Strategic Management in Action
Mary Coulter
Competitive Strategies
© Prentice-Hall 2005
6-1
Learning Outline

What is competitive advantage and how do we get
it?
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


Explain the importance of competitive advantage.
Describe how an organization’s competitors can be
determined.
Discuss how resources, capabilities, and core
competencies lead to competitive advantage.
Explain the relationship between competitive
advantage and competitive strategies.
© Prentice-Hall 2005
6-2
Learning Outline (contd.)

What are the competitive strategies?






Describe Miles and Snow’s adaptive strategies.
Describe Abell’s business definition framework and
his competitive strategies.
Describe Porter’s generic competitive strategies.
Explain what is meant by “stuck in the middle.”
Describe an integrated low-cost differentiation
strategy.
Explain Mintzberg’s generic competitive strategies.
© Prentice-Hall 2005
6-3
Learning Outline (contd.)

Implementing, evaluating, and changing competitive
strategy



Describe how an organization’s competitive strategies
are implemented, evaluated, and changed.
Explain what role functional strategies play in an
organization’s competitive strategies.
Discuss the various competitive postures and actions
an organization can take.
© Prentice-Hall 2005
6-4
Competitive Advantage





Key concept of strategic management
Sets an organization apart
What competitive strategies are designed to
exploit
Implies other competitors
Can be eroded easily and quickly by
competitors
© Prentice-Hall 2005
6-5
Understanding the Competitive
Environment
What is competition?

When organizations battle for some desired
object or outcome
Who are our competitors?


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Industry perspective
Market perspective
Strategic groups perspective
© Prentice-Hall 2005
6-6
Figure 6.2 Industry and Market Approaches to
Defining Competitors
Industry
Market
Same Product-Service
Customer Needs
Number of Sellers
Degree of Differentiation
One
Pure Monopoly
Low
Few
Pure Oligopoly
Low
Few
Differentiated Oligopoly
Many
Monopolistic Competition
High
Many
Pure Competition
None
© Prentice-Hall 2005
Medium
6-7
Table 6.1
Possible Strategic Dimensions for Identifying Strategic Groups
•
•
•
•
•
•
•
•
•
•
•
Price
Quality
Level of vertical integration
Geographic scope
Product line breadth-depth
Level of diversification
R&D expenditures
Market share
Profits
Product characteristics
Any other relevant strategic factor
© Prentice-Hall 2005
6-8
Figure 6.3 Strategic Groups: Cosmetics Industry
Distribution
Strategy
Selective
Department
Store
MassDiscount
Group E
Avon
Mary Kay
Origins
The Body Shop
Group F
Elizabeth Arden
Chanel
Christian Dior
Group C
Estée Lauder
Clinque
Color Me Beautiful
Zhen
Chantel
L’Oreal
Group B
Group A
Revlon
Maybelline
Ultima
Cover Girl
Prescriptives
Almay
Max Factor
Sally Hansen
Coty
Bonne Bell
Wet ’n Wild
Low
Medium
Price
Strategy
© Prentice-Hall 2005
Group D
Adrian Arpel
Charles of the Ritz
Lancôme
High
6-9
The Role of Resources and Distinctive
Capabilities in Gaining Competitive
Advantage
Every organization has resources and
capabilities to do whatever it’s in business to do



Some organizations “can do,” others “can’t do”
Competitive advantage implies gaining the edge on
others
Organizations strive for sustainable competitive
advantage and set the stage for competition –
intense, moderate, or mild.
© Prentice-Hall 2005
6-10
Competitive Strategy

Exploits competitive advantage

By finding ways to use resources and
distinctive capabilities

Which sets the organization apart from its
competitors
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6-11
What are the Competitive Strategies?
Contrary to expectations, the number of ways
to define competitive strategy are limited

Traditional approaches

New perspectives
© Prentice-Hall 2005
6-12
Table 6.2
Characteristics of Miles and Snow’s Adaptive (Competitive) Strategies
Strategy
Characteristics
Prospector • Organization seeks innovation
• Demonstrated ability to survey dynamic environment and develop new
products-services to fit the changing environment
• Frequently and continually innovating, developing, and testing new
products-services
• Competitors are uncertain about prospector’s future strategic decisions and
actions
Defender
• Searches for market stability
• Produces only a limited product line for a narrow segment of total potential
market
• Seeks to protect (defend) its well-established business
• Does whatever is necessary to aggressively prevent competitors from
entering their turf
• Can carve out and maintain niches within its industry that competitors find
difficult to penetrate
© Prentice-Hall 2005
6-13
Table 6.2 (contd.)
Characteristics of Miles and Snow’s Adaptive (Competitive) Strategies
Strategy
Characteristics
Analyzer
• Strategy of analysis and imitation
• Thoroughly analyzes new business ideas (products, services, markets)
before deciding to jump in
• Watches for and copies the promising and successful ideas of prospectors
Reactor
•
•
•
•
Lacks coherent strategic plan
Simply reacts to environmental changes
Makes strategic adjustments only when finally forced to do so
Unable to respond quickly to environmental changes because resourcescapabilities are lacking or are not developed or exploited properly
© Prentice-Hall 2005
6-14
Abell’s Business Definition
Framework

A business can be defined using three
dimensions

Customer groups – who we’re going to serve
Customer needs – what customer need we’re
attempting to meet
Technology or distinctive competencies –
how need is met


© Prentice-Hall 2005
6-15
Figure 6.4 Abell’s
Competitive Strategies
Level of Market
Segment Differentiation
High
Broad
None
Differentiated
Undifferentiated
Competitive
Market Scope
Narrow
Focus
© Prentice-Hall 2005
6-16
Porter’s Generic Competitive
Strategies

Competitive advantage comes from only 1 of 2
sources




Having the lowest costs in the industry
Possessing significant and desirable differences from
competitors
The second factor is the scope of product-market
Mix of these factors provide the basis for:
 Cost leadership strategy (or low-cost strategy)
 Differentiation strategy
 Focus strategy
© Prentice-Hall 2005
6-17
Figure 6.5 Porter’s
Generic Competitive
Strategies
Competitive
Advantage
Low Costs
Product-Service
Differences
Broad
Cost Leadership
Differentiation
Narrow
Focus
(Cost)
Focus
(Differentiation)
Competitive
Market Scope
© Prentice-Hall 2005
6-18
Contemporary Perspectives on
Competitive Strategy
 Newer perspectives provide an expanded, and
perhaps more realistic, description of what
competitive strategies organizations are using

Integrated low-cost differentiation strategy

Mintzberg’s generic competitive strategies
© Prentice-Hall 2005
6-19
Figure 6.7 Mintzberg’s
Generic Competitive
Strategies
By Price
By Marketing Image
By Product Design
Differentiation
By Product Quality
By Product Support
Undifferentiated
© Prentice-Hall 2005
6-20
Implementing Competitive Strategy


Without implementation a strategy is nothing
more than an idea
Implementing competitive strategies

The role of functional strategies
• What strategy is most appropriate?
• How is that strategy implemented?

Competitive postures and actions
• Offensive moves
• Defensive moves
© Prentice-Hall 2005
6-21
Evaluating and Changing Competitive
Strategy


Responsibility of managing strategically
doesn’t stop after implementation
Evaluation of competitive strategy assesses:



Various functional areas
Activities performed in those areas
Change when evaluation shows the strategy
• Doesn’t have the intended impact
• Hasn’t resulted in desired levels of performance
© Prentice-Hall 2005
6-22
Chapter Six
Questions
© Prentice-Hall 2005
6-23