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To accompany contemprory strategy analysis concepts techiniques application chapter07slides

The
The Nature
Nature and
and Sources
Sources of
of
Competitive
Competitive Advantage
Advantage
OUTLINE
• The emergence of competitive advantage
• Sustaining competitive advantage
• Competitive advantage in different market
settings
• Types of competitive advantage: cost and
differentiation


The
The Emergence
Emergence of

of Competitive
CompetitiveAdvantage
Advantage
How does competitive
advantage emerge?

External sources of
change e.g.:
•Changing customer demand
•Changing prices
•Technological change

Resource heterogeneity
among firms means
differential impact

Some firms faster
and more effective
in exploiting change

Internal sources
of change

Some firms
have greater creative
and innovative
capability


Competitive
CompetitiveAdvantage
Advantage from
from InternallyInternallyGenerated
Generated Change:
Change: Strategic
Strategic Innovation
Innovation

Characteristics of innovatory strategies:
– Associated with new entrants to an industry



(e.g. Nucor in
steel, IKEA in furniture, Enron in energy, Home Depot in DIY, Dell in
PCs)

– Reconcile conflicting performance goals (e.g. Toyota’s lean
production system combines low cost, high quality, and flexibility.
Richardson Sheffield in kitchen knives is low cost, innovative and
customer responsive.)

– Reconfiguring the value chain e.g.--• Nike’s system for manufacturing and distributing shoes totally
different from traditional shoe manufacturer
• Southwest Airlines simplification of the normal airline value chain
• Zara’s system of design, manufacture, and distribution


Sustaining
SustainingCompetitive
CompetitiveAdvantage
AdvantageAgainst
AgainstImitation
Imitation
REQUIREMENT FOR IMITATION
Identification

Incentives for imitation

ISOLATING MECHANISM
- Obscure superior performance
- Deterrence--signal aggressive
intentions to imitators
- Pre-emption--exploit all available
investment opportunities

Diagnosis

- Rely upon multiple sources of
competitive advantage to create
“causal ambiguity”

Resource acquisition

- Base competitive advantage upon
resources and capabilities that are
immobile and difficult to replicate


Competitive
Competitive Advantage
Advantage in
in Different
Different
Market
Market Settings
Settings
MARKET TYPE

TRADING
MARKETS

SOURCE OF IMPERFECTION
OF COMPETITION
•None (efficient markets)
•Imperfect information availability
•Transactions costs
•Systematic behavioral trends
•Overshooting
•Barriers to imitation

PRODUCTION
MARKETS
•Barriers to innovation

OPPORTUNITY FOR
COMPETITIVE ADVANTAGE
None
Insider trading
Cost minimization
Superior diagnosis
(e.g.... chart analysis)
Contrarianism
Identify barriers to imitation
(e.g. deterrence, preemption,
causal ambiguity, resource
immobility,barriers to resource
replication) & base strategy
upon them.
Difficult to influence or exploit.


Competitive
CompetitiveAdvantage
Advantage in
inDifferent
DifferentIndustry
IndustrySettings:
Settings:
Trading
Trading Markets
Markets and
and Production
Production Markets
Markets
MARKET
TYPE

SOURCE OF
IMPERFECTION
OF COMPETITION

OPPORTUNITY
FOR COMPETITIVE
ADVANTAGE

TRADING
MARKETS

•None (efficient markets)
•Imperfect information availability
•Transactions costs
•Systematic behavioral trends

None
Insider trading
Cost minimization
Superior diagnosis
(e.g.... chart analysis)
Contrarianism

•Overshooting
•Barriers to imitation
PRODUCTION
MARKETS
•Barriers to innovation

Identify barriers to imitation
(e.g. deterrence, preemption,
causal ambiguity, resource
immobility,barriers to resource
replication) & base strategy
upon them.
Difficult to influence or exploit.


Sources
Sources of
of Competitive
Competitive Advantage
Advantage

COMPETITIVE
COMPETITIVE
ADVANTAGE
ADVANTAGE

COST
COST
ADVANTAGE
ADVANTAGE

ct
u
d
pro st
r
ila
m
i
r co
e
S
ow
at l

Pri
ce
fro
pre
m
mi
un
um
iqu
ep
ro d
uc

t

DIFFERENTIATION
DIFFERENTIATION
ADVANTAGE
ADVANTAGE


Porter’s
Porter’s Generic
Generic Strategies
Strategies

SOURCE OF COMPETITIVE ADVANTAGE
Low cost
Differentiation
Industry-wide
COMPETITIVE

COST

DIFFERENTIATION

LEADERSHIP

SCOPE
Single Segment

FOCUS


Features
Features of
of Cost
Cost Leadership
Leadership and
and
Differentiation
Differentiation Strategies
Strategies
Generic strategy
COST
LEADERSHIP

DIFFERENTIATION

Key strategy elements

Resource & organizational
requirements

Scale-efficient plants.

Access to capital. Process

Design for manufacture.
Control of overheads &
R&D. Avoidance of
marginal customer
accounts.

engineering skills. Frequent
reports. Tight cost control.
Specialization of jobs and
functions. Incentives for
quantitative targets.

Emphasis on branding
and brand advertising,
design, service, and
quality.

Marketing. Product
engineering. Creativity.
Product R&D
Qualitative measurement
and incentives. Strong
cross-functional
coordination.



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