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Strategic Management In Action Chris Hill, Jonathan Alvarez, Shawn Stults Chapter 6 Competitive Strategies 6. 1) Explain what competitive advantage is and what it implies. 6. 2) Describe the different competitive strategies. 6. 3) Discuss how competitive strategies are implemented and evaluated.
What is competitive advantage? Competitive Advantage: ◦ What sets your organization apart from your competitors. Distinct Capability Unique Resources Netflix
The Competitive Environment Must understand what competition is an then look at who our competitors are. Who are the competitors? ◦ Three approaches to define a company’s competitors (Figure 6. 2 on page 160) 1. Industry 2. Market 3. Strategic groups
Industry and Market Perspective Industry: ◦ This perspective identifies competitors as organizations that are making and selling the same or very similar goods and services. Examples are the video rental industry, automobile industry, and the credit card industry Market: ◦ This perspective says competitors are organizations that satisfy the same customer need. Example: Customer need is entertainment – competition will range from the video game industry all the way to the local symphony orchestra.
Strategic Groups This perspective is based on the idea that there are groups of firms competing in an industry with similar strategies, resources, and customers. Different dimensions used to group competitors are: ◦ Price, quality, R&D expenditures, market share, etc (list in table 6. 1 on pg 161)
From Competitive Advantage to Competitive Strategies As companies try and create their competitive advantage they look for ways to set themselves apart and to compete. ◦ They do this using their competitive strategy Back to Netflix: ◦ Their competitive strategy is based on what they saw as its competitive advantage – its unique DVD rental and distribution service.
6. 2 Describe the Different Competitive Strategies Traditional Approaches versus contemporary perspectives First Traditional Approach: ◦ Miles and Snow’s Adaptive Strategies This approach is based on the strategies organizations use to adapt to their uncertain competitive environment Identified four strategic postures: prospector, defender, analyzer, and reactor.
Miles and Snow’s Adaptive Strategies The Prospective Strategy: ◦ One in which an organization continually innovates by finding and exploiting new product and market opportunities. ◦ Strategy is to continually innovate, develop, and test new products. The Defender Strategy: ◦ Used by organizations to protect current market share by emphasizing existing products and producing only a limited product line.
Miles and Snow’s Adaptive Strategies Analyzer Strategy ◦ Watch for and copy the successful ideas of prospectors ◦ Organizations using this strategy also thoroughly analyze new business ideas before jumping in. Reactor Strategy (not recommended) ◦ Characterized by the lack of a coherent strategic plan or apparent means of competing. ◦ Simply react to environmental changes and make adjustments only when finally forced to do so by environmental pressures.
Porter’s Generic Competitive Strategies 1) 2) “Appropriate” competitive strategy based on an organization’s competitive advantage Having the lowest costs in the industry Possessing significant and desirable differences from competitors. Another factor is the scope of the product market in which the organization wishes to compete
Porter’s Generic Competitive Strategies Cost Leadership Strategy -where an organization strives to have the lowest costs in its industry and produces products for a broad customer base. Differentiation strategy- an organization competes by providing unique products with features that customers value, perceive as different, and are willing to pay a premium price for. ◦ brand loyalty, when customers consistently and repeatedly seek out, purchase, and use a particular brand.
Porter’s Generic Competitive Strategies Focus strategy -where an organization pursues either a cost or differentiation advantage but within a limited customer group or segment. ( 1) geographical ( 2) type of customer ( 3) product line segment. Stuck in the middle-When an organization hasn’t developed a low cost or a differentiation competitive advantage.
Contemporary Views on Competitive Strategy Integrated low cost differentiation- A strategy that involves simultaneously achieving low costs and high levels of differentiation. ◦ Technological advancements such as flexible manufacturing systems, just- in- time inventory systems, and integrated information systems have opened the door for competing on the basis of having low costs and being unique.
Mintzberg’s Generic Competitive Strategies Six possible competitive strategies 1) Differentiation by price 2) Differentiation by marketing image 3) Differentiation by product design 4) Differentiation by quality 5) Differentiation by product support 6) Undifferentiated strategy
How Competitive Strategies are Implemented and Evaluated It is important to not only establish a competitive strategy but to also implement the strategy. Once you have done this it must be assessed and modified if needed
Implementing Competitive Strategy You must first have employees, facilities, equipment, and work systems in place to facilitate your strategy You must know what area you want to compete on to have a competitive advantage
Dual Role of Functional Strategies are how you determine what areas to compete to obtain a competitive advantage. 1. The initial choice of a competitive advantage depends on your resources and current capabilities and competencies 2. How the competitive strategy is implemented. ex. If you compete on low cost make sure that every area of operation is doing the same
Competitive Actions Offensive Moves- organizations attempts to exploit and strengthen its competitive position through attacks on a competitors position. Defensive Moves- organizations attempts to protect its competitive advantage.
Offensive Moves Frontal Assault- attacking firm goes head-to -head with its competitor and matches the competitor in every possible category of price, promotion, distribution, product features, etc. Attack Competitors Weaknesses- concentrate on where your competitors are weak. Ex. Places where competitors aren’t serving
Offensive Moves Cont. Full Out Attack- Attacking from both the product and market segmenting side. This requires a lot of resources Avoiding Head to Head Competitioncreating new market segments either with new product features or new product lines forcing the competition to play catch up.
Defensive Moves Prevent Competitors from attacking by not giving them any areas to attack- full line of products in every profitable segment, keeping low prices, patents and licenses Significant Retaliation can be expected if an attack is made. You can do this by making service announcements letting people know that you will protect market shares, and by matching incentives and price cuts of competitors
Defensive Moves Cont. Reduce the incentives for a competitive attack. - media announcements highlighting industry problems, make it look as if the future profitability is minimal
Evaluating Competitive Strategy Make sure you monitor what consequences come from the strategic moves that are made. Don’t just look at the numbers think about other things like whether the market was down or other factors. Only change strategies if you have to, it is very expensive to do so.