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business policies and strategiesTRANSCRIPT
BUSINESS POLICY & STRATEGY
MODULE – 2
COMPETITIVE ADVANTAGECOMPETITIVE ADVANTAGE
Dr. MARAMRAJU PADMAKAR RAODr. MARAMRAJU PADMAKAR RAO
REFERENCES:REFERENCES:
““STRATEGIC MANAGEMENT”STRATEGIC MANAGEMENT”
----Charles W. L. Hill----Charles W. L. Hill
Gareth R. JonesGareth R. Jones
STRATEGIC PLANNING PROCESS
MISSION& GOALS
SWOT STRAT. CHOICE
EXTERNALOPP &
THREATS
INTERNALSTRENGTHSWEAKNESS
FUNCTIONALBUSINESSGLOBAL
CORPORATESTRATEGIES
CORP.PERFORM-
-ANCE
IMPL.IN FIRM
IMPL.ININDUSTRY
FEEDBACK
EXTERNAL ENVIRONMENTEXTERNAL ENVIRONMENTINDUSTRYINDUSTRY:: Group of companies offering product
or services that are close substitutes for each other i.e. product/service that satisfy the same basic customer need
INDUSTRY BOUNDARYINDUSTRY BOUNDARY:: Basic customer needs that are served by a market define the industry boundary.
SECTORSECTOR:: A group of closely related industries
EX:1. COMPUTER SECTOREX:1. COMPUTER SECTOR -------------Computer component industry-------------Computer component industry
-------------Computer hardware industry-------------Computer hardware industry
-------------Computer software industry-------------Computer software industry
2. TELECOMMUNICATIONS:2. TELECOMMUNICATIONS: --Telecommunication Equipment Ind. --Telecommunication Equipment Ind.
SECTORSECTOR -- Telecommunication Services Ind. -- Telecommunication Services Ind.
INDUSTRY COMPETITIVE ANALYSIS
Porter’s Five Forces ModelPorter’s Five Forces Model Strategic Group AnalysisStrategic Group Analysis Industry Life Cycle AnalysisIndustry Life Cycle Analysis
PORTER’S FIVE FORCES MODEL
RISK OF ENTRYBY POTENTIALCOMPETITORS
INTENSITY OFRIVALRY
AMONG FIRMS
BARGAININGPOWER OF SUPPLIERS
BARGAININGPOWER OF
BUYERS
THREAT OFSUBSTITUTES
1. RISK OF ENTRY: a) BRAND LOYALTY – by continuous ads,
patent protection, product innovation, high product quality
b) b) ABSOLUTE COST ADVANTAGE– – superior production operations, control of inputs like labor, material, equipment, skills, access to cheaper funds.
c) c) ECONOMICS OF SCALE – – cost reduction thro mass production, discounts on bulk purchase of raw materials, spreading fixed production costs, cost savings through spreading marketing & advertising over a large volume.
PORTER’S FIVE FORCES MODELPORTER’S FIVE FORCES MODEL
PORTER’S FIVE FORCES MODELPORTER’S FIVE FORCES MODEL … …contdcontd
d) d) Customer switching cost-----high switching charges locks the customer, higher barrier to exit
Ex: switching from one Operating system to anothere) e) Government Regulations --- --- lowers the barrier to
new entrants Ex: Telecom, Transport airlines
2) RIVERLRY AMONG THE ESTABLISHED FIRMS: Competitive struggle to gain market share
PRICE, PRODUCT DESIGN, ADVERTISING, PROMOTION SPENDING, DIRECT SELLING EFFORTS, AFTER SALES SERVICE AND SUPPORT
PORTER’S FIVE FORCES MODELPORTER’S FIVE FORCES MODEL …contd …contdINDUSTRY COMPETITIVE STRUCTUREINDUSTRY COMPETITIVE STRUCTURE a) Fragmented Industry:a) Fragmented Industry: Large no of small/ medium size Large no of small/ medium size
companies & none can determine industry price. Boom companies & none can determine industry price. Boom and bust cycles repeat, profits rise & fall, large no of and bust cycles repeat, profits rise & fall, large no of new entrantsnew entrants
Ex: Agriculture, Health clubsEx: Agriculture, Health clubs StrategyStrategy: minimize cost: minimize cost b) Consolidated Industry:b) Consolidated Industry: A small no of large cos A small no of large cos (OLIGOPOLY), one company competitive actions will (OLIGOPOLY), one company competitive actions will
lead to competitive reaction .May lead to competitive lead to competitive reaction .May lead to competitive spiral. Ex: Airlines, Automobiles, Aerospace, Pharmaspiral. Ex: Airlines, Automobiles, Aerospace, Pharma
StrategyStrategy: prices should be set by watching, interpreting, : prices should be set by watching, interpreting, anticipating and responding to each other behavioranticipating and responding to each other behavior
INDUSTRY DEMAND: High demand reduces competition Declining demand increased the rivalry
EXIT BARRIERS:EXIT BARRIERS: INVESTMENTS IN ASSETS LIKE
SPECIAL MACHINES HIGH FIXED COST OF EXIT EMOTIONAL ATTATCHMENT ECONOMIC DEPENDENCE ON THE
INDUSTRY THE NEED TO MAINTAIN EXPENSIVE
COLLECTION OF ASSETS
PORTER’S FIVE FORCES MODELPORTER’S FIVE FORCES MODEL … …contdcontd
PORTER’S FIVE FORCES MODELPORTER’S FIVE FORCES MODEL … …contdcontd
3. 3. BARGAINING POWER OF BUYERS:BARGAINING POWER OF BUYERS:Buyers are Powerful whenBuyers are Powerful when a) If industry composed of large small companies and buyers a) If industry composed of large small companies and buyers
are large and feware large and few b) If buyers purchase large quantitiesb) If buyers purchase large quantities c) When supply industry depends on buyers for a large c) When supply industry depends on buyers for a large
quantity of its total ordersquantity of its total orders d) When switching costs are lowd) When switching costs are low e) When it is economically feasible for buyers to purchase an e) When it is economically feasible for buyers to purchase an
input from several companiesinput from several companies f) When buyers can threaten to enter the industry and produce f) When buyers can threaten to enter the industry and produce
the product themselvesthe product themselvesEx: Suppliers of auto components for GM, Ford, Ex: Suppliers of auto components for GM, Ford, Daimler ChryslerDaimler Chrysler
PORTER’S FIVE FORCES MODELPORTER’S FIVE FORCES MODEL …contd …contd
4.BARGAINING POWER OF SUPPLIERS:4.BARGAINING POWER OF SUPPLIERS:Suppliers are powerful whenSuppliers are powerful whena)a) The product has few substitutes and is vital to the The product has few substitutes and is vital to the
company.company.b)b) When the industry is not an important customer to the When the industry is not an important customer to the
supplier.supplier.c)c) If the product of the supplier is unique or different.If the product of the supplier is unique or different.d)d) Suppliers can threaten to enter customer’s industry to Suppliers can threaten to enter customer’s industry to
produce products that would compete with those of the produce products that would compete with those of the industry.industry.
e)e) Firms in the industry can not threaten to enter their Firms in the industry can not threaten to enter their suppliers industry and make their own inputs.suppliers industry and make their own inputs.
Ex: Ex: PC manufacture: Intel CPU chips 85% of the chips PC manufacture: Intel CPU chips 85% of the chips needed for PCneeded for PC
The competitors can not match Intel’s price & scaleThe competitors can not match Intel’s price & scale
PORTER’S FIVE FORCES MODELPORTER’S FIVE FORCES MODEL …contd …contd
5. SUBSTITUTE PRODUCTS:5. SUBSTITUTE PRODUCTS:
--- Companies in coffee industry will have substitute --- Companies in coffee industry will have substitute products in tea or soft drinks.products in tea or soft drinks.
Existence of close substitutes will give strong competition Existence of close substitutes will give strong competition and the threat limits the priceand the threat limits the price
In case of no substitutes the companies can increase the In case of no substitutes the companies can increase the price and make profitsprice and make profits
COMPLIMENTORS:COMPLIMENTORS:
Products that add value to the products of the companies in Products that add value to the products of the companies in an industry.an industry.
Ex: Application software and the PC for better service to Ex: Application software and the PC for better service to the customer.the customer.
INDUSTRY COMPETITIVE ANALYSIS
Porter’s Five Forces ModelPorter’s Five Forces Model Strategic Group AnalysisStrategic Group Analysis Industry Life Cycle AnalysisIndustry Life Cycle Analysis
Strategic Groups within IndustryStrategic Groups within Industry HIGHHIGH
PRICES PRICES CHARGEDCHARGED
LOWLOW
LOW R & D SPENDING HIGHLOW R & D SPENDING HIGH
PROPRIETARYPROPRIETARYGROUPGROUPMERCKMERCKPFIZERPFIZEREli LillyEli Lilly
GENERICGENERICGROUPGROUP
FOREST LABSFOREST LABSCARTERCARTER
ICNICN
IMPLICATIONS OF THE IMPLICATIONS OF THE STRATEGIC GROUPSSTRATEGIC GROUPS
1.1. DIRECT SUBSTITUTES FOR EACH OTHER DIRECT SUBSTITUTES FOR EACH OTHER INSIDE THE GROUPINSIDE THE GROUP
2.2. RIVELVRY WITHIN ITS OWN STRATEGIC GROUPRIVELVRY WITHIN ITS OWN STRATEGIC GROUP3.3. EACH STRATEGIC GROUP FACE DIFFERENT EACH STRATEGIC GROUP FACE DIFFERENT
SET OF OPPORTUNITIES AND THREATSSET OF OPPORTUNITIES AND THREATS4.4. THE FIRMS IN THE PROPRIETARY GROUP CAN THE FIRMS IN THE PROPRIETARY GROUP CAN
CHARGE HIGHER PRICES DUE TO THE PATENTSCHARGE HIGHER PRICES DUE TO THE PATENTS5.5. THE FIRMS IN GENERIC GROUP ARE IN WEAKER THE FIRMS IN GENERIC GROUP ARE IN WEAKER
POSITION DUE TO NUMBER OF COMPETITORSPOSITION DUE TO NUMBER OF COMPETITORS6.6. MOBILITY BARRIERS DUE TO HIGH R&D COST, MOBILITY BARRIERS DUE TO HIGH R&D COST,
PRICE STRUCTURE etc.PRICE STRUCTURE etc.
INDUSTRY COMPETITIVE ANALYSIS
Porter’s Five Forces ModelPorter’s Five Forces Model Strategic Group AnalysisStrategic Group Analysis Industry Life Cycle AnalysisIndustry Life Cycle Analysis
INDUSTRY LIFE CYCLE INDUSTRY LIFE CYCLE ANALYSISANALYSIS*---Competitive Changes *---Competitive Changes During Industry EvolutionDuring Industry Evolution
1.1. EMBRYONIC INDUSTRIESEMBRYONIC INDUSTRIES
2.2. GROWTH INDUSTRIESGROWTH INDUSTRIES
3.3. INDUSTRY SHAKEOUTINDUSTRY SHAKEOUT
4.4. MATURE INDUSTRIESMATURE INDUSTRIES
5.5. DECLINING INDUSTRIESDECLINING INDUSTRIES
Industry Life CycleIndustry Life Cycle
DemandDemand
TimeTime
EmbryonicEmbryonic GrowthGrowth MaturityMaturity DeclineDeclineShakeShake outout
1.EMBRYONIC INDUSTRIES1.EMBRYONIC INDUSTRIES
a)a) Slow growth due to buyers unfamiliaritySlow growth due to buyers unfamiliarityb)b) High prices due to low scale of economicsHigh prices due to low scale of economicsc)c) Poorly developed distribution channelsPoorly developed distribution channelsd)d) Barrier to entry due to access to technologyBarrier to entry due to access to technologye)e) Based on the innovative efforts of the Based on the innovative efforts of the
companycompanyf)f) Rivalry on:Rivalry on: Educating customersEducating customers Opening of the distribution channelsOpening of the distribution channels Perfecting the design of the productPerfecting the design of the product Not on the priceNot on the price
EX: Personal Computers (APPLE)EX: Personal Computers (APPLE) Vacuum Cleaners (HOOVER)Vacuum Cleaners (HOOVER) Photo Copiers (XEROX)Photo Copiers (XEROX)
2.GROWTH INDUSTRIES2.GROWTH INDUSTRIES
a)a) Demand increasing rapidlyDemand increasing rapidlyb)b) Customers are becoming familiar with the ProductCustomers are becoming familiar with the Productc)c) Prices fall due to the attainment of the scale of Prices fall due to the attainment of the scale of
economicseconomicsd)d) Developing Distribution ChannelsDeveloping Distribution Channelse)e) Threat from Potential Competitors is the highestThreat from Potential Competitors is the highestf)f) Intensity of rivalry relatively low due to the Intensity of rivalry relatively low due to the
expanding Industryexpanding Industryg)g) Enables the Companies to expand their revenues Enables the Companies to expand their revenues
and profits without affecting the market share of and profits without affecting the market share of their competitorstheir competitors
3.INDUSTRY SHAKEOUT
The rate of growth slows down Demand approaches saturation Rivalry Intensifies between companies Emergence of excess production capacity Results in price war and price reduction Drives most inefficient companies into
bankruptcy Deters new entry
4.MATURE INDUSTRIES
Barriers to entry increases Threat of entry decreases Competition for market share increases Price war and prices decrease Companies focus on cost reduction and
develop on brand loyalty
5. DECLINING INDUSTRIES5. DECLINING INDUSTRIES
Growth becomes negative due to Growth becomes negative due to technological, social changes, technological, social changes, demographics and international competitiondemographics and international competition
Degree of rivalry increasesDegree of rivalry increases Excess capacity is createdExcess capacity is created Prices decreasePrices decrease Exit barriers play greater role in adjusting Exit barriers play greater role in adjusting
excess capacityexcess capacity
THE MACRO ENVIRONMENT*THE MACRO ENVIRONMENT*
1.1. ECONOMIC FORCESECONOMIC FORCES
2.2. TECHNOLOGICAL FORCESTECHNOLOGICAL FORCES
3.3. DEMOGRAPHIC FORCESDEMOGRAPHIC FORCES
4.4. SOCIAL FORCESSOCIAL FORCES
5.5. POLITICAL AND LEGAL FORCESPOLITICAL AND LEGAL FORCES
RISK OF ENTRYBY POTENTIALCOMPETITORS
INTENSITY OFRIVALRY
AMONG FIRMS
BARGAININGPOWER OF SUPPLIERS
BARGAININGPOWER OF
BUYERS
THREAT OFSUBSTITUTES
ECONOMIC FORCESECONOMIC FORCES
DEMO- SOCIALDEMO- SOCIAL
GRAPHIC FORCESGRAPHIC FORCES
FORCESFORCES
TECHNOLOGICAL FORCESTECHNOLOGICAL FORCES
1. ECONOMIC FORCES1. ECONOMIC FORCES
Growth Rate of economy—increased customer expenditure, low competitive pressures, expansion& more profits
Interest rates—directly affects demand, cost of capital
Currency Exchange rates—affects the competitiveness in the global market
Inflation Rates--- investment planning difficult, affects the real future value of returns
2. TECHNOLOGICAL FORCES2. TECHNOLOGICAL FORCES
Both Creative & destructive — opportunity Both Creative & destructive — opportunity & threat& threat
Lowers the barriers of entry, prices and Lowers the barriers of entry, prices and profits, Increases the intensity of rivalryprofits, Increases the intensity of rivalry
Ex: Effect of Internet on advertisingEx: Effect of Internet on advertising
Effect of biotechnology companies on Effect of biotechnology companies on
established pharmaceutical companiesestablished pharmaceutical companies
3. DEMOGRAPHIC FORCES:3. DEMOGRAPHIC FORCES:
No of women work force has increased from 44 No of women work force has increased from 44 to 60% --problems of equal pay, harassment of to 60% --problems of equal pay, harassment of women at work placewomen at work place
Changes in age distribution of populationChanges in age distribution of population --opportunity for orgns catering for old--opportunity for orgns catering for old Home health care and recreationHome health care and recreation Baby boomers create mkt for customer Baby boomers create mkt for customer
appliances like washing machines, dish appliances like washing machines, dish washers, dryers etcwashers, dryers etc
Saving for retirement creates more inflows into Saving for retirement creates more inflows into mutual funds and other savingsmutual funds and other savings
4. SOCIAL FORCES4. SOCIAL FORCES
Changing social moves and values --- Changing social moves and values --- creates both opportunity and threatcreates both opportunity and threat
Ex: Health ConsciousnessEx: Health Consciousness Miller Lite– low calorie beerMiller Lite– low calorie beer PepsiCo’s colas & fruit based softPepsiCo’s colas & fruit based soft drinksdrinks Tobacco industry – decline due toTobacco industry – decline due to customer awareness of the healthcustomer awareness of the health hazards of smokinghazards of smoking
5. POLITICAL & LEGAL FORCES5. POLITICAL & LEGAL FORCES
Political processes shape a society’s lawsPolitical processes shape a society’s laws Deregulation lowers the entry barriers leading to Deregulation lowers the entry barriers leading to
intense competition and fare warsintense competition and fare wars Govt regulations increase the entry barrierGovt regulations increase the entry barrier Financial support to politicians can help the cos to Financial support to politicians can help the cos to
influence the govt to pass laws favorable to it ---influence the govt to pass laws favorable to it --- Ex:Enron power --deregulationEx:Enron power --deregulation Imposition of import duty on Imposition of import duty on steel in USsteel in US
GLOBALIZATION OF INDUSTRY STRUCTURE
Surge in value and volume of Intl tradeSurge in value and volume of Intl trade Globalization of production ---improved in the Globalization of production ---improved in the
cost & quality of factors of production labor, cost & quality of factors of production labor, energy, land & capital resulting in lower cost energy, land & capital resulting in lower cost and boost profitsand boost profits
Globalization of Markets---National mkts are Globalization of Markets---National mkts are merging into one huge global marketmerging into one huge global market
Ex: Coca Cola, Citigroup Credit Cards, Blue Ex: Coca Cola, Citigroup Credit Cards, Blue jeans, Sony Play station, McDonald, Nokia jeans, Sony Play station, McDonald, Nokia phones, Microsoft Windowsphones, Microsoft Windows
IMPLICATIONS OF GLOBALIZATIONIMPLICATIONS OF GLOBALIZATION
Industry boundaries do not stop at Industry boundaries do not stop at national bordersnational borders
Shift from national markets to Global Shift from national markets to Global markets intensified the competitive rivalrymarkets intensified the competitive rivalry
Rate of Innovation has increased along Rate of Innovation has increased along with Competitive intensitywith Competitive intensity
Through the threat of entry and the Through the threat of entry and the intensity of rivalry has increased, it has intensity of rivalry has increased, it has created enormous opportunitiescreated enormous opportunities
NATIONAL COMPETITIVE NATIONAL COMPETITIVE ADVANTAGE*ADVANTAGE*
Attributes:Attributes:
Factor EndowmentsFactor Endowments Demand ConditionsDemand Conditions Relating and Supporting IndustriesRelating and Supporting Industries Firm Strategy, Structure and RivalryFirm Strategy, Structure and Rivalry
NATIONAL COMPETITIVE ADVANTAGE*NATIONAL COMPETITIVE ADVANTAGE*
NATIONALCOMPETITIVEADVANTAGE
FACTORCONDITIONS
INTENSITYOF
RIVALRY
LOCALDEMAND
CONDITIONS
COMPETITI-VENESS OFSUP. INDUS
1. Factor Endowments1. Factor Endowments::
BASIC FACTORS: Land, Labor, capital Land, Labor, capital and Raw Materialsand Raw Materials
ADVANCED FACTORS: Technological Know How, Managerial Sophistication, Physical Infrastructure like Roads, Railways and Ports
2.Local Demand Conditions:
Companies are more sensitive to the Companies are more sensitive to the needs of the closest customersneeds of the closest customers
Creates pressure for innovation and Creates pressure for innovation and qualityquality
High standards of product quality due to High standards of product quality due to sophisticated customerssophisticated customers
Ex: Cameras of Japan Cell phones of Nokia, Ericsson of Finland and Sweden
3.COMPETITIVENESS OF RELATED AND SUPPORTING INDUSTRIES:
Benefits of investments in advanced factors of Benefits of investments in advanced factors of production by the related & supporting production by the related & supporting industries will spill over in the industryindustries will spill over in the industry
Ex: Sweden—strength in fabricated steel products spilled over into specialty steel industry
Successful industries within a country tend to Successful industries within a country tend to be grouped into clusters of related industries be grouped into clusters of related industries Ex: German textile & apparel sector –High Ex: German textile & apparel sector –High quality cotton, wool, synthetic fiber, sewing quality cotton, wool, synthetic fiber, sewing machine needles and other textile machinerymachine needles and other textile machinery
4. INTENSITY OF RIVALRY:
German & Japan predominantly top German & Japan predominantly top management team consists of engineers management team consists of engineers emphasis on improving processes and product emphasis on improving processes and product designdesign
In US the top management contain mainly In US the top management contain mainly finance background— finance background— short term financial short term financial returns– loss of US competitiveness in many returns– loss of US competitiveness in many engineering based industriesengineering based industries
Rivalry induces companies to improve Rivalry induces companies to improve efficiencyefficiency
Creates pressure to innovate, improve quality, Creates pressure to innovate, improve quality, reduce costs & upgrade advanced factors reduce costs & upgrade advanced factors
STRATEGIC PLANNING PROCESS
MISSION& GOALS
SWOT STRAT. CHOICE
EXTERNALOPP &
THREATS
INTERNALSTRENGTHSWEAKNESS
FUNCTIONALBUSINESSGLOBAL
CORPORATESTRATEGIES
CORP.PERFORM-
-ANCE
IMPL.IN FIRM
IMPL.ININDUSTRY
FEEDBACK
INTERNAL ANALYSISINTERNAL ANALYSISWe should understandWe should understand ---------- How the value is created and profit generated?How the value is created and profit generated? What is the role of Resources, Capabilities and What is the role of Resources, Capabilities and
Distinctive competencies in this process?Distinctive competencies in this process? The importance of superior efficiency, The importance of superior efficiency,
innovation, quality and response to customersinnovation, quality and response to customers To analyze the sources of competitive To analyze the sources of competitive
advantage to identify what is driving the advantage to identify what is driving the profitabilityprofitability
How the strengths of the enterprise boost its How the strengths of the enterprise boost its profitability and the weaknesses lead to lower profitability and the weaknesses lead to lower profitability?profitability?
CRITICAL ISSUES IN CRITICAL ISSUES IN INTERNAL ANALYSISINTERNAL ANALYSIS
What factors influence the durability of What factors influence the durability of competitive advantage?competitive advantage?
Why do successful companies lose their Why do successful companies lose their competitive advantage?competitive advantage?
How can companies avoid failure and How can companies avoid failure and sustain the competitive advantage over a sustain the competitive advantage over a period of time?period of time?
GENERIC BUILDING BLOCKS OF COMPETITIVE ADVANTAGE*
1.1. EFFICIENCYEFFICIENCY2.2. QUALITY AND RELIABILITYQUALITY AND RELIABILITY3.3. INNOVATIONINNOVATION4.4. RESPONSIVENESS TO CUSTOMERSRESPONSIVENESS TO CUSTOMERS---Differentiate its product offering & ---Differentiate its product offering &
creates greater customer perceived creates greater customer perceived valuevalue
---Lower its cost structure---Lower its cost structure
GENERIC BUILDING BLOCKS OF COMPETITIVE ADVANTAGE
SuperiorQuality
Comp. Adv*Low Cost
.*Differentiation
SuperiorEfficiency
Superior Customer
Responsive--ness
SuperiorInnovation
1.EFFICIENCY: EFFICIENCY HELPS A COMPANY ATTAIN A EFFICIENCY HELPS A COMPANY ATTAIN A
COMPETITIVE ADVANTAGE THROUGH COMPETITIVE ADVANTAGE THROUGH LOWER COST STRUCTURELOWER COST STRUCTURE
EMPLOYEE PRODUCTIVITYEMPLOYEE PRODUCTIVITY CAPITAL PRODUCTIVITYCAPITAL PRODUCTIVITY PRODUCTIVITY OF R&D SPENDINGPRODUCTIVITY OF R&D SPENDING SALES FORCE PRODUCTIVITY SALES FORCE PRODUCTIVITY HIGH PRODUCTIVITY LEADS TO GREATER HIGH PRODUCTIVITY LEADS TO GREATER
EFFICIENCY AND LOWER COSTSEFFICIENCY AND LOWER COSTS
2. QUALITY & RELIABILITY: IF CUSTOMERS PERCEIVE GREATER VALUE IN THE IF CUSTOMERS PERCEIVE GREATER VALUE IN THE
ATTRIBUTES OF A SPECIFIC PRODUCT AS COMPARED TO ATTRIBUTES OF A SPECIFIC PRODUCT AS COMPARED TO COMPETITORSCOMPETITORS
HIGH QUALITY PRODUCTS INCREASES THE VALUE OF HIGH QUALITY PRODUCTS INCREASES THE VALUE OF THE PRODUCT IN THE EYES OF THE CUSTOMER &THE THE PRODUCT IN THE EYES OF THE CUSTOMER &THE COMPANY CAN CHARGE HIGH PRICECOMPANY CAN CHARGE HIGH PRICE
RELIABLE PRODUCTS GIVE RISE TO GREATER RELIABLE PRODUCTS GIVE RISE TO GREATER EFFICIENCY AND LOWER UNIT COST ie LESS EMPLOYEE EFFICIENCY AND LOWER UNIT COST ie LESS EMPLOYEE TIME IS WASTED MAKING DEFECTIVE PRODUCTS OR TIME IS WASTED MAKING DEFECTIVE PRODUCTS OR PROVIDING SUBSTANDARD SERVICESPROVIDING SUBSTANDARD SERVICES
IN MANY INDUSTRIES QUALITY & RELIABILITY HAS IN MANY INDUSTRIES QUALITY & RELIABILITY HAS BECOME AN ABSOLUTE IMPERATIVE FOR SURVIVALBECOME AN ABSOLUTE IMPERATIVE FOR SURVIVAL
3. INNOVATION : PRODUCT INNOVATION –Development of products –Development of products
that are new or have superior attributes to existing that are new or have superior attributes to existing products. Ex: Intel microprocessors, Cisco’s Routers, products. Ex: Intel microprocessors, Cisco’s Routers, Palm’s Hand held computer—increases company’s Palm’s Hand held computer—increases company’s pricing optionspricing options
PROCESS INNOVATION —Development of new —Development of new process for producing products& delivering to process for producing products& delivering to customers Ex: Toyota: Lean production system, Just in customers Ex: Toyota: Lean production system, Just in time inventory, self managing teams, reduced setup time inventory, self managing teams, reduced setup timestimes
Innovation makes a company UNIQUE as compared to Innovation makes a company UNIQUE as compared to its rivals and it can differentiate itself from its rivals.its rivals and it can differentiate itself from its rivals.
Innovation can reduce its unit costs far below those of Innovation can reduce its unit costs far below those of competitorscompetitors
4. RESPONSIVENESS TO CUSTOMERS 4. RESPONSIVENESS TO CUSTOMERS ::
Identifying and satisfying customer needs Identifying and satisfying customer needs better than the rivalsbetter than the rivals
Achieving superior quality and innovation leads Achieving superior quality and innovation leads to superior responsivenessto superior responsiveness
Customize goods and services unique Customize goods and services unique demands of the customersdemands of the customers
Fast response timeFast response time Superior design, superior after sales service Superior design, superior after sales service
and support allows a company to differentiate and support allows a company to differentiate --- helps to get brand loyalty, and company can --- helps to get brand loyalty, and company can charge a premium price for its products charge a premium price for its products
DISTINCTIVE COMPETENCIESDISTINCTIVE COMPETENCIES
ARE FIRM SPECIFIC STRENGTHS THAT ALLOW A COMPANY TO ARE FIRM SPECIFIC STRENGTHS THAT ALLOW A COMPANY TO DIFFERENCIATE ITS PRODUCTS AND ACHIEVE DIFFERENCIATE ITS PRODUCTS AND ACHIEVE SUBSTANTIALLY LOWER COSTS THAN ITS RIVALS THUS GAIN SUBSTANTIALLY LOWER COSTS THAN ITS RIVALS THUS GAIN COMPETITIVE ADVANTAGECOMPETITIVE ADVANTAGE
Ex: TOYOTO’S LEAN PRODUCTION SYSTEM CONSISTING OF Ex: TOYOTO’S LEAN PRODUCTION SYSTEM CONSISTING OF a) JUST IN TIME INVENTORY SYSTEMa) JUST IN TIME INVENTORY SYSTEM b) SELF MANAGING TEAMSb) SELF MANAGING TEAMS c) REDUCED SETUP TIMES FOR COMPLEX EQUIPMENTc) REDUCED SETUP TIMES FOR COMPLEX EQUIPMENT A STRATEGY IS THE DRIVER OF COMPETITIVE ADVANTAGE A STRATEGY IS THE DRIVER OF COMPETITIVE ADVANTAGE
AND PROFITABILITYAND PROFITABILITY
DISTINCTIVE COMPETENCIES ARISE FROMDISTINCTIVE COMPETENCIES ARISE FROM ----RESOURCES----RESOURCES ----CAPABILITIES----CAPABILITIES
STRATEGY, RESOURCES, CAPABILITIES AND COMPETENCIES
RESOURCES
DISTINCTIVECOMPETEN-
-CIES
CAPABILITIES
STRATEGIESCOMPETITIVEADVANTAGE
SUPERIORPROFITA-
-BILITY
RESOURCES:RESOURCES:
CAPITAL OR FINANCIAL, PHYSICAL, SOCIAL OR HUMAN, CAPITAL OR FINANCIAL, PHYSICAL, SOCIAL OR HUMAN, TECHNOLOGICAL AND ORGANIZATIONAL FACTOR TECHNOLOGICAL AND ORGANIZATIONAL FACTOR ENDOWMENTSENDOWMENTS
------------FIRM SPECIFIC AND DIFFICULT TO IMITATEFIRM SPECIFIC AND DIFFICULT TO IMITATE
------VALUABLE LEAD TO DISTINCTIVE COMPETENCY------VALUABLE LEAD TO DISTINCTIVE COMPETENCY AND CREATES STRONG DEMANDAND CREATES STRONG DEMAND
TANGIBLE RESOURCESTANGIBLE RESOURCES : : Land, buildings, plant, equipment, Land, buildings, plant, equipment, inventory and moneyinventory and money
INTANGIBLE RESOURCESINTANGIBLE RESOURCES: : Brand names, reputation of the Brand names, reputation of the company, knowledge gained by employee through experience & company, knowledge gained by employee through experience & intellectual property of the company including patents, copy rights intellectual property of the company including patents, copy rights and trade marksand trade marks
EX: Polaroid instant film processing – a valuable resource which EX: Polaroid instant film processing – a valuable resource which vanished with the invention of DIGITAL PHOTOGRAPHYvanished with the invention of DIGITAL PHOTOGRAPHY
CAPABILITIES:CAPABILITIES:
FIRM’S SKILLS AT COORDINATING ITS RESOURCES AND PUTTING THEM FOR PRODUCTIVE USE
PART OF ORGANIZATION’S RULES, ROUTINES, PROCEDURES THE PRODUCT OF ORGANIZATION’S STRUCTURE, PROCESSES,
AND CONTROL SYSTEMS DEPENDS ON THE CULTURAL NORMS AND VALUES INTANGIBLE
FOR DISTINCTIVE COMPETENCY A FIRM CAN HAVE
---A FIRM SPECIFIC AND VALUABLE RESOURCE AND THE CAPABILITIES NECESSARY TO TAKE ADVANTAGE OF THAT RESOURCE ( POLAROID)
--- A FIRM SPECIFIC CAPABILITY TO MANAGE RESOURCES(NUCOR)
A COMPANY’S DISTINCTIVE COMPETENCY IS STRONGEST WHEN IT POSESSES FIRM SPECIFIC & VALUABLE RESOURCES AND FIRM SPECIFIC CAPABILITIES TO MANAGE THE RESOURCES
COMPETITIVE ADVANTAGE AND VALUE CREATION
PROFITABILITY OF THE COMPANY DEPENDS ON:
THE AMOUNT OF VALUE CUSTOMER PLACES ON THE COMPANY’S PRODUCTS
THE PRICE THAT A COMPANY CHARGES FOR ITS PRODUCTS
THE COSTS OF CREATING THAT VALUE
VALUE CREATION:
V V –Value to consumer
P --Price
P C –Cost of Production
V – P…Consumer surplus
C P –C ..Profit Margin
V –C ..Value Created
V-P
P-C
C
ROOTS OF COMPETITIVE ADVANTAGE
RESOURCES
DISTINCTIVECOMPETEN-
-CIES
CAPABILITIES
SUPERIORFACTORS
VALUECREATION
SUPERIORPROFITA-
-BILITY
DIFFEREN-CIATION
LOW COST
THE DURABILITY OF COMPETITIVE ADVANTAGE*
BARRIERS TO IMITATION
CAPABILITY OF THE COMPETITORS
DYNAMISM OF THE INDUSTRY ENVIRONMENT.
BARRIERS TO IMITATION: BARRIERS TO IMITATION: ARE FACTORS THAT MAKE IT DIFFICULT FOR A COMPETITOR TO COPY A COMPANY’S DISTINCTIVE COMPETENCIES
IMITATING RESOURCES: TANGIBLE RESOURCES LIKE FIRM SPECIFIC AND TANGIBLE RESOURCES LIKE FIRM SPECIFIC AND
VALUABLE TANGIBLE RESOURCES –VISIBLE TO VALUABLE TANGIBLE RESOURCES –VISIBLE TO ALL COMPETITORSALL COMPETITORS
INTANGIBLE RESOURCES LIKE BRAND NAME, INTANGIBLE RESOURCES LIKE BRAND NAME, MARKETING AND TECHNOLOGICAL KNOW HOW , MARKETING AND TECHNOLOGICAL KNOW HOW , PATENTS. INVENTIONS AROUND PATENTS CAN PATENTS. INVENTIONS AROUND PATENTS CAN BE DONEBE DONE
IMITATING CAPABILITIES: IMITATING THE CAPABILITIES IS DIFFICULTIMITATING THE CAPABILITIES IS DIFFICULT
CAPABILITY OF COMPETITORS:
STRATEGIC COMMITMENT: IMITATION BECOMES DIFFICULT DUE TO IMITATION BECOMES DIFFICULT DUE TO
STRATEGIC COMMITMENT OF THE COMPETITORSSTRATEGIC COMMITMENT OF THE COMPETITORS
ABSORPTIVE CAPACITY: ABILITY OF THE ENTERPRISE TO ABILITY OF THE ENTERPRISE TO
IDENTIFY,VALUE, ASSIMILATE AND USE NEW IDENTIFY,VALUE, ASSIMILATE AND USE NEW KNOWLEDGEKNOWLEDGE
Ex: Ex: TOYOTA’S LEAN PRODUCTION SYSTEM COULD NOT BE IMITATED BY GENERAL MOTORS DUE TO INTERNAL INERTIA
INDUSTRY DYNAMISM: THE MOST DYNAMIC INDUSTRIES HAVING THE MOST DYNAMIC INDUSTRIES HAVING
HIGH RATE OF PRODUCT INNOVATIONHIGH RATE OF PRODUCT INNOVATION RAPID RATE OF INNOVATION MEANS RAPID RATE OF INNOVATION MEANS
SHORTENING OF THE PRODUCT LIFE SHORTENING OF THE PRODUCT LIFE CYCLES AND THE COMPETITIVE CYCLES AND THE COMPETITIVE ADVANTAGE IS FLEETINGADVANTAGE IS FLEETING
Ex: Ex: HIGH DEGREE OF INNOVATION IN PERSONAL COMPUTER CREATED A TURBULENT ENVIRONMENT. APPLE COMPUTER LOST TO IBM , IBM HAS LOST TO COMPAQ . COMPAQ HAS LOST TO DELL
AVOIDING FAILURE & SUSTAINING COMPETITIVE ADVANTAGE
INERTIA:INERTIA: Companies find it difficult to Companies find it difficult to change their strategies and structures to change their strategies and structures to adapt to the changing competitive adapt to the changing competitive conditionsconditions
Capabilities are difficult to change like Capabilities are difficult to change like procedures and processesprocedures and processes
PRIOR STRATEGIC COMMITMENTSPRIOR STRATEGIC COMMITMENTS THE ICARUS PARADOXTHE ICARUS PARADOX
Rising and Falling Rising and Falling CompaniesCompanies
CRAFTSMAN:CRAFTSMAN: Texas Instruments & Texas Instruments & Digital Equipment corporation Engineering Digital Equipment corporation Engineering Excellence & ignored the market realitiesExcellence & ignored the market realities
BUILDERS:BUILDERS: ITT & Gulf Western –enchanted by ITT & Gulf Western –enchanted by Diversification beyond the Profitable limitDiversification beyond the Profitable limit
PIONEER:PIONEER: Wang Labs– Brilliant innovator ended Wang Labs– Brilliant innovator ended up with novel and useless innovationsup with novel and useless innovations
SALESMAN:SALESMAN: P&G , Chrysler Marketing ability to P&G , Chrysler Marketing ability to sell anything– Ignored product Development and sell anything– Ignored product Development and manufacturing excellence---Inferior Productsmanufacturing excellence---Inferior Products
STEPS TO AVOID FAILURE
FOCUS ON THE BUILDING BLOCKS OF COMPETITIVE ADVANTAGE
INSTITUTE CONTINUOUS IMPROVEMENT AND LEARNING
TRACK BEST INDUSTRIAL PRACTICE AND USE BENCH MARKING
THE ROLE OF LUCK
Assignment on Module -2Assignment on Module -2 --To be submitted by 17--To be submitted by 17thth Jan 2011 Jan 2011
Taking the example of any company/ Taking the example of any company/ organization describe its Resources, organization describe its Resources, Capabilities and by adopting the suitable Capabilities and by adopting the suitable strategies how it’s competitive advantage strategies how it’s competitive advantage got affected ?got affected ?