1. The Nature and Sources of Competitive Advantage
Chapter 4
The Nature and Sources of Competitive Advantage

2. LEARNING OBJECTIVES
By the time you have completed this topic you will be able to :
understand the meaning of the term ‘competitive advantage’ and identify the circumstances in which a firm can create a competitive advantage over a rival;
predict the potential for competition to erode competitive advantage through imitation;
recognise how resource conditions create imperfections in the competitive process that offer opportunities for competitive advantage;
distinguish the two primary types of competitive advantage: cost advantage and differentiation advantage;
use the value chain framework to analyse sources of cost and differentiation advantage and to recommend strategies for enhancing competitiveness;
appreciate the pitfalls of being ‘stuck in the middle’ and the challenge of achieving effective differentiation and low cost together.
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3. TARGET CANADA – EXPECT MORE
Target USA had sales of $72.5 billion in 2013.
Second largest discount retailer in the USA
Target opened its first store in Canada in 2013.
In 2013, Target Canada had sales of $1.3 billion in Canada and lost $941 million.
Was Target able to achieve a competitive advantage?
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4. THE EMERGENCE OF COMPETITIVE ADVANTAGE
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5. COMPETITIVE ADVANTAGE FROM RESPONSIVENESS TO CHANGE
The competitive advantage that arises from external change also depends on the firm’s ability to respond to change.
The firms ability to respond is dependent upon their ability to anticipate change and how quickly they can respond.
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6. TARGET CANADA – EXPECT MORE
By August 2013 Target ranked last among major retail chains in Canada.
Key complaints:
Higher prices,
Empty shelves,
Reduced selection.
Target had a lack of understanding of Canadian customers.
By January 2014, Target’s cumulative losses in Canada were in excess of $2,000,000,000 (billion!)
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7. COMPETITIVE ADVANTAGE FROM INNOVATION:
NEW GAME STRATEGIES
Strategic Innovation: creating customer value from novel products, experiences, or modes of product delivery.
Strategic innovation may involve:
creating new industries: e.g., Xerox and plain paper copies; Craig McCaw and wireless telephone technology;
creating new customer segments: e.g., Apple established the market for home computers; the Nintendo Wii extended the market for video games to new types of customer;
new sources of competitive advantage: novel approaches to creating consumer value, e.g., Dell Computer’s direct sales model; Cirque du Soleil’s reinvention of the circus.
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8. SUSTAINING COMPETITIVE ADVANTAGE: TYPES OF ISOLATING MECHANISM
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9. WHAT WENT WRONG FOR TARGET?
Target’s Canadian stores did not meet expectations.
Great design and superb pricing were left at the border.
Canadians got higher prices , reduced selection.
Walmart’s supply chain creates lower product costs, variety and selection, and superior value pricing.
Canadian Tire uses a “smart” store format enabling national and local retail strategies.
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10. TARGET CANADA – EXPECT MORE
In January 2015, with losses in excess of $2 billion, Target announced they were retreating from the Canadian market. Target set aside $US 57 million for the 17,000 Canadian employees who lost their jobs.
Target gave the CEO who resigned during the failed Canadian expansion
$US 61 million!
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11. SOURCES OF COMPETITIVE ADVANTAGE
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12. FEATURES OF COST LEADERSHIP AND DIFFERENTIATION STRATEGIES
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13. DRIVERS OF COST ADVANTAGE
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14. VALUE CHAIN ANALYSIS OF COST ADVANTAGE
Break down the firm into separate activities.
Establish the relative importance of different activities with respect to the total cost of the product.
Compare costs by activity.
Identify cost drivers and linkages within the value chain.
Identify opportunities for reducing costs.
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15. USING THE VALUE CHAIN ANALYSIS TO EXPLORE COST-SAVING: SINGAPORE AIRLINES
Porter’s category
Examples of airline activities that fit Porter’s categories
Cost-saving opportunities and initiatives
Inbound logistics
Aircraft, fuel, food and drink
Young fleet, fuel efficient aircrafts, decrease of waste in food and drink
Operations
Airport and gate operations, ticketing, flight scheduling, baggage handling, repair & maintenance
Repairs account for 4% of SIA’s total cost (1% less than rivals)
Outbound logistics
Flight connections, partnerships and alliances with other operators
Routes are added and terminated to maximise load factors
Marketing & sales
Promotion, advertising
Awards enhance the company’s brand image. Social media are a low-cost way to improve the relationship with customers
Service
Pre and post flight service
Online meals and seats’ booking allows forward planning
Firm infrastructure
Management system – yield management, IT services, budgeting
Small headquarters located in low-cost site
HRM
Recruitment and Reward
Training
Training emphasizes “waste control”, bonuses depend on company profitability, compensation based on Canadian rates
Technology development
IT systems
Non-strategic IT services outsourced to low-cost providers
Procurement
Acquisition of aircraft
Culture of hard bargaining
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16. USING THE VALUE CHAIN TO IDENTIFY DIFFERENTIATION POTENTIAL ON THE SUPPLY SIDE
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19. PORTER’S GENERIC STRATEGIES
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20. SUPERIOR VALUE ADVANTAGE
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21. STUCK IN THE MIDDLE ALMOST GUARANTEES LOW PROFITABILITY
Is Target Canada stuck in the middle?
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22. CopyRIGHT
Copyright © 2015 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.