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Competitive Strategy Prof. Raveendra Chittoor Indian School of Business, Hyderabad
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2 Value Creation Supplier Opportunity Cost CostPrice Willingness to pay Supplier shareFirm’s shareBuyer’s share
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3 Value and Added Value Value – the difference between the customer’s willingness to pay and the suppliers opportunity cost Added value – maximum value created by all the participants in a transaction minus the maximum value that could be created without the firm In other words, If your company ceases to exist tomorrow, what will the customers miss?
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4 Strategy Strategy is all about being ‘different’ It is deliberately choosing a different set of activities to deliver a unique mix of value Examples: Harley Davidson, eBay, Apple
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5 Role of Strategy - To Create Successful Companies Strategy Successful Performance - ROA - Shareholder Value Strategy is all about ‘winning’
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6 Competitive Strategy Strategy – from the Greek word ‘strategos’ meaning ‘military commander’ Competitive Strategy is a broad formula for how a business is going to compete (Porter) ‘An integrated and coordinated set of commitments and actions’ Aimed at Delivering unique value to customers Gaining competitive advantage In specific product markets
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7 Cost Value Trade-off
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8 Generic Competitive Strategies Source of Competitive Advantage Low Cost Differentiation Competitive Scope Industry- wide Cost Leadership Differentiation Single Segment Focus
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9 The Business System and Competitive Advantage - One type of Plane (737) - Productive employees Purchase/Inpu ts -Point-to-Point direct service - Small airports Logistics -Short flights -No food -No assigned seats -No bag transfer Operation s - Low pricing -No travel agents Sales/Market ing Distinctive/Innovative Activities across the Business System Should support the chosen competitive position Cost Leadership Position Competitive Advantage Should be consistent and should mutually reinforce each other
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10 Porter’s Value Chain
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11 Value Chain (contd.)
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12 McKinsey Generic Value Chain Technology development - Patents, product / process choices Product design - Function, physical characteristics, quality Manufacturing - Integration, raw materials, capacity, location, procurement, assembly Marketing - Brand, sales and distribution, advertising and promotion Distribution - Channels, inventory management, transport Service - Warranty speed, costs, captive/third party
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13 Drivers of Low Cost Economies of scale and scope Economies of learning - Increase in individual skills - Improved organizational routines Production techniques and product design Low input costs - Location advantages, ownership of low cost inputs, non-union labor, bargaining power Capacity utilization - Ratio of fixed to variable costs - Fast and flexible capacity adjustments
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14 Drivers of Value Quality Brand / reputation Geography (Tea, Wine); Location (Retail stores) Delivery / service Customization Pioneering technologies And so on
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15 Sustaining Competitive Advantage Erect entry barriers and imitation barriers - Numerous value-chain activities creating ‘causal ambiguity’ - Base competitive advantage on resources and capabilities that are immobile and difficult to replicate overcapacity, R&D capabilities, Geographic monopoly, Psychological bonding (brand equity), Unique culture Continuous and incremental innovations
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16 Strategic Innovation Innovation is not only new products or processes New approaches to doing business – Strategic Innovation Creating value for customers from novel experiences, products, or product delivery or bundling
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17 Thank You
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