Sustainable Competitive Advantage

Chapter 6Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 1

Sustainable Competitive Advantage

ResourcesResourcesThe assets, capabilities, processes,information, and knowledge that theorganization controls

The assets, capabilities, processes,information, and knowledge that theorganization controls

Competitive Advantage

Competitive Advantage

Providing greater value for customersthan competitors can

Providing greater value for customersthan competitors can

SustainableCompetitiveAdvantage


A competitive advantage that othercompanies have tried unsuccessfullyto duplicate

A competitive advantage that othercompanies have tried unsuccessfullyto duplicate

11


Requirements forSustainable Competitive Advantage



ValuableResources

ValuableResources

Non-Substitutable

Resources

Non-Substitutable

Resources

ImperfectlyImitable

Resources

ImperfectlyImitable

Resources

RareResources

RareResources

Adapted from Exhibit 6.1

11


Strategy-Making Process

Assess need for

strategic change

Conduct aSituational

Analysis

ChooseStrategic

Alternatives

22


Assessing the Need for Strategic Change

Avoid Competitive Inertia a reluctance to change strategies or competitive

practices that have been successful in the past

Look for Strategic Dissonance a discrepancy between a company’s intended strategy

and the strategic actions managers take when implementing that strategy

2.12.1

Step 1Assess need

for strategic change


Doing the Right Thing

2.12.1

Is Ethics an Overlooked Source ofCompetitive Advantage?

Volvo’s reputation for safe cars has been a source of competitive advantage

Johnson & Johnson is admired for its responseto the Tylenol cyanide contamination incidence

Should ethics be the first source of competitive advantage? Probably not…

Start with low costs, good service, or unique product capabilities. Use ethics as a way to differentiate your company from the competition.

Is Ethics an Overlooked Source ofCompetitive Advantage?

Volvo’s reputation for safe cars has been a source of competitive advantage

Johnson & Johnson is admired for its responseto the Tylenol cyanide contamination incidence

Should ethics be the first source of competitive advantage? Probably not…

Start with low costs, good service, or unique product capabilities. Use ethics as a way to differentiate your company from the competition.


Situational Analysis

SS

WW

O O

TT

StrengthsStrengths

WeaknessesWeaknesses

Opportunities Opportunities

ThreatsThreats

Internal

External

2.22.2


Situational Analysis

Strengths

Weaknesses

•Distinctive Competence

•Core Capability

INTERNAL

Opportunities

Threats

•Environmental Scanning

•Strategic Groups•Shadow-Strategy Task Force

EXTERNAL


2.22.2


Strategic Groups

Core Firms central companies in a strategic group

Secondary Firms firms that follow related, but somewhat different,

strategies than do core firms

Transient Firms companies whose strategies change from one

strategic position to another

Shadow-strategy task force seeks out its own company’s weaknesses and

determine how other companies could exploit them2.22.2


Choosing Strategic Alternatives

Risk-Avoiding Strategy protect an existing

competitive advantage

Risk-Seeking Strategy extend or create a sustainable

competitive advantage

Strategic Reference Points targets used by managers to determine if the firm

has developed the core competencies it needs to achieve a sustainable competitive advantage

2.32.3


Strategic Reference Points


2.32.3


Corporate-Level Strategies

Corporate-LevelStrategy

Corporate-LevelStrategy

The overall organizational strategythat addresses the question “What business(es) are we in or should webe in?”

The overall organizational strategythat addresses the question “What business(es) are we in or should webe in?”

33


Corporate-Level Strategies

33

Acquisitions, unrelated diversification, related diversification, single businesses

BCG Matrix Stars Question marks Cash cows Dogs

Acquisitions, unrelated diversification, related diversification, single businesses

BCG Matrix Stars Question marks Cash cows Dogs

PORTFOLIO STRATEGY

Growth

Stability

Retrenchment/recovery

Growth

Stability

Retrenchment/recovery

GRAND STRATEGIES



BCG Matrix

Relative Market Share

Mar

ket

Gro

wth

Small Large

Low

High Question Marks Stars

Dogs Cash Cows

3.13.1


BCG Matrix

companies with a small share of a fast-growing market

companies with a small share of a fast-growing market

QuestionMarks

QuestionMarks

companies with a large share of a fast-growing market

companies with a large share of a fast-growing marketStarsStars

companies with a small share of a slow-growing market

companies with a small share of a slow-growing marketDogsDogs

companies with a large share of a slow-growing market

companies with a large share of a slow-growing market

CashCows

CashCows

3.13.1


BCG Matrix

Relative Market Share

Mar

ket

Gro

wth

Small Large

Low

High Question Marks

Company A

Company B

StarsCompany C

Company D

Dogs

Company H

Company G

Cash Cows

Company F

Company E


3.13.1


Diversification and Risk R

isk

Low

High

SingleBusiness

RelatedDiversification

UnrelatedDiversification


3.13.1

Relationship BetweenDiversification and Risk


Problems with Portfolio Strategy

Unrelated diversification does not reduce risk.

Present performance is used to predict future performance.

Cash cows fail to aggressively pursue opportunities and defense themselves from threats.

Being labeled a “cash cow” can hurt employee morale.

Companies often overpay to acquire stars.

Acquiring firms often treat stars as “conquered foes.”


Grand Strategies

GrowthStrategy

GrowthStrategy

focuses on increasing profits, revenues, market share, or numberof places to do business

focuses on increasing profits, revenues, market share, or numberof places to do business

StabilityStrategy

StabilityStrategy

focuses on improving the way in whichthe company sells the same productsor services to the same customers

focuses on improving the way in whichthe company sells the same productsor services to the same customers

RetrenchmentStrategy

RetrenchmentStrategy

focuses on turning around very poorcompany performance by shrinkingthe size or scope of the business

focuses on turning around very poorcompany performance by shrinkingthe size or scope of the business

3.23.2


Industry-Level Strategies

Five Industry Forces

Five Industry Forces Positioning

Strategies

PositioningStrategies Adaptive

Strategies

AdaptiveStrategies

44


Porter’s Five Industry Forces


BargainingPower ofSuppliers

BargainingPower ofSuppliers

BargainingPower ofBuyers

BargainingPower ofBuyers

Threat ofSubstitutes

Threat ofSubstitutes

Threats ofNew Entrants

Threats ofNew Entrants

Character of

Rivalry

Character of

Rivalry

4.14.1


Positioning Strategies

Cost LeadershipCost Leadership

DifferentiationDifferentiation

Focus StrategyFocus Strategy

4.24.2


Differentiation


Adaptive Strategies

Defenders

seek moderate growth

retain customers

Defenders

seek moderate growth

retain customers

Prospectors

seek fast growth

emphasize risk taking innovation

Prospectors

seek fast growth

emphasize risk taking innovation

Analyzers blend of defender &

prospector strategies

imitate other’s successes

Analyzers blend of defender &

prospector strategies

imitate other’s successes

Reactors use an inconsistent

strategy

respond to changes

Reactors use an inconsistent

strategy

respond to changes

4.34.3


Firm-Level Strategies

Basics ofDirect

Competition

Basics ofDirect

CompetitionStrategic Moves

inDirect

Competition

Strategic Moves in

Direct Competition

Entrepreneurshipand

Intrapreneurship

Entrepreneurshipand

Intrapreneurship

55



DIRECTCOMPETITION

Market commonalityMarket commonality

Resource similarityResource similarity

STRATEGICMOVES OF

DIRECT COMP.

ENTREPRENEURIALINTRAPRENEURIAL

ORIENTATION

AttackAttack AutonomyAutonomy

ResponseResponse InnovativenessInnovativeness

Risk takingRisk taking

ProactivenessProactiveness

CompetitiveAggressiveness


55




55

Market CommonalityResource Similarity

Entering market is most forceful attack.Exiting market is clear defensive signal of retreat.Entrepreneurship is strategy of entering established markets or developing new market.

Firm A Firm B

Attack

Response


Direct Competition


5.15.1

Resource Similarity

Low High

High

Low

Mar

ket

Co

mm

on

alit

y

III

III IV

McDonald’sMcDonald’s

McDonald’sMcDonald’s

BurgerKing

Wendy’s

Luby’s Cafeteria Subway


Strategic Moves of Direct Competition

5.25.2

Attack

A competitive move designed to reduce a rival’s market share or profits.

Response

A competitive countermove, prompted by a rival’s attack, to defend or improve a company’s market share or profit.



5.25.2

Types of ResponsesTypes of Responses

1. Match or mirror your competitor’s move.1. Match or mirror your competitor’s move.

2. Respond along a different dimension fromyour competitor’s move or attack.




5.25.2

Competitor AnalysisInterfirm Rivalry:

Action & ResponseStrong Market Commonality

Less Likelihood of an Attack

Weak Market Commonality

Greater Likelihood of an Attack

Strong Resource Commonality

Less Likelihood of a Response

Low Resource Commonality

Greater Likelihood of a Response


Entrepreneurship and Intrapreneurship

Entrepreneurship the process of entering new or established

markets with new goods or services

Intrapreneurship entrepreneurship within an

existing organization

Entrepreneurial orientation the set of processes, practices, and decision-

making activities that lead to new entry

5.35.3


Key Dimensions of Entrepreneurial Orientation

Risk TakingRisk Taking

AutonomyAutonomy

InnovativenessInnovativeness

ProactivenessProactiveness



5.35.3

Sustainable Competitive Advantage

Documents

Transcript of Sustainable Competitive Advantage