1. 5 Strategic Management Competitive Strategies
Following the discussion of functional strategies in the previous chapter, the attention now shifts to competition and strategies related to securing a competitive advantage.

2. Learning Outline What is competitive advantage and how do we get it?
Explain the importance of competitive advantage.
Describe how an organization’s competitors can be determined.
Discuss how resources, capabilities, and core competencies lead to competitive advantage.
Explain the relationship between competitive advantage and competitive strategies.
The learning outline is in three parts. The first relates to what competitive advantage is and how does an organization get it.

3. Learning Outline (contd.)
What are the competitive strategies?
Describe Miles and Snow’s adaptive strategies.
Describe Porter’s generic competitive strategies.
Explain low-cost and differentiation
Explain what is meant by “stuck in the middle.”
Describe an integrated low-cost differentiation strategy.
Explain Mintzberg’s generic competitive strategies.
The second learning objective is to look at various typologies that help explain competitive strategies.

4. Learning Outline (contd.)
Implementing, evaluating, and changing competitive strategy
Describe how an organization’s competitive strategies are implemented, evaluated, and changed.
Explain what role functional strategies play in an organization’s competitive strategies.
Discuss the various competitive postures and actions an organization can take.
The final learning objective of this chapter is to see how competitive strategies are implemented, evaluated, and, if necessary, changed.

5. Competitive Advantage
Competitive advantage exists when a firm’s strategy gives it an edge in
Defending against competitive forces and
Securing customers
Convince customers firm’s product / service offers superior value
Offer buyers a good product at a lower price
Use differentiation to provide a better product buyers think is worth a premium price
Can be eroded easily and quickly by competitors
As reiterated continually throughout the text, competitive advantage is a key concept in strategic management. This slide looks at various aspects of competitive advantage.

6. Understanding the Competitive Environment
What is competition?
When organizations battle for some desired object or outcome
Who are our competitors?
Industry perspective
Market perspective
Strategic groups perspective
Because competitive advantage implies that there are other competitors, it is important to first look at the competitive environment. Interestingly, there are three distinct perspectives on who a firm’s competitors are.

7. Industry and Market Approaches to Defining Competitors
Same Product-Service
Customer Needs
Number of Sellers Degree of Differentiation
One Low
Pure Monopoly
Few Low
Pure Oligopoly
This slide points out the contrasting view of competitors by the industry and market perspectives. Note that the industry perspective approaches competition from the point-of-view of product or service, while the market approach views it in terms of needs met.
Few Medium
Differentiated Oligopoly
Many High
Monopolistic Competition
Many None
Pure Competition

8. Identifying Strategic Groups
Possible Strategic Dimensions for Identifying Strategic Groups
Price •
• Quality
• Level of vertical integration
• Geographic scope
• Product line breadth-depth
• Level of diversification
• R&D expenditures
• Market share
• Profits
• Product characteristics
• Any other relevant strategic factor
A strategic group (the third perspective on competition) is a set of firms competing within an industry that have similar strategy, resources, and customers. Strategic groups were mentioned earlier in the discussion of Porter’s five forces.

9. Strategic Groups: Vehicles Industry
Group E
Nissan
Mazda
Dayhatsu
Group F
Porche
Ferrari
Selective
Department
Store
Mass-
Discount
Group D
RolsRois
Kontenental
Group C
Mercedes
BMW
Audi
Infinity
Lexus
Distribution
Strategy
Price and distribution strategy are two factors that are important to the cosmetics industry. Six distinct strategic groups can be identified.
Group B
Toyota
Honda GM
Renault
Volvo
Group A
Hayondai
Dayoo
KIA
Low Medium High
Price
Strategy

10. Every organization has resources and
The Role of Resources and Distinctive Capabilities in Gaining Competitive Advantage
Every organization has resources and
capabilities to do whatever it’s in business to do
Some organizations “can do,” others “can’t do”
Competitive advantage implies gaining the edge on others
Organizations strive for sustainable competitive advantage and set the stage for competition – intense, moderate, or mild.
This slide revisits resources and distinctive capabilities (discussed in detail in chapter 4) and ties them to the concept of competitive advantage. The quest for competitive advantage may be in an intense, moderate, or mild competitive environment.

11. Competitive Strategy Exploits competitive advantage
By finding ways to use resources and distinctive capabilities
Which sets the organization apart from its competitors
If competitive advantage is the “end,” then competitive strategy is the “means.” This slide introduces the concept of competitive strategy.

12. What are the Competitive Strategies?
Contrary to expectations, the number of ways to define competitive strategy are limited
Traditional approaches
New perspectives
It is important to underscore that there a limited number of competitive strategy alternatives. The approaches can be classified as either traditional or new.

13. Characteristics of Miles and Snow’s Adaptive (Competitive) Strategies
Strategy Characteristics
Organization seeks innovation
Demonstrated ability to survey dynamic environment and develop new products-services to fit the changing environment
Frequently and continually innovating, developing, and testing new products-services
Competitors are uncertain about prospector’s future strategic decisions and actions
Searches for market stability
Produces only a limited product line for a narrow segment of total potential market
Seeks to protect (defend) its well-established business
Does whatever is necessary to aggressively prevent competitors from entering their turf
Can carve out and maintain niches within its industry that competitors find difficult to penetrate
Prospector • •
Defender •
Miles and Snow’s approach is based on the strategies organizations use to adapt to their uncertain competitive environments. Four strategic postures are possible, the first of which are discussed in this slide.

14. Characteristics of Miles and Snow’s Adaptive (Competitive) Strategies
Strategy Characteristics
Strategy of analysis and imitation
Thoroughly analyzes new business ideas (products, services, markets) before deciding to jump in
Watches for and copies the promising and successful ideas of prospectors
Lacks coherent strategic plan
Simply reacts to environmental changes
Makes strategic adjustments only when finally forced to do so
Unable to respond quickly to environmental changes because resources- capabilities are lacking or are not developed or exploited properly
Analyzer • •
Reactor •
Analyzers and reactors are the last two of Miles and Snow strategy types. Miles and Snow proposed their ideas in an 1978 book.

15. Porter’s Generic Competitive Strategies
Competitive advantage comes from only 1 of 2 sources
Having the lowest costs in the industry
Possessing significant and desirable differences from competitors
The second factor is the scope of product-market
Mix of these factors provide the basis for:
Cost leadership strategy (or low-cost strategy)
Differentiation strategy
Focus strategy
Porter’s ideas were discussed in chapter 3 (the five forces framework) and in chapter 4 (the value chain). Porter’s competitive strategies (introduced in a 1980 book) are called “generic” because they can be pursued by any type or size organization in any type or size industry.

16. Porter’s Generic Competitive Strategies
Advantage
Low Costs Product-Service
Differences
Broad
Narrow
Cost Leadership
Differentiation
Competitive
Market Scope
Following the discussion of the strategy choices that Porter identified (as shown in this slide), it may be a good idea to talk about the concept of “stuck in the middle” – Porter’s term for a company that tries to combine both cost leadership and differentiation.
Focus
(Differentiation)
Focus
(Cost)

17. Contemporary Perspectives on Competitive Strategy
Newer perspectives provide an expanded, and perhaps more realistic, description of what competitive strategies organizations are using
Integrated low-cost differentiation strategy
Mintzberg’s generic competitive strategies
The integrated low-cost differentiation strategy flies against the “mutual exclusivity” idea of Porter. However, companies such as Dell are successfully combining both cost leadership and differentiation strategies.

18. Low-Cost Leadership
Make achievement of low-cost relative to rivals the theme of firm’s business strategy
Find ways to drive costs out of business year-after-year
Low-cost leadership means low Overall costs, not just low manufacturing or production costs!

19. A. Value Chain Using Traditional Channels - Highest Cost
Software development activities
production and packaging activities
Marketing and promotion of software
Warehousing and shipping of wholesaler-retailer orders
Technical support activities
Activities of software retailers
Activities of wholesale distributors of software products
C. Value Chain Using Online Sales and Internet Delivery - Lowest Cost
Software development activities
Online marketing and promotion activities
Systems to accept credit card payment and
allow immediate download
Technical support and customer service activities

20. When Does it work? It works when Pitfalls with this strategy
Price competition is vigorous
Product is standardized
Buyers incur low switching costs
Industry newcomers use introductory low prices to attract buyers and build customer base
Pitfalls with this strategy
Being overly aggressive in cutting price
Low cost methods are easily imitated by rivals
Differentiation matters

21. Differentiation Strategies
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Keys to success
Find ways to differentiate that create value for buyers and that are not easily matched or cheaply copied by rivals
Not spending more to achieve differentiation than the price premium that can be charged

22. Types of Differentiation
Unique taste -- Dr. Pepper
Wide selection and one-stop shopping -- Home Depot and Amazon.com
Superior service -- FedEx, Ritz-Carlton
Spare parts availability -- Caterpillar
More for your money -- McDonald’s, Wal-Mart
Prestige -- Rolex
Quality manufacture -- Honda, Toyota
Top-of-the-line image -- Ralph Lauren, Chanel

23. Signaling Value as Well as Delivering Value
Buyers seldom pay for value that is not perceived
Signals of value may be as important as actual value when
Nature of differentiation is hard to quantify
Buyers are making first-time purchases
Repurchase is infrequent
Buyers are unsophisticated

24. When does it work? It works when Pitfalls
There are many ways to differentiate a product that have value and please customers
Buyer needs and uses are diverse
Technological change and product innovation are fast-paced
Pitfalls
Charging too high a price or over differentiating
Failing to signal value
Not understanding what buyers want or prefer and differentiating on the “wrong” things

25. Competitive Strategy Principle
A low-cost provider strategy can defeat a differentiation strategy when buyers are satisfied with a standard product and do not see extra differentiating attributes worth paying for!
A low-cost producer strategy can defeat a differentiation strategy when buyers are satisfied with a standard product and do not see extra attributes as worth paying additional money to obtain!

26. Integrated low-cost / differentiated
Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation
Make an upscale product at a lower cost
Give customers more value for the money
Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations

27. Southwest Airlines Integrated Low Cost/Differentiation Strategy
Use a single aircraft model
(Boeing 737)
Focus on customer satisfaction
Use secondary airports
High level of employee dedication
No meals
15 minute turnaround time
No reserved seats

28. Risk of an integrated Provider Strategy
Risk – An integrated provider may get squeezed between strategies of firms using low-cost and differentiation strategies
Low-cost leaders may be able to siphon customers away with a lower price
High-end differentiators may be able to steal customers away with better product attributes

29. Focus / Niche Strategies
Involve concentrated attention on a narrow piece of the total market
Objective
Serve niche buyers better than rivals
Keys to success
Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs
Develop unique capabilities to serve needs of target buyer segment

30. Examples of Focus Strategies
eBay
Online auctions
Jiffy Lube International
Maintenance for
motor vehicles
Bandag
Specialist in truck
tire recapping

31. What Makes a Niche Attractive for Focusing?
Big enough to be profitable and offers good growth potential
Not crucial to success of industry leaders
Costly or difficult for multi-segment competitors to meet specialized needs of niche members
Focuser has resources and capabilities to effectively serve an attractive niche
Few other rivals are specializing in same niche
Focuser can defend against challengers via superior ability to serve niche members

32. Risks of a Focus Strategy
Competitors find effective ways to match a focuser’s capabilities in serving niche
Niche buyers’ preferences shift towards product attributes desired by majority of buyers - niche becomes part of overall market
Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered

33. First-Mover Advantages
When to make a strategic move is often as crucial as what move to make
First-mover advantages arise when
Pioneering helps build firm’s image and reputation
Early commitments to new technologies, new-style components, and distribution channels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike

34. First-Mover Disadvantages
Moving early can be a disadvantage (or fail to produce an advantage) when
Costs of pioneering are sizable and loyalty of first time buyers is weak
Innovator’s products are primitive, not living up to buyer expectations
Rapid technological change allows followers to leapfrog pioneers

35. Timing and Competitive Advantage
Principle 1
Being a first-mover holds potential for competitive advantage in some cases but not in others
Principle 2
Being a fast follower can sometimes yield as good a result as being a first mover
Principle 3
Being a late-mover may or may not be fatal -- it varies with the situation

36. Mintzberg’s Generic Competitive Strategies
By Price
By Marketing Image
Differentiation
By Product Design
By Product Quality
By Product Support
Mintzberg’s typology identifies six possible competitive strategies. He felt that this typology better reflected the increasing complexity of the competitive environment.
Undifferentiated

37. Implementing Competitive Strategy
Without implementation a strategy is nothing more than an idea
Implementing competitive strategies
The role of functional strategies
What strategy is most appropriate?
How is that strategy implemented?
Competitive postures and actions
Offensive moves
Defensive moves
The competitive strategy an organization is using can be seen by what’s actually being done or implemented. Strategy implementation is critical, because without it (as the slide points out) strategy is nothing more than an idea.
Offensive moves are when an organization attempts to exploit and strengthen its competitive position through attacks on a competitor’s position.
Defensive moves describe when an organization is attempting to protect its competitive advantage and turf.

38. Evaluating and Changing Competitive Strategy
Responsibility of managing strategically doesn’t stop after implementation
Evaluation of competitive strategy assesses:
Various functional areas
Activities performed in those areas
Change when evaluation shows the strategy
Doesn’t have the intended impact
Hasn’t resulted in desired levels of performance
The organization’s competitive moves, actions, and responses being carried out through the various functional strategies need to be monitored and evaluated for performance effectiveness and efficiency.