Chapter 4

1. Chapter 4 Group 3: Coleman Crook, Jessica Crumpton, Ashton Davis, Sarah Ellens, and Kevin levesque

2. Objectives • Integrating competitive analysis • Looking at dynamic relationships between competitive advantage and competitive process. • Understand characteristics of a market and identify opportunities for challenges

3. Singapore Airlines

4. Singapore Airlines • Prides itself on being the “most awarded airline” and having a reputation for providing passengers with high-quality experience. • Strategy is based on two main components- its planes and its people. • People: • Offers excellent training and experience • Planes: • More fuel efficient and require less repairs • Encouraged to find ways to reducing waste and bonus’s are used to incentivize cost cutting behavior.

5. The Emergence of Competitive Advantage • When two or more firms compete within the same market, one firm posesses a competitive advantage over its rivals whin it earns (or has the potential to earn) a persistently higher rate of profit • Toyota- mass produced cars • SAP- ERP Software • Southwest- affordable flights

6. External Sources of change • Can create an advantage of a disadvantage depending on magnitude of change and extent of firm’s strategic differences • Industry Environment • Tobacco VS Toy industry

7. Competitive Advantage from responsiveness to change • The competitive advantage that arises from external change also depends on firms’ ability to respond to change • Opportunities for change- Entrepreneurship • Abilities • Predict change • Reaction time ( time-based competition)

8. Case 4.1 Singapore Airlines • Gaining or losing competitive advantage as a consequence of external change • Airbus 380

9. Competitive Strategies from innovation: “new game” strategies • Changes that create competitive advantage can be created internally through innovation • Strategic Innovation: value for customers through new products, experiences of mode of product delivery • *Key source of competitive advantage, including new business models

10. Examples • Nucor Steel • Southwest • Nike • Apple

11. Shaping innovation strategies • New Industries- Kim and Mauborgne, creating new markets is the purest form of blue ocean strategy (uncontested market space) • New customer segments- Apple, VCRs, Wii • New sources of competitive advantage- (Blue Ocean) Dell’s ordering system, Cirque du Solei

12. Sustaining competitive advantage • Ability of competitors to challenge • Imitation • Innovation • Barriers • Isolating mechanisms

13. Process of Imitation • Identification • Identify that the firm possesses competitive advantage • Incentive • Believe that they may earn superior returns • Diagnosis • Diagnose features of rival’s strategy • Resource acquisition • Must have ability to acquire resources and capabilities necessary

14. Barrier: Obscure Superiority • “Mask” high performance • Private company • Avoid disclosing financial performance

15. Deterrence and Pre-Emption • Persuade rivals that imitation will be unprofitable • Pre-emption • Proliferation of product varieties • Large investments in production capacity ahead of growth • Patent proliferation- for technology based opportunities

16. Pre-Emption Continued • Two flaws must be present • Small market relative to efficient scale of production • First-mover advantage – preferential access to information and resources

17. Diagnosing competitive advantage • Identification of basis of rival’s success • Causal ambiguity • Multidimensional competitive advantage • Uncertain imitability • Caused by causal ambiguity

18. Acquiring resources and capabilities • Time it takes to acquire resources determines time able to sustain competitive advantage • Imitation may take place quickly if limited resources are required

19. Types of Competitive AdvantageCost vs. Differentiation Cost Advantage – same product/lower price Cost leader Differentiation Advantage – customer pays a higher price for differentiation. Uniqueness

20. Cost Leadership Strategy – efficient plants, overhead control, outsourcing Requirements – access to capital, frequent reports, job specialization, incentives for quantitative performance Differentiation Strategy – focus on advertising, design, service, quality Requirements – marketing abilities, cross-functional coordination, incentives linked to qualitative performance

21. Cost Drivers: • Economies of scale – through specialization • Economies of Learning – increase in skills • Production Techniques – innovation • Product Design – standardization • Input Costs – bargaining power, location • Capacity Utilization – flexible adjustments • Residual Efficiency – overall management Points out inefficiencies and which adjustments could be made

22. Value Chain Analyses: • Breakdown the firm • Establish importance associated with costs – major sources • Compare costs by activity – compared to competitors • Identify costs drivers • Indentify Linkages • Identify cost saving opportunities

23. Stages of value chain analysis for differentiation advantage • Construct a value chain for the firm and the customer. - Consider firms further downstream in value chain. • Identify the drivers of uniqueness in each activity. - Variables & Actions to achieve uniqueness.

24. Stages of value chain analysis for differentiation advantage • Select the most promising differentiation variables for the firm. - Greatest potential to differentiate - Linkages among activities - Sustainability of uniqueness • Locate linkages between the value chain of the firm and that of the buyer. - Why is the customer buying your product?

25. Rise and Fall of Starbucks • Howard Shultz 1982-2000 • Rejoined in 2008 • Keys to failure • 70% increase in coffee shops • McDonald’s Pressure • Over expansion • Keys to success • Employee development • Focus on in home products • Community feel