Chapter 4 Group 3: Coleman Crook, Jessica Crumpton, Ashton Davis, Sarah Ellens, and Kevin levesque

Objectives Integrating competitive analysis Looking at dynamic relationships between competitive advantage and competitive process. Understand characteristics of a market and identify opportunities for challenges

Singapore Airlines

Prides itself on being the “most awarded airline” and having a reputation for providing passengers with high-quality experience. Strategy is based on two main components- its planes and its people. People: Offers excellent training and experience Planes: More fuel efficient and require less repairs Encouraged to find ways to reducing waste and bonus’s are used to incentivize cost cutting behavior.

The Emergence of Competitive Advantage When two or more firms compete within the same market, one firm posesses a competitive advantage over its rivals whin it earns (or has the potential to earn) a persistently higher rate of profit Toyota- mass produced cars SAP- ERP Software Southwest- affordable flights

External Sources of change Can create an advantage of a disadvantage depending on magnitude of change and extent of firm’s strategic differences Industry Environment Tobacco VS Toy industry

Competitive Advantage from responsiveness to change The competitive advantage that arises from external change also depends on firms’ ability to respond to change Opportunities for change- Entrepreneurship Abilities Predict change Reaction time ( time-based competition)

Case 4.1 Singapore Airlines Gaining or losing competitive advantage as a consequence of external change Airbus 380

Competitive Strategies from innovation: “new game” strategies Changes that create competitive advantage can be created internally through innovation Strategic Innovation: value for customers through new products, experiences of mode of product delivery *Key source of competitive advantage, including new business models

Examples Nucor Steel Southwest Nike Apple

Shaping innovation strategies New Industries- Kim and Mauborgne, creating new markets is the purest form of blue ocean strategy (uncontested market space) New customer segments- Apple, VCRs, Wii New sources of competitive advantage- (Blue Ocean) Dell’s ordering system, Cirque du Solei

Sustaining competitive advantage Ability of competitors to challenge Imitation Innovation Barriers Isolating mechanisms

Process of Imitation Identification Identify that the firm possesses competitive advantage Incentive Believe that they may earn superior returns Diagnosis Diagnose features of rival’s strategy Resource acquisition Must have ability to acquire resources and capabilities necessary

Barrier: Obscure Superiority “Mask” high performance Private company Avoid disclosing financial performance

Deterrence and Pre-Emption Persuade rivals that imitation will be unprofitable Pre-emption Proliferation of product varieties Large investments in production capacity ahead of growth Patent proliferation- for technology based opportunities

Pre-Emption Continued Two flaws must be present Small market relative to efficient scale of production First-mover advantage – preferential access to information and resources

Diagnosing competitive advantage Identification of basis of rival’s success Causal ambiguity Multidimensional competitive advantage Uncertain imitability Caused by causal ambiguity

Acquiring resources and capabilities Time it takes to acquire resources determines time able to sustain competitive advantage Imitation may take place quickly if limited resources are required

Cost Advantage – same product/lower price 1. Cost leader Differentiation Advantage – customer pays a higher price for differentiation. 1. Uniqueness Types of Competitive Advantage Cost vs. Differentiation

Cost Leadership Strategy – efficient plants, overhead control, outsourcing Requirements – access to capital, frequent reports, job specialization, incentives for quantitative performance Differentiation Strategy – focus on advertising, design, service, quality Requirements – marketing abilities, cross-functional coordination, incentives linked to qualitative performance

Cost Drivers: Economies of scale – through specialization Economies of Learning – increase in skills Production Techniques – innovation Product Design – standardization Input Costs – bargaining power, location Capacity Utilization – flexible adjustments Residual Efficiency – overall management Points out inefficiencies and which adjustments could be made

Value Chain Analyses: 1. Breakdown the firm 2. Establish importance associated with costs – major sources 3. Compare costs by activity – compared to competitors 4. Identify costs drivers 5. Indentify Linkages 6. Identify cost saving opportunities

Stages of value chain analysis for differentiation advantage 1. Construct a value chain for the firm and the customer. - Consider firms further downstream in value chain. 2. Identify the drivers of uniqueness in each activity. - Variables & Actions to achieve uniqueness.

Stages of value chain analysis for differentiation advantage 3. Select the most promising differentiation variables for the firm. - Greatest potential to differentiate - Linkages among activities - Sustainability of uniqueness 4. Locate linkages between the value chain of the firm and that of the buyer. - Why is the customer buying your product?

Rise and Fall of Starbucks Howard Shultz Rejoined in 2008 Keys to failure 70% increase in coffee shops McDonald’s Pressure Over expansion Keys to success Employee development Focus on in home products Community feel