Competitive Strategic Models Understand different competitive strategic models Hamel & Prahalad – competing for the future Porter’s generic competitive strategies Chan Kim & Mauborgne - Blue Ocean Strategy Ridderstrale & Nordstrom - Funky Business

Hamel & Prahalad propose Competitiveness by Restructuring the firm and downsizing headcount Reengineering processes and continuous improvement Reinventing industries and regenerating strategies Smaller Better Different

Primary lessons of competitive strategy Find an attractive industry segment, buy low & sell high Attractive because… They have above average profitability Sizable entry barriers (scale and scope of economies & government regulation) that keeps competitors out If you can’t get in… Redraw the industry boundaries so that What is now attractive lies outside the former boundaries (Hamel & Prahalad)

Industry’s don’t evolve! Industry leaders are the only ones who benefit from the current state of an industry Instead firms eager to enter and industry or change their position in it change the rules, they challenge accepted practice by: Redrawing segment boundaries Setting new price-performance expectations Reinventing the product or service concept (Hamel & Prahalad)

Porter’s generic competitive strategies Competitive strategy as a structuralist theory of strategy where structure shapes strategy Contends that there are 3 basic competitive strategies: Cost leadership Differentiation Focus (Michael E. Porter, 1985)

Cost leadership A firm sets out to become the low cost producer in its industry – the strategic logic requires the firm to be the cost leader, not one of several firms vying for this position Sources of cost advantage depend on the structure of the industry, & may include: Economies of scale Proprietary technology Preferential access to raw materials (Michael E. Porter, 1985) Inherent problem is that there can only be ONE cost leader in each industry using this approach

Differentiation A firm seeks to be unique in its industry in some dimension that is highly valued by buyers. Uniqueness allows a firm to charge a premium price, its factors may include: The product The delivery system The marketing approach (Michael E. Porter, 1985)

Focus A conscious choice of a narrow competitive scope, focused on a segment or group of segments in an industry, and serves those segments to the exclusion of all others It has two variants: Cost focus Differentiation focus (Michael E. Porter, 1985)

Stuck in the middle A firm that engages in each generic strategy but fails to achieve any of them is “stuck in the middle”, it possesses no competitive advantage! Becoming “stuck in the middle” is often a result of a firm’s unwillingness to make clear choices about how to compete (Michael E. Porter, 1985)

Chan Kim & Mauborgne propose Red Ocean Strategy Compete in the existing marketplace Beat the competition Exploit existing demand Make the value cost trade-off Align the firm’s activities with its strategic choice of differentiation or low cost Blue Ocean Strategy Create uncontested market space Make the competition irrelevant Create & capture new demand Break the value cost trade-off Align the firm’s activities in pursuit of differentiation and low cost

What is Blue Ocean Strategy? Some key points Is a reconstructionist theory of strategy where strategy shapes structure Is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000) Is the simultaneous pursuit of differentiation and low cost The aim is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant Is a visual framework designed to effectively build the collective wisdom of the firm and allow for effective strategy execution through simple communication Requires development and alignment of three strategy propositions: value, profit & people (www.blueoceanstrategy.com)

Blue Ocean basics The three key conceptual building blocks are: Value innovation Tipping point leadership Fair process

Value innovation Assist managers in breaking the value-cost trade-off by answering the following questions: What factors can be eliminated that the industry has taken for granted? What factors can be reduced well below the industry’s standard? What factors can be raised well above the industry’s standard? What factors can be created that the industry has never offered?

Tipping point leadership Tipping point leadership – to change the mass focus on the extremes, people, acts and activities that exercise a disproportionate influence on performance to achieve a strategic shift fast at low cost

Fair process Builds execution into strategy by creating people's buy-in up front. When fair process is exercised in the strategy making process, people: Trust that a level playing field exists Are inspired to cooperate voluntarily in executing the resulting strategic decisions There are 3 mutually reinforcing elements that define fair process: Engagement – involving individuals on strategic decisions Explanation – everyone involved or affected understands why the strategic decision has been made Clarity of expectation – managers state clearly the new rules of the game (www.blueoceanstrategy.com) Reinforces the notion of strategic intent outlined by Hamel and Prahalad Eg. GMHA

Funky business – freedom to choose Recipes of the new economy… Forget the old world order Forget what you knew yesterday Competitive advantage comes from being different! Difference in the way people think, rather than what firms make Social behavior, expectations and systems are undergoing seismic shifts Corporate complacency of yesterday has given way to insecurity and fear (Ridderstrale & Nordstrom, 2000)

The last taboo! The world is becoming more transparent What do you need to do today and tomorrow to thrive in the new world? Alberto Alessi is already doing it So, too, is Steve Jobs & Richard Branson They are all exploiting the last taboo: competing on feelings and fantasy. Get ready for E(motional)-commerce! (Ridderstrale & Nordstrom, 2000)

The age of emotional commerce Power has been transferred from those who sell to those who buy and buyers are more informed than ever before… if you can compete at an emotional level, you will achieve huge competitive advantages In almost any industry you examine, you will find that a number of firms are competing on being sexy, attractive, and creating an emotional reaction “Amazon treats you as a celebrity in that they provide you with an enormous amount of information that makes your life easier” (Jonas Ridderstråle) Non-rational commerce! It doesn’t matter what it costs I’ll still buy it…

So what strategy approach is being used here? Mobile phones plans Social networking sites Private health care

Key messages Competitive strategies require some degree of change to create something unique and different Traditional structuralist models are being challenged by reconstructionist models as the “new” best way forward