation
Decline Stage
 Superior
products are available from new industries
Product Knowledge

Beginning
 Advances
in product technology
 Consumers usually know little about product

Course of ILC
 Customers
become better informed
 Market expands
 Judge products better and make informed decisions
Strategy at Various Stages of ILC

Introduction


Growth


Increase production efficiently and effectively
Maturity


Product innovation and marketing
Cost efficiency, usually through mass production and lower
input prices
Decline

Find protected market niches, innovate, or exit at
appropriate time
Public and Not-for-profit Sectors

Public
Ownership vested in
government
 Funding from
government
 Serve public interest


Not-for-profit
Use excess funds for
organizational goals
 Usually in areas such as
education, health care,
social services, arts and
culture, and religion
 Placed in special
category for tax,
regulatory, and legal
purposes

Public and Not-for-profit Features







Multiple goals
Different constraints than private sectors
Market force absence
Monopoly power
Decreased flexibility
Increased accountability
Decreased Predictability
Types of Organizations
Stakeholder Analysis






Identify list of potential stakeholders
Rank stakeholders by importance and influence
Find criteria each stakeholder will use to judge
performance
See how organization is doing from stakeholders’
perspective
Identify how to satisfy each stakeholder
Identify and record long term issues with
stakeholders, both individually and as a group
Scenario Analysis







Define purpose of analysis
Decide on time horizon
Identify key trends
Identify key uncertainties
Create scenarios and check for consistency
Identify indicators that might signify which scenario
is unfolding
Assess strategic implications of scenarios
Innovation Process

The core aim of Boeing is to:



“ focus on the execution today and into the future in
developing, producing and marketing commercial jet
aircraft and providing related support services, principally
to the commercial airline industry worldwide”
Invention: Creation of new product
Innovation: the creation of new products and processes
through the development of new knowledge or from new
combinations of existing knowledge.
The Jet Engine



Frank Witte first patented the engine in 1930.
In 1957, the first commercial jetliner, the De
Havilland Comet, took flight.
Two years later, the Boeing 707 was introduced.
Boeing’s Value

Profitability of Innovation:


Customers Value
Advance Aviation Performance Program:
Provides 24/7 customer service support all around the
world
 Provide the best technical support to the customers
 Delivers spare parts and equipment if urgently needed

Four Factors to Competitive Advantage



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Property Rights
Tacitness and Complexity of the technology
Lead Time
Complementary Resources
Property Rights

Intellectual Property:
 Patents
 Copyright,
 Trademarks
 Trade

secrets
Patents: make the information public and only valid
for 17 years
Tacitness and Complexity


Tacitness: In the absence of legal protection, the
extent to which an innovation can be imitated by a
competitor depends on how the innovation can be
comprehended and replicated
Complexity: Boeing 787 Dreamliner
Boeing 787 Dreamliner

Able to carry passengers with non-stop point-topoint flights between secondary airports
Lead Time

Amount of time it will take followers to catch up
 Took
2 years to create the 707
Complementary Resources

Resources needed to finance, produce and market
the innovation.
Boeing’s Resources

Airport Technology:


Boeing Capital Corporation:


Customer support, flight operations, fleets, maintenance, and material management
Fuel Conservation Services:


Airplane Financing
Commercial Aviation Services:


planning and engineering
Increases fuel efficiency
Training Flight Services:

Flight crew training activities
Strategies
Managing Risks: Market uncertainty
 787 Dreamliner created to recover the market shrink
and compete with Airbus
 Began to lose market share after initial success
 Delays in delivering products to customers resulted in
120% increase in cost
Creating the Conditions for Innovation

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People: Over $170,000
Facilities: 70 countries with 22,000 suppliers
Information: Jet Engine
Time: Founded in 1916
- Design organizational processes that capture, direct,
and exploit individuals’ drive for success and
commitment to their innovations.
4 Steps of Visualizing Strategy
Boeing 787


Before Boeing 787, the 767 was in line with
competition.
Strategy canvas for Boeing 787
 Included
criteria such as:
 Purchase
Price
 Seating Capacity
 Maintenance Costs
Boeing 787 Four Actions
Eliminate
Raise
•Maintenance costs
•Passenger friendly environment
•New aircraft (Boeing 787)
Reduce
Create
•Purchase price
•Fuel efficiency
•Seating Capacity
Pioneer, Migrator, Settler Map
Overcoming Obstacles

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Strategy should be the big picture and not solely
numbers driven
Strategy canvases and the PMS map are good
places to start
Details and numbers will fall into place.
First- Tier Noncustomers

“Soon to be” Noncustomers
 Minimal

use of the market offering
Focus on similarities between first-tier customers to
minimize chance of them leaving market
Second- Tier Noncustomers

“Refusing” Noncustomers
 Do


not use or can’t afford the offering
Needs are met by something else, or are not met at
all
Provide an untapped demand for the market
Third-Tier Noncustomers


Farthest away from an industry’s existing
customers/cliental
“Unexplored” noncustomers
 Have
not been targeted or thought of as potential
customers since their needs are thought to belong to
another market.
Go for the Biggest Catchment

Companies should focus on the tier that represents
the biggest catchment at the time.
Get the Strategic Sequence Right

Buyer Utility


Price


Can you produce your offering at the target cost and still
earn a healthy profit margin?
Adoption


Is your offering price to attract the mass of the buyers so
that they have a compelling ability to pay for your offering?
Cost


Is there a compelling reason for the mass of people to buy?
What are the adoption hurdles among retailers or partners?
Ex: Netflix “Watching Instantly”
Buyer Utility


Is there a compelling reason for the mass of people to
buy?
The Six Utility Levers
Price
Cost
Adoption


New ideas can be seen as threatening to the
company.
Three main stakeholders may not accept new ideas,
they are:
 Employees
 Partners
 General
Public