DHV '04 DHV 2004 Competitive and Functional Strategies

DHV '04 Competitive and Functional Strategies Class discussion Resource based view vs. the market focused view of the firm Competitive advantage

DHV '04 Yesterday Strategic alignment Strategy formulation Strategy and organization Frameworks for analysis

DHV '04 Evaluation Criteria for a unique resource Valuable to the customer Durability –Scarcity –Imperfect Imitability –Imperfect tradability –Substitutability Competitive advantage Appropriability

DHV '04 Sustaining Competitive Advantage Consumer Surplus Value Chain Surplus Firm’s portion of surplus Factor cost for the value chain Firm’s Profitability Industry long term profitability Time Profitability

DHV '04 Market Focused View (Customer Orientation) Attain Customer Information Disseminate Customer Information Implementation

DHV '04 Market Focused View Defining customers to be served (and those not to be served) –Segmentation and re-segmentation is a dynamic process Understanding their current and latent wants of existing and potential customers Organizing the firm to respond to these customer requirements.

DHV '04 Market Focus Matrix Competitor Focus Customer Focus High Low Strategically Integrated Marketing Warriors Customer Preoccupied Strategically Inept

DHV '04 Pre Sale Service Sale of tangible product Post Sale Service Trial Needs Assessment Evaluation Information Service Training Service at Sale Service at Sale e.g. Financing Delivery/ Installation Instruction The Augmented Product

DHV '04 What are the characteristics of a “service” business? Joint production with the consumer Site location dictated by the customer Consumed at the time of production, time perishable, (no inventory) Value in intangible forms, performance not a tangible object Quality harder to define and measure Labor intensive Can’t drop it on your foot. Not a tangible product or construction Note: tangible products are the physical embodiment of the service they provide

DHV '04 Service Industries Dominate Advanced Economies Ref: The Economist Feb 20,1993

DHV '04 U.S. GNP Contributions of Sectors Services Material Information 11% 9% 30% 50% 20%80% 59% 41% Products

DHV '04 Repurchase behavior RepeatSwitch High Low Customer Satisfaction Satisfied repeaters Satisfied switchers Dissatisfied repeaters Dissatisfied switchers Loyalty and Retention

DHV '04 LOYALTY (Retention) SATISFACTION MEASURE extremely dissatisfied very satisfied APOSTLE TERRORIST Customer Satisfaction Survey measures Levels of satisfaction

DHV '04 Myths About Services Lower value - service and goods value added are essentially the same Low capital intensity - capital investment/ worker higher in services Small scale - some of the largest companies are in service WalMart, ATT, Microsoft. Economies of scale in service Services can't produce wealth - growth rates related to productivity growth. Service productivity measurement problem because of changing quality

DHV '04 Eight Dimensions Of Product Quality Performance Features Reliability Conformance to specification Durability Serviceability Aesthetics Perceived quality

DHV '04 Dimensions Of Service Quality Tangibles Reliability Responsiveness Assurance Empathy

DHV '04 Performance Time Performance capability Limits of Performance Performance improvement slows over time Technical limits of performance Decreasing returns to investment Changes in market demand

DHV '04 Performance Time Customer requirements along one performance dimension Performance capability gap surplus Performance standard Performance and Market Demand

DHV '04 Product Architectures and Integration Performance Time Independent Architectures, Integrated Companies Modular Architectures Nonintegrated Companies Ref. Figure 5-1, P 127 from Innovator’s Solution

DHV '04 Most demanding customers Least demanding customers Current performance trajectory New performance trajectory Disruptive technology Performance change Time Performance Range of demanded performance Supply and Demand in Product Performance 1 1 Ref. figure 1 from “Disruption, disintegration and the dissipation of differentiability” by Clayton M. Christensen, et al. from Industrial and Corporate Change, v11, n5 p

DHV '04 Takeaway Distinctive competencies can create sustainable competitive advantage. Advantage is sustained by investment in growing the competence and building layers of advantage. When there is rapid technological change core competencies can become core rigidities. Distinctive competencies are capable of creating a sustainable competitive advantage if they have these characteristics: –Durable. –Profits can be appropriated. –Create customer demand.