SUMMARY OF LESSONS 2 Presentation By Courtney Karcasinas

SUMMARY OF LESSONS: 2 Presentation By: Courtney Karcasinas, Adam Hall, Robert Brinkmann, Justin Weden, & Stephen Gonzalez

Objectives 1. Understand the term “Competitive Advantage” 2. Predict potential for competition to wear away competitive advantage 3. Recognize how resource conditions create imperfections in the competitive process that offer opportunities for competitive advantage 4. Distinguish the two primary types: cost advantage and differentiation advantage 5. Use value chain framework to analyse potential sources of cost and differentiation advantage to recommend strategies for enhancing competitiveness 6. Appreciate the pitfalls of being ‘stuck in the middle’ and the challenge of achieving effective differentiation and low cost

1. Understand the term “Competitive Advantage” When two or more firms compete within the same market, one firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit. nderstand the term “Competitive Advantage”

2. Predict potential for competition to wear away competitive advantage In the long run competition wears away differences in profitability between firms but eternal and internal change can both create opportunities for advantage and destroy them.

3. Recognize how resource conditions create imperfections in the competitive process that offer opportunities for competitive advantage Firms owning resources or having capabilities that are in some way unique and offer the firms some protection against imitation by rivals.

4. Distinguish the two primary types: cost advantage and differentiation advantage Cost Advantage Competitive Advantage ct u d ro P r ila st m o i c S er w o at l Pric from e Pre miu un m iqu e p rod uct Differentiation Advantage

5. Use value chain framework to analyse potential sources of cost and differentiation advantage to recommend strategies for enhancing competitiveness 1) Break down the firm into separate activities. 2) Establish the relative importance of different activities in the total cost of the product. 3) Compare costs by activity. 4) Identify cost drivers. 5) Identify linkages. 6) Identify opportunities for reducing costs.

6. Appreciate the pitfalls of being ‘stuck in the middle’ and the challenge of achieving effective differentiation and low cost Cost leadership and differentiation are mutually exclusive strategies and firms that are ‘stuck in the middle’ are almost guaranteed low profitability. The most successful forms are often those who have managed to differentiate themselves in a highly costeffective way.

Industry Life Cycle ILC driving factors � Demand Growth � Production Knowledge

Demand Growth Introduction � Sales are often small Growth � Rapid market penetration Maturity Stage � Increased market saturation Decline Stage � Superior products are available from new industries

Product Knowledge Beginning � Advances in product technology � Consumers usually know little about product Course of ILC � Customers become better informed � Market expands � Judge products better and make informed decisions

Strategy at Various Stages of ILC Introduction � Product innovation and marketing Growth � Increase production efficiently and effectively Maturity � Cost efficiency, usually through mass production and lower input prices Decline � Find protected market niches, innovate, or exit at appropriate time

Public and Not-for-profit Sectors Public Not-for-profit � Ownership vested in � Use excess funds for government � Funding from government � Serve public interest organizational goals � Usually in areas such as education, health care, social services, arts and culture, and religion � Placed in special category for tax, regulatory, and legal purposes

Public and Not-for-profit Features Multiple goals Different constraints than private sectors Market force absence Monopoly power Decreased flexibility Increased accountability Decreased Predictability

Types of Organizations

Stakeholder Analysis Identify list of potential stakeholders Rank stakeholders by importance and influence Find criteria each stakeholder will use to judge performance See how organization is doing from stakeholders’ perspective Identify how to satisfy each stakeholder Identify and record long term issues with stakeholders, both individually and as a group

Scenario Analysis Define purpose of analysis Decide on time horizon Identify key trends Identify key uncertainties Create scenarios and check for consistency Identify indicators that might signify which scenario is unfolding Assess strategic implications of scenarios

Innovation Process The core aim of Boeing is to: � “ focus on the execution today and into the future in developing, producing and marketing commercial jet aircraft and providing related support services, principally to the commercial airline industry worldwide” Invention: Creation of new product Innovation: the creation of new products and processes through the development of new knowledge or from new combinations of existing knowledge.

The Jet Engine Frank Witte first patented the engine in 1930. In 1957, the first commercial jetliner, the De Havilland Comet, took flight. Two years later, the Boeing 707 was introduced.

Boeing’s Value Profitability of Innovation: � Customers Value Advance Aviation Performance Program: � Provides 24/7 customer service support all around the world � Provide the best technical support to the customers � Delivers spare parts and equipment if urgently needed

Four Factors to Competitive Advantage Property Rights Tacitness and Complexity of the technology Lead Time Complementary Resources

Property Rights Intellectual Property: � Patents � Copyright, � Trademarks � Trade secrets Patents: make the information public and only valid for 17 years

Tacitness and Complexity Tacitness: In the absence of legal protection, the extent to which an innovation can be imitated by a competitor depends on how the innovation can be comprehended and replicated Complexity: Boeing 787 Dreamliner

Boeing 787 Dreamliner Able to carry passengers with non-stop pointto-point flights between secondary airports

Lead Time Amount of time it will take followers to catch up � Took 2 years to create the 707

Complementary Resources needed to finance, produce and market the innovation.

Boeing’s Resources Airport Technology: � Boeing Capital Corporation: � Customer support, flight operations, fleets, maintenance, and material management Fuel Conservation Services: � Airplane Financing Commercial Aviation Services: � planning and engineering Increases fuel efficiency Training Flight Services: � Flight crew training activities

Strategies Managing Risks: Market uncertainty 787 Dreamliner created to recover the market shrink and compete with Airbus Began to lose market share after initial success Delays in delivering products to customers resulted in 120% increase in cost

Creating the Conditions for Innovation People: Over $170, 000 Facilities: 70 countries with 22, 000 suppliers Information: Jet Engine Time: Founded in 1916 - Design organizational processes that capture, direct, and exploit individuals’ drive for success and commitment to their innovations.

4 Steps of Visualizing Strategy

Boeing 787 Before Boeing 787, the 767 was in line with competition. Strategy canvas for Boeing 787 � Included criteria such as: Purchase Price Seating Capacity Maintenance Costs

Boeing 787 Four Actions Eliminate Raise • Maintenance costs • Passenger friendly environment • New aircraft (Boeing 787) Reduce Create • Purchase price • Fuel efficiency • Seating Capacity

Pioneer, Migrator, Settler Map

Overcoming Obstacles Strategy should be the big picture and not solely numbers driven Strategy canvases and the PMS map are good places to start Details and numbers will fall into place.

First- Tier Noncustomers “Soon to be” Noncustomers � Minimal use of the market offering Focus on similarities between first-tier customers to minimize chance of them leaving market

Second- Tier Noncustomers “Refusing” Noncustomers � Do not use or can’t afford the offering Needs are met by something else, or are not met at all Provide an untapped demand for the market

Third-Tier Noncustomers Farthest away from an industry’s existing customers/cliental “Unexplored” noncustomers � Have not been targeted or thought of as potential customers since their needs are thought to belong to another market.

Go for the Biggest Catchment Companies should focus on the tier that represents the biggest catchment at the time.

Get the Strategic Sequence Right Buyer Utility � Is there a compelling reason for the mass of people to buy? Price � Is your offering price to attract the mass of the buyers so that they have a compelling ability to pay for your offering? Cost � Can you produce your offering at the target cost and still earn a healthy profit margin? Adoption � What are the adoption hurdles among retailers or partners? Ex: Netflix “Watching Instantly”

Buyer Utility Is there a compelling reason for the mass of people to buy? The Six Utility Levers

Price

Cost

Adoption New ideas can be seen as threatening to the company. Three main stakeholders may not accept new ideas, they are: � Employees � Partners � General Public