Summary of the Chapters FS Ch.4-6 BOS Ch. 4-6 Team 4

The Nature & Sources of Competitive Advantage Foundations of Strategy Ch.4

Competitive Advantage One firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit

Sustaining Competitive Advantage Barriers ▫disguise or hide high performance Deterrence ▫Convince competition that imitation will not be profitable Pre-Emption ▫Increase product variety ▫Patent all new products

Types of Competitive Advantage Cost vs Differentiation ▫Cost  Similar product but lower price ▫Differentiation  Customer pays more for a more unique product

Strategies for Cost and Differentiation Cost ▫Focuses on efficiency, controlling overhead, outsource when possible Differentiation ▫Focuses on advertising campaigns, unique designs, unmatched quality

Business Strategies in Different Industry & Sectoral Contexts Foundations of Strategy: Chapter 5

Industry Life Cycle Is the supply-side equivalent of the Product Life Cycle 4 phases ▫Introduction(or emergence) ▫Growth ▫Maturity ▫Decline 2 factors that drive ILC ▫Demand Growth ▫Production Knowledge

Dominant Designs & Technical Standards Dominant Design: product architecture that defines the look, functionality and production method. It is accepted as the industry standard; design may not be proprietary or hold a profit advantage Overall configuration of a product or system Technical Standard: technology or specification that is important for compatibility; intellectual property Emerge when network effects arise – or a need for users to connect in some way

Public Sector Defined by: Ownership Funding Public Goods Market Failure Interests Served

Not-for-profits Surplus funds are used to pursue organizational goals Education, Health Care, Social Services, Arts and Culture, Religion

Key Differences Between Public and Private Organizations Multiple, potentially conflicting goals Distinctive constraints and different levers An absence of market forces Monopoly power Less autonomy and flexibility Increases accountability Less predictability

Specific Impacts on Not-for-profits The employment of volunteers Fundraising

Key steps in Stakeholder Analysis 1.Identification of the list of potential stakeholders 2.Ranking stakeholders according to their importance and influence on the organization 3.Identifying the criteria that each stakeholder is likely to use to judge the organization’s performance. 4.Deciding how well the organization is doing from its stakeholders’ perspective. 5.Identifying what can be done to satisfy each stakeholder. 6.Identifying and recording longer term issues with individual stakeholders and as a group.

Scenario analysis A systematic way of thinking about how the future might unfold that builds on what we know about current trends and signals.

Foundations of Strategy Ch. 6 Technology-based Industries and the Management of Innovation

Competitive Advantage The principal link between technology and competitive advantage is innovation.  Innovation: the creation of new products and processes through the development of new knowledge or from new combinations of existing knowledge. It is the quest for competitive advantage that leads firms to invest in innovation.

Competing for Standards A standard is a format, an interface, or a system that allows interoperability. ▫Public: available to all for either free or a nominal charge ▫Private: designs are owned by companies or individuals ▫Mandatory: set by government and have the force of law ▫De Facto: emerge through voluntary adoption

Creating the Conditions for Innovation Innovation requires resources such as: ▫People ▫Facilities ▫Information ▫Time Managing creativity requires a unique environment

Focus on the Big Picture, not the Numbers Blue Ocean Strategy Chapter 4

The Big Picture Focus on the Big Picture, Not the numbers ▫Use the strategy canvas Blue Ocean strategies have three qualities ▫Focus ▫Divergence ▫Compelling tagline

Difficulty of the Canvas Drawing the strategy canvas is not an easy task Four Steps ▫Visual Awakening ▫Visual Exploration ▫Visual Strategy Fair ▫Visual Communication

EFS Eliminate-Raise-Reduce-Create Grid Eliminate Relationship Management Raise Ease of use Security Accuracy Speed Market Commentary Reduce Account executives Corporate dealers Create Confirmation Tracking

PMS Map A visualizing strategy can help managers see future growth and profits. Company’s are sorted into three different categories. Pioneers- Blue ocean strategist most powerful source of profitable growth. Value curve diverges from competition. Settlers- Have a “me to” approach to business, stuck in the red ocean. Value curve conforms to the basic shape of the industry. Migrators- “more for less business approach, offer improved value but no innovative value. The try to extend the industries value curve

PMS MAP Shift your future growth to pioneers Settlers generate cash but marginal growth. Pioneers have much growth potential but as a offset consume cash Managers should manage their portfolios wisely with a balance between profitable growth and cash flows.

Reach Beyond the Existing Demand Blue Ocean Strategy Chapter 5

Noncustomers First-Tier: Buyers who minimally purchase your industry offering=Necessity Second-Tier: Buyers who have seen what’s offered but don’t use. Third-Tier: Farthest away from an industry’s existing customers, typically this tier has not been thought of as potential customers

Biggest Catchment Companies focus on retaining existing customers and seek further market segmentation This strategy is not likely to create a Blue Ocean The point is to challenge the existing, taken for granted strategic orientations No set rule on which tier of noncustomers to focus on Focus tier that represents the biggest catchment at the time Explore if there are overlapping commonalities across all three tiers

Maximize the Blue Ocean Reach beyond demand to noncustomers De-segment opportunities to formulate new strategies If no strategies are found, move on to exploit differences among existing customers

Get the Strategy Sequence Right Blue Ocean Strategy Ch.6

The Right Strategic Sequence

Testing for Exceptional Utility Crystal Pepsi

The Six Stages of the Buyer Experience Cycle

The Six Utility Levers

The Price Corridor of the Mass

Step 1: Identify the Price Corridor of the Mass ▫Different form, Same function ▫Different form and function, same objective Step 2: Specify a Level Within the Price Corridor ▫Degree to which the product or services is protected legally through patents or copy rights ▫Degree to which the company owns some exclusive asset or core capability, such as an expensive production plant, that can block imitation

From Strategic Pricing to Target Costing Addresses the profit side of the business model Strip out costs Model T – Assembly line Three principal levers to hit the cost target

From Utility, Price, and Cost to Adoption Even an unbeatable business model may not be enough to guarantee the commercial success of a blue ocean idea. It may provoke fear and resistance among a company’s three main stakeholders: Employees Business Partners The General Public