1. Group 2: Garrett Blevins, Devin Roberson, Ryan Pollard, Devin Mcbryde
Foundations of Strategy
Chapter 4: The nature and sources of competitive advantage
Group 2: Garrett Blevins, Devin Roberson, Ryan Pollard, Devin Mcbryde

2. Introduction Deeper look at competitive advantage. Learning objectives
Creating competitive advantage over a rival
Predicting potential for competition to wear away competitive advantage through imitation
Recognize how resource conditions create imperfections in the competitive process that offer opportunities
Identify potential sources of advantages
Appreciate the pitfalls of being ‘stuck in the middle’.

3. Singapore Airlines (SIA)
Brief History
Roots can trace back to 1947 but in the the early 1970’s they severed ties and became an independent entity. In the 70’s and 80’s SIA added routes to India, Asia, Canada, Europe and the US.
Partly owned by the Singapore government but were operationally free from government intervention.
Claim to Fame
SIA developed a reputation for providing its passengers with a high-quality air travel experience.
Prides themselves on being the ‘most awarded’.

4. SIA Strategy Two Pillar Strategy Planes
Keeps their fleet young. Average age is 81 months while the industry average fleet age is 128 months. New aircrafts mean are more fuel efficient and require less repair than those of its rival.
Invests in new cabin products (in-flight entertainment systems and newly designed seats)
People:
Employed 23,000 people in 2013.
Hires first-class university graduates because it has a reputation for offering excellent training and experience.
Spends $70 million/yr putting each employee through 110 hours of retraining annually. (a lot of focus on embedding the culture of customer service.)

5. SIA Strategy Continued...
Any opportunity to cut costs is taken
Modest premises
Training is done within the airline’s offices and delivered by senior members
An extra flight attendant is on each flight. Although it adds 5% to labour costs, it contributes greatly to the the airline’s reputation. This allows SIA to compete on factors other than price.
SIA tries to achieve both differentiation and cost saving through its approach to innovation.
The company is willing to evolve as quickly as needed to keep their customer service advantage.

6. Emergence of Competitive Advantage
How does this change happen?
Internally
Some firms have a greater creative and innovative capability.
Externally (change of customer demand, prices and technology)
Resource assortment among firms means differential impact
Some firms are faster and more effective in exploiting change

7. Emergence of Competitive Advantage Cont...
Internal Sources of Change
Generated internally through innovation.
Innovation creates the advantage for the innovator while undermining it for the firms.
External Sources of Change
The change must have differential effects on companies because of their different resources and capabilities or strategic positioning.

8. Sustaining Competitive Advantage
Once established, competitive advantage is eroded by competition
Imitation is the most direct form of competition; thus, for competitive advantage to be sustained, barriers to imitation must exist.
Isolating Mechanisms: Term used to describe the barriers that protect a firm’s profits from being driven down by the competitive process.

9. Competitive Imitation
To identify the sources of isolating mechanisms, we need to examine the process of competitive imitation.
For one firm to successfully imitate the strategy of another, it must meet four conditions:
Identification
Incentive
Diagnosis
Resource Acquisition

10. Identification: Obscuring Superior Performance
A simple barrier to imitation is to obscure the firm’s superior profitability.
According to George Stalk of the Boston Consulting Group, “one way to throw competitors off balance is to mask high performance so rivals fail to see your success until it’s too late.”
Dominate a niche market
Remain Private: Avoid disclosing financial performance

11. Incentive: Deterrence & Pre-emption
A firm may avoid competition by undermining the incentives for imitation by persuading rivals that imitation will be unprofitable.
Deterrence - Signal aggressive intentions to imitators.
Pre-emption: Occupy existing and potential strategic niches to reduce the range of investment opportunities.
Proliferation of product varieties by a market leader.
Large investments in production capacity ahead of the market demand.
Patent Proliferation

12. Diagnosis: Causal Ambiguity & Uncertain Imitability
In order for a firm to imitate the competitive advantage of another, it must understand the basis of its rival’s success.
Causal Ambiguity
Uncertain Imitability

13. Resource Acquisition & Capabilities
If the sources of the firm’s competitive advantage have been diagnosed, the imitator must assemble the resources and capabilities necessary.
Buy them or Build them
Time is crucial
Must base competitive advantage on resources and capabilities that are immobile and difficult to replicate.
First-mover Advantage

14. Types of Competitive Advantage
Cost Leadership
Supply an identical product or service at a lower cost
Differentiation Advantage
Supply a product or service that is differentiated in such a way that a customer is willing to pay a premium

15. Strategy and Cost Advantage
Seven Cost Drivers
Economies of Scale
Economies of Learning
Production Techniques
Production Design
Input Costs Capacity Utilization
Residual Efficiency

16. Value Chain Analysis Break down firm into separate activities
Establish the relative importance of different activities in the total cost of the product
Compare costs by activity
Identify cost drivers
Identify linkages
Identify opportunities for reducing costs

17. Differentiation Advantage
Differentiation is not just about offering different product features
Firms should identify and understand every interaction between the firm and the customer
Range of differentiation opportunities depend on characteristics of the product
A Car or restaurant offers has greater opportunities to differentiate than a commodity like cement but cement can still do things like deliver the product on time every time to separate themselves from the competition.
Titleist has many opportunities to differentiate there proucts because they have a wide variety of products that can be improved and changed constantly. For example they can use research and develpoment to build a driver that goes 15 yards further than its competiton. They could also come out with a clothing line that targeteted younger players

18. Stages of Value Chain Analysis for Differentiation Advantage
Construct a value chain for the firm and the customer.
Considers more than just the immediate customer.
Ex. A steel supplier who supplies car manufactures and construction companies.
2. Identify the drivers of uniqueness in each activity.
Assesses the firm's potential for differentiating its product.
It is important for firms to consider more than just the immediate customer.
This helps a firm determine whether they can differentiate with ease or if they have a commidity where they should focus more on the service side of the product.

19. Continued
3. Select the most promising differentiation variables for the firm.
Determine if the firm can differentiate at a lower cost than the competition.
The ease at which different type of uniqueness can be sustained.
4. Locate the linkages between the value chain of the firm and that of the buyer.
The objective of differentiation is to yield a price premium for the firm.

20. “Stuck in the Middle” Source Of Competitive advantage Low Cost
Differentiation
Cost leadership
Differentiation
Industry Wide
Single Segment
Focus