Chapter 11 - Building up a competitive advantage in selected markets Flashcards
What are the steering elements in building up a competitive advantage?
- Have a clear mission: Express the role of the organization.
- Have a clear business definition
Which customer groups?
Which needs?
Which products/services? - Setting goals and objectives
- Find a competitive strategy (Generic Strategy, Value Strategies, Concept of being stuck in the middle)
What are the three components of the Generic strategy in terms of gaining a competitive advantage?
1) Creating a cost advantage → Cost leadership (low-cost-position & industry-wide strategic target)
2) Create a differentiation advantage → Differentiation strategy (uniqueness among customers, an industry-wide strategic target)
3) Strategic target
Explain the Cost leadership (Generic strategy).
Cost leadership refers to having a cost advantage.
You can offer a similar product (like your competitors) to your customers to a smaller price by focusing on the cost drivers.
Cost drivers mostly are:
- Economies or diseconomies of scale: being able to reduce the cost by performing activities efficiently at a larger volume
- Cost of complexity: make sure to monitor contribution to sales and profitability of the company; otherwise, inefficiency can occur when increasing complexity (rising cost of coordination) or more flexibility for the customer
- Learning and spill-overs: Building up experience can lower the cost over time in multiple ways, e.g. improved scheduling, product design modifications or layout changes
- Capacity utilization: Better utilization of capacity will lower the costs per unit
- Linkages: this can create the opportunity to lower the total cost of the linked activities; pervades the value chain
- Shared costs: interrelationships with other business units within the same company can affect the costs, especially when a value activity can be shared with a sister unit (Example Honda)
- Integration: vertical integration can help to reduce the cost (refers to the decision of make or buy)
- Timing: first-mover advantage if you are among the first ones to take action; timing can lead to a sustainable cost advantage or a short-term cost advantage
- Location: e.g. labor-intensive activities can be located in low-cost countries at lower cost. Energy-consuming production services can be organized in regions where cheap power is available
Explain the Differentiation strategy (Generic strategy).
A differentiation advantage means you are able to ask for a higher price premium, which means getting a higher price for a unique product or a unique service.
Explain the Strategic target (Generic strategy).
This means that a company can decide between gong industry-wide or if they just go for one particular segment.
What does it mean when a company is “stuck in the middle”?
It means they do not offer features that are unique enough for costumer attraction, but the prices are too high to effectively compete based on price.
These companies usually perform poorly because they lack a clear vision.
It does not necessarily mean that these companies perform bad, but sometimes they can be out beat by their competitors, e.g. Blockbuster & Netflix.
What are the three Value Strategies/Value Disciplines?
1) Operational Excellence → Best total cost (Best Price / Best Access)
2) Customer Responsiveness Intimacy → Best total solution (Bet Service / Best Connectivity)
3) Product Leadership → Best Product
According to Crawford and Mathews, every business offering can be broken down to what five major value attributes?
- prices relates to the cost of the product/service
- product is the product/service purchased
- access is how easily consumers can obtain and use the product
- services relates to all the extras consumers receive before, during and after they buy the product
- experience deals with how consumers feel about themselves as a result of the products/services
→ Winning companies mostly dominate one of these and often select a secondary attribute as a strong complement.
Explain Operational Excellence (Value Strategies).
Companies with an operational excellence dominate in price or access dimension.
Their value proposition towards customers is guaranteed low price and hassle-free service.
What are the four distinct features of the operating model within Operating Excellence?
Core process that aims to minimize costs and hassle. Costs does not only refer to price, but also time spent to purchase the product or maintenance.
Around the Core process, we are having:
-Culture: Disciplined Teamwork; Process focused; Conformance “one size fits all mindset”
- Management Systems: Command and control; Compensation fixed to cost and quality; transaction profitability tracking
-Organization: centralized functions; high skills at the core of the organization
- Information Technology: integrated, low-cost transaction systems; mobile and remote technologies
Examples for Companies: McDonald’s, Ikea, Aldi, Ryanair
Explain Product Leadership (Value Strategies).
Product leader companies decided to be dominant on the product value attribute.
They want to display the ability and determination to make products that customers recognize as superior.
What are the four distinct features of the operating model within Product Leadership?
Core focus is having a strong focus on creativity, innovation, new product development, …
Around the Core process, we are having:
- Culture: concept and future driven; experimentation “out of the box mindset”; attack, go for it and win
- Management Systems: Decisive, risk oriented; reward individuals innovation capacity; product life cycle profitability
- Organization: ad-hoc, organic and cellular; high skills abound in loose-knit structures
- Information Technology: person-to-person communication systems; technologies enabling cooperation and knowledge management
Example: Dyson
Explain Customer Intimacy (Value Strategies).
Customer intimate companies dominate on the service or experience dimension.
They want to offer the best total solution for the customer. For them customer loyalty is most important.
What are the four distinct features of the operating model within Customer intimacy?
Core focus is on client acquisition and development, solution development and flexible and responsive work procedures
Around the Core process, we are having:
- Culture: client and field driven; variation: “Have it your way”-mindset
- Management Systems: revenue and share of wallet driven; rewards based in part on client feedback, lifetime value of client analysis
- Organization: entrepreneurial client team; high skills in the field
- Information Technology: customer databases linking internal and external information; knowledge bases built around expertise
Example: Nordstrom, Singapore Airlines
Describe the Commodity Spiral.
Commodities are products or services where customers consider those offered by different companies as look-a-likes.
A pioneer product gets introduced, however, the price is high and profitability still low as costs are also high.
After some while the volume of sale goes up and due to economies of scale the costs per unit decrease; selling prices remain high → competitive advantage
After some more while, competitors enter the market and customers are having the choice between multiple suppliers → Competitive imitation.
Eventually due to strong competition, customers become more demanding and start asking for special features or extra service for free -> Competitive standardization
