1. Strategy and Competitive Advantage

2. Five Generic Strategies
Low-cost provider
Broad differentiation
Best-cost provider
Low-cost niche
Differentiation niche

3. Low-cost Provider Strategy
Achieve a cost advantage through:
Manage internal costs better than rivals
Eliminate cost-producing activities

4. Low-cost Provider Strategy: Controlling the Cost Drivers
Economies or diseconomies of scale
Learning and experience curve effects
Key resources inputs
Union vs. nonunion labor
Bargaining power and suppliers
Locational variables
Supply chain management expertise

5. Low-cost Provider Strategy: Controlling the Cost Drivers
Link with other activities
Share opportunities with other business units
Vertical integration vs. outsourcing
Timing and first-mover advantage
Capacity utilization

6. Low-cost Provider Strategy: Controlling the Cost Drivers
Managerial decisions:
Services to buyers
Product features
Wages and benefits
Distribution channels
Delivery times
Incentive compensation
Specifications to suppliers

7. Low-cost Provider Strategy: Revamping the Value Chain
Shift to e-business technologies
Direct to end-user sales and marketing
Simplify product design
Get rid of the “extras”
Reengineer processes
Cheaper
Simpler
More flexible

8. Low-cost Provider Strategy: Revamping the Value Chain
Eliminate high-cost materials and components
Relocate facilities
Focus on limited products and services
Consolidate work steps
Eliminate low value-added activities

9. Low-cost Provider Strategy: When the Strategy Works Best
Vigorous price competition
Standardized or commodity product
Differentiation has little value to buyers
Buyers use the product in the same way
Low buyer switching costs
Buyers have bargaining power
New entrants slash prices

10. Low-cost Provider Strategy: Risks of Strategy
Cut prices more than cost savings
Advantage may not be sustainable
Fixation on cost savings
Technological breakthroughs

11. Differentiation Strategy
Successful implementation allows company to:
Command a premium price
Improve sales and market share
Develop brand loyalty

12. Differentiation Strategy: Where to Create the “Difference”
Purchasing and procurement
Product design
Process design
Quality control
Distribution channels
Marketing, sales and customer service

13. Differentiation Strategy: When the Strategy Works Best
When there are many ways to differentiate and buyers perceive value
Buyer needs and uses are diverse
Few rivals follow similar approach
Frequent technological change and innovation

14. Differentiation Strategy: Risks of Strategy
Value not perceived by buyer because:
Focus on incorrect features, attributes, etc.
Overdifferentiating
Charging too high price
Failing to signal value
Failing to identify what buyers consider value

15. Best-cost Provider Strategy
Give customers more value for the money
Targets value-conscious customers
Lower costs are a competitive advantage
Risk of getting crushed between rival low-cost and differentiation strategies

16. Market Niche Strategy: When the Strategy Works Best
Target is big enough to be profitable
Industry leaders do not need presence
Costly for larger rivals to enter
Industry is multi-segmented
Few rivals in target
Have capabilities and resources to compete effectively

17. Market Niche Strategy: Risks of Strategy
Rivals learn to compete effectively
Target preferences and needs shift toward the mainstream
Target becomes attractive to competitors

18. Strategic Alliances: Advantages
Quick access to critical country markets
Gain knowledge of markets and culture from partners
Gain access to valuable skills and competencies in new markets
Develop synergies
Enhance organizational capabilities

19. Strategic Alliances: Disadvantages
Become dependent on partners for essential skills or expertise
Partners guard most valuable resources

20. Mergers and Acquisitions
Provides more permanent ties than an alliance
Dramatic strengthening of:
Market position
Ability to exploit opportunities
Competitive advantage
May achieve cost savings

21. Vertical Integration: Advantages
Reduces costs
Adds to technological or competitive strengths
Helps differentiate products

22. Vertical Integration: Disadvantages
High capital requirements
Reduces flexibility in accommodating demand
Need to balance capacity at each stage
Reduces manufacturing flexibility
Different skills are needed to manage different businesses

23. Make or Buy: Reasons for Making
Maintain core competencies and protect personnel from layoff
Lower production cost
Unsuitable suppliers
Assure adequate supply
Utilize surplus labor and make a marginal contribution
Obtain desired quality
Remove supplier collusion
Obtain a unique item that would entail a prohibitive commitment from the supplier
Protect proprietary design or quality
Increase or maintain size of company

24. Make or Buy: Reasons for Buying
Frees management to deal with its primary business
Lower acquisition cost
Preserve supplier commitment
Obtain technical or management ability
Inadequate capacity
Reduce inventory costs
Ensure flexibility and alternate source of supply
Inadequate managerial or technical resources
Reciprocity
Item is protected by patent or trade secret

25. Outsourcing: When to Unbundle
Supplier has lower cost and/or higher quality
Activities are not crucial to sustaining a competitive advantage
Reduces risk of exposure to changing environment
Streamlines operations
Increases flexibility
Reduces costs
Reduces time
Allows company to focus on core businesses

26. Outsourcing: Advantages
Higher quality and/or lower cost
Improves ability to innovate
Enhances strategic flexibility
Access to diverse expertise
Firm can concentrate on core competencies
Strengthen supplier commitment

27. Offensive Strategies Meet or exceed competitor strengths
Capitalize on competitor weaknesses
Simultaneous initiatives
End-run offensives
Guerilla offensives
Preemptive strikes

28. Offensive Strategies: Whom to Attack
Market leaders
Runner-up firms
Struggling firms
Small regional and local firms

29. Defensive Strategies Build obstacles to challengers
Signal that retaliation is likely
Public announcements
Match competitor offerings
Occasional counterresponse
Maintain a war chest

30. First-mover Strategies
Advantages
Build image and reputation
New technology reduces overall cost
Build customer loyalty
Preemptive strike
Long-term profits are enhanced
Disadvantages
Pioneering is costly
Products may be easily reengineered by followers
Competitors may be able to leapfrog