1 Core Competencies and Strategy The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals. (Consider the VRIO framework: value, rareness, non-imitable, organizational competence) An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets Business-levelstrategy Strategy Corecompetencies

2 Five Generic Strategies Competitive Advantage Competitive Scope CostUniqueness Broad target Narrow target Cost Leadership Differentiation Focused Cost Leadership Focused Differentiation Integrated Cost Leadership/Differentiation

3 l Product features l Performance l Mix & variety of products l Service levels l Small vs. large buyers l Process technology l Wage levels l Product features l Hiring, training, motivation Factors That Drive Costs l Economies of scale l Asset utilization l Capacity utilization pattern Seasonal, cyclical l Interrelationships l Order processing and distribution l Value chain linkages Advertising & sales Logistics & operations, & etc.

4 Factors That Drive Differentiation Unique product features Unique product features Unique product performance Unique product performance Exceptional services Exceptional services New technologies New technologies Quality of inputs Quality of inputs Exceptional skill or experience Exceptional skill or experience Detailed information Detailed information

5 Differentiation Strategy and the Five Forces of Competition Rivalry Among Competing Firms Can defend against competition because: l brand loyalty to differentiated product offsets price competition Rivalry Among Competing Firms Bargaining Power of Buyers Bargaining Power of Suppliers Threat of New Entrants Threat of Substitute Products Five Forces of Competition

6 Differentiation Strategy and the Five Forces of Competition Bargaining Power of Buyers Can mitigate buyer power because: l well differentiated products reduce customer sensitivity to price increases Rivalry Among Competing Firms Bargaining Power of Buyers Bargaining Power of Suppliers Threat of New Entrants Threat of Substitute Products Five Forces of Competition

7 Differentiation Strategy and the Five Forces of Competition Bargaining Power of Suppliers Can mitigate suppliers’ power by: l absorbing price increases due to higher margins l passing along higher supplier prices because buyers are loyal to differentiated brand Rivalry Among Competing Firms Bargaining Power of Buyers Bargaining Power of Suppliers Threat of New Entrants Threat of Substitute Products Five Forces of Competition

8 Differentiation Strategy and the Five Forces of Competition Threat of New Entrants Can defend against new entrants because: l new products must surpass proven products or, l new products must be at least equal to performance of proven products, but offered at lower prices Rivalry Among Competing Firms Bargaining Power of Buyers Bargaining Power of Suppliers Threat of New Entrants Threat of Substitute Products Five Forces of Competition

9 Differentiation Strategy and the Five Forces of Competition Threat of Substitute Products Well positioned relative to substitutes because: l brand loyalty to a differentiated product tends to reduce customers’ testing of new products or switching brands Rivalry Among Competing Firms Bargaining Power of Buyers Bargaining Power of Suppliers Threat of New Entrants Threat of Substitute Products Five Forces of Competition