The Nature and Sources of Competitive Advantage ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Learning Objectives By the time you have completed this topic you will be able to: understand the meaning of the term ‘competitive advantage’ and identify the circumstances in which a firm can create a competitive advantage over a rival predict the potential for competition to wear away competitive advantage through imitation recognise how resource conditions create imperfections in the competitive process that offer opportunities for competitive advantage distinguish the two primary types of competitive advantage: cost advantage and differentiation advantage identify potential sources of cost and differentiation advantage and recommend strategies to enhance competitiveness appreciate the pitfalls of being ‘stuck in the middle’ and the challenge of achieving effective differentiation and low cost together ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Emergence of Competitive Advantage ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Competitive Advantage from Innovation: New Game Strategies Strategic Innovation: Creating customer value from novel products, experiences or modes of product delivery. Strategic innovation may involve: Creating new industries, e.g. Xerox and plain paper copies; Craig McCaw and wireless telephone technology Creating new customer segments, e.g. Apple established the market for home computers; the Nintendo Wii extended the market for video games to new types of customer New sources of competitive advantage; novel approaches to creating consumer value, e.g. Dell Computer’s direct sales model; Cirque du Soleil’s reinvention of the circus ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Sustaining Competitive Advantage: Types of Isolating Mechanism ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Sources of Competitive Advantage ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Features of Cost Leadership and Differentiation Strategies ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Drivers of Cost Advantage ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Value Chain Analysis of Cost Advantage Disaggregate the firm into separate activities Establish the relative importance of different activities with respect to the total cost of the product Identify cost drivers and linkages within the value chain Identify opportunities for reducing costs ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Using the Value Chain Analysis to Explore Cost-Saving: Singapore Airlines Porter’s category Examples of airline activities that fit Porter’s categories Cost-saving opportunities and initiatives Inbound logistics Aircraft, fuel, food and drink Young fleet – the lower average age of SIA’s aircraft offer greater fuel efficiency. Staff are trained to reduce food and drink wastage. Operations Airport and gate operations, ticketing, flight scheduling, baggage handling, repair & maintenance SIA endeavors to reduce costs through improving efficiency and adopting best practices. Outbound logistics Flight connections, partnerships and alliances with other operators Routes are constantly being added and subtracted from the company’s route map to optimize load factors. Marketing & sales Promotion, advertising The company’s success in achieving awards provides free publicity and promotes the company and its brand. Service Pre and post flight service Online booking of meals and seats allows better forward planning. Social media provides a low cost means of building connections with customers. Firm infrastructure Management system – yield management, IT services, budgeting Small headquarters located in low-cost location. HRM Recruitment and Reward Training Training is in-house and delivered by senior cabin crew rather than third parties. Training emphasizes both attentive service and waste control. Technology development IT systems Non-strategic IT services outsourced to low-cost providers. Off-the shelf software systems purchased. Procurement Acquisition of aircraft and other inputs A culture of hard bargaining ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Using the Value Chain to Identify Differentiation Potential on the Supply Side ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Porter’s Generic Strategies ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Stuck in the Middle: Porter’s Three Generic Strategies ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com