Competitive Advantage
Course Module in Competition and Strategy
Course Modules help faculty select and sequence HBS Publishing titles for use in segments of a course. Each module represents subject matter experts’ thinking about the best materials to assign and how to organize them to facilitate learning. In making selections, we’ve received guidance from faculty at Harvard Business School and other major academic institutions. Each module recommends four to six items. Whenever possible at least one alternative item for each main recommendation is included. Cases form the core of many modules, but we also include readings from Harvard Business Review, HBS background notes, and other course materials. I. Overview of suggested content (HBS cases unless otherwise noted) Title 1. Introductory Reading Creating Competitive Advantage (HBS background note) 2. Low-Cost Competitors Wal-Mart Stores in 2003 Alternative: EasyJet: The World’s Favorite Airline (IMD) 3. Differentiators I: Becoming and Remaining Unique Matching Dell B case: 704476 703497 Author Product Number 798062 Publication Year 1998 Pages Teaching Note --
Ghemawat & Rivkin Ghemawat & Bradley Kumar & Rogers
19p
704430 IMD099
2003 Rev.2004 2000 Rev.2002
32p 22p
-IMD101
Rivkin & Porter
799158
1998, rev.1999 2004 2002
31p
700084
13p 35p
same 703496
Ghemawat Alternative: Zara: Fast Fashion
Multimedia version: 703416 4. Differentiators II: Finding and Dominating a Niche Airborne Express Alternative 1: Ducati
2003
2 hrs.
703498
Rivkin Gavetti
798070 701132
1998, Rev.1999 2001
23p 25p
700085 705489
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Competitive Advantage: An HBSP Course Module Rev.2002 1999 Rev.2001 2005 2004
Alternative 2: Husky Injection Molding Systems 5. Dual Advantage Leadership Samsung Electronics Alternative: IKEA Invades America
Rivkin
799157
22p
--
Siegel Moon
705508 504094
26p 13p
706406 504095
II. Rationale for selection and sequencing the items in this module The HBS background note “Creating Competitive Advantage” will prepare students for a focused discussion of cases. It begins with issues surrounding costs and willingness to pay, then explains four steps of activity analysis through which successful firms identify opportunities for advantage. Numerous examples make the lessons concrete. The companies portrayed in segment 2 differentiate themselves on cost. The Wal-Mart case depicts a very clear example of offering low prices to customers and exploiting with suppliers the financial advantages that size and growth bestow. The alternative case on EasyJet shows how a Greek entrepreneur used Southwest Airline’s low-cost approach as a model for a new airline serving European destinations. Both of the cases in segment 3 document the establishment of a distinctive competitive advantage in industries with which most students will be quite familiar. For Dell, the advantage is based on bypassing retail outlets and providing to customers a “built to order” program of mass customization. A key question in the Dell case is whether the advantage can ultimately be copied by competitors. The alternative case on Zara focuses on a retailer in women’s fashions whose advantage is rooted in a manufacturing program that facilitates last-minute commitment to designs for the coming season, thus reducing overproduction and (ultimately) markdowns. Note that the Zara case is available in either paper or multimedia format; the multimedia version contains, among other features, a video that takes students inside the operations of Zara’s parent company, Inditex. The firms profiled in segment 4 thrive amid challenging competitors by claiming special market niches. The small package-delivery firm Airborne Express, flying under the radar of giants FedEx and UPS, focuses on a select group of customers whose size, predictability, and big-city orientation make them easier to serve. One feature of the Airborne case is that it gives students the opportunity to analyze relative cost positions as explained in the opening note of this module. Alternative cases look at Ducati and Husky. The Ducati case is a turnaround story, explaining how an apparently over-the-hill motorcycle manufacturer found and exploited a market segment underserved by Harley Davidson and other large competitors. The Husky Injection Molding Systems case examines a firm that can charge a premium for its product because it generates remarkable long-term savings for its customers. Arguably the best competitive position is dual advantage – commanding the lead in an industry based on low costs and differentiation. The Samsung case analyzes the ingredients necessary for achieving dual
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Competitive Advantage: An HBSP Course Module advantage and sustaining it under a growing competitive assault from Chinese firms. Although the alternative case on IKEA was written from a marketing perspective, it can function well as a strategy case on a kind of dual advantage. In a home furniture industry polarized into high-end and low-end retailers, IKEA has enjoyed remarkable growth by eluding both categories, offering a “stripped-down” value proposition in which expected attributes are actually withheld from the customer. III. Detailed description of recommended items 1. Introductory Reading Creating Competitive Advantage Pankaj Ghemawat & Jan W. Rivkin (HBS background note) A firm such as Schering-Plough that earns superior, long-run financial returns within its industry is said to enjoy a competitive advantage over its rivals. This note examines the logic of how firms create competitive advantage. It emphasizes two themes: First, to create an advantage, a firm must configure itself to do something unique and valuable. The firm must ensure that, were it to disappear, someone in its network of suppliers, customers, and complementors would miss it and no one could replace it perfectly. The first section uses the concept of "added value" to make this point more precisely. Second, competitive advantage usually comes from the full range of a firm's activities--from production to finance, from marketing to logistics--acting in harmony. The essence of creating advantage is finding an integrated set of choices that distinguishes a firm from its rivals. The second section shows how managers can analyze the full range of activities to understand the sources of added value. Learning Objective: To introduce the concept of competitive advantage, how firms create and sustain it. Subjects: Economic analysis; Strategic planning. 2. Low-Cost Competitors Wal-Mart in 2003 Pankaj Ghemawat & Stephen Bradley Examines Wal-Mart's development over three decades and provides financial and descriptive detail of its domestic operations. In 2003, Wal-Mart's Supercenter business has surpassed its domestic business as the largest generator of revenues. Its international operation seems poised to become the next growth driver for the company as it marches toward the trillion dollar sales mark. But problems are starting to surface even as the company is winning recognition as the number one company in the Fortune 500-unions keep pressuring its minimum-wage employees and allegations of gender discrimination are alleged. Learning Objective: To introduce students to creating a competitive advantage. Subjects: Competitive advantage; Corporate strategy; Discount department stores; Distribution planning; Information technology; International business; Management controls; Mass merchandising. Setting: United States, retailing, $245 billion, 1965-2003. Alternative: EasyJet: The Web's Favorite Airline Nirmalya Kumar & Brian Rogers (IMD) Stelios Haji-Ioannou, the 32-year-old CEO and founder of easyJet airlines, achieved profitability for the first time in 1999, almost four years after launching his London-based, low-cost carrier. The concept behind easyJet was to offer low-cost airline service to the masses, and the airline accomplished this by adopting an efficiency-driven operating model, creating brand awareness, and maintaining high levels of customer satisfaction. A key issue in the case is whether the airline will continue to grow and survive in
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Competitive Advantage: An HBSP Course Module the highly competitive, low-cost segment of the market. In 2000, Haji-Ioannou was anxious to try his hand at launching other businesses, so he started a chain of Internet cafes. Some questioned whether HajiIoannou would be able to transfer his low-cost business model successfully to Internet cafes. Undeterred, Haji-Ioannou moved ahead with his plan to create easyEverything, with the belief that he could make a profit by encouraging customers to surf the Internet, send e-mail, and shop online. A 2002 and 2001 ECCH award winner. Subjects: Business models; Competition; Industry analysis; Internet; Marketing strategy; Service management. Setting: Europe, airline industry, 1999-2000. 3. Differentiators I: Becoming and Remaining Unique Matching Dell Jan W. Rivkin & Michael E. Porter After years of success with its vaunted "Direct Model" for computer manufacturing, marketing, and distribution, Dell Computer Corp. faces efforts by competitors to match its strategy. This case describes the evolution of the personal computer industry, Dell's strategy, and efforts by Compaq, IBM, HewlettPackard, and Gateway 2000 to capture the benefits of Dell's approach. Students are called on to formulate strategic plans of action for Dell and its various rivals. Learning Objective: Permits an especially detailed examination of imitation; illustrates how fit among activities and incompatibilities between competitive positions can pose particularly high barriers to imitation. To illustrate competitor analysis, the evolution of industry structure, and relative cost analysis. Subjects: Competition; Cost analysis; Industry structure; Strategic planning. Setting: Global, computer industry, $19 billion, 1998. Alternative: Zara: Fast Fashion Pankaj Ghemawat & Jose Luis Nueno Focuses on Inditex, an apparel retailer from Spain, which has set up an extremely quick response system for its ZARA chain. Instead of predicting months before a season starts what women will want to wear, ZARA observes what's selling and what's not and continuously adjusts what it produces and merchandises on that basis. Powered by ZARA's success, Inditex has expanded into 39 countries, making it one of the most global retailers in the world. But in 2002, it faces important questions concerning its future growth. Subjects: Competitive advantage; Globalization; Market selection; Supply chain; Time based competition; Vertical integration. Setting: Spain, global; fashion industry; 3.25 billion euros, 2002. 4. Differentiators II: Finding and Dominating a Niche Airborne Express Jan W. Rivkin In the wake of a highly successful quarter, senior managers of Airborne Express, the third largest player in the express mail industry, review the firm's competitive position. Airborne has survived, and recently prospered, in an industry with significant economies of scale even though it is much smaller than industry giants Federal Express and United Parcel Service. The case challenges students to understand Airborne's unusual position. Detailed data allow students to analyze Airborne's relative cost position, the fit among its activities, the differences between Airborne and its rivals, and the evolution of its industry. Using these analyses, students make recommendations concerning the firm's pricing policy, its globalization efforts, and a partnership with a related company. Designed to be taught in a course on business-unit strategy.
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Competitive Advantage: An HBSP Course Module Learning Objective: To illustrate multiple, viable competitive positions within a single industry; to permit students to analyze relative cost; and to teach competitor analysis. Can also be used to examine industry evolution and path dependence within organizations. Subjects: Business unit; Cost analysis; Globalization; Industry analysis; Partnerships; Pricing policies. Setting: United States, express delivery, $2.5 billion, 1997. Alternative 1: Ducati Giovanni Gavetti Focuses on the turnaround and strategic repositioning of Ducati, an Italian maker of high-end sport motorcycles, and describes the current concerns with the growth prospects of the company. Federico Minoli, the CEO and strategic mind behind the turnaround, knew that Ducati could not grow indefinitely in its current niche. One alternative was to attack Harley Davidson's niche with a Ducati interpretation of a cruiser. Learning Objective: To explore issues of competitive positioning, the logic, and particularly the limits of focused differentiators, or niche players. To illustrate what variables underlie the "nicheness" of an industry. Subjects: Competition; Strategy formulation. Setting: Italy, motorcycles. Alternative 2: Husky Injection Molding Systems Jan W. Rivkin Husky, a Canadian maker of injection molding systems has established an enviable position in the market for plastics processing equipment. The company builds the highest performance systems in the business and charges a hefty premium for them. Husky is enjoying robust growth and record profits in 1996 when competitors attack its core markets. As financial results deteriorate rapidly, founder and CEO Robert Schad must decide how to defend Husky's traditional markets and whether to expand beyond those markets. Learning Objective: 1) To exemplify a highly focused competitor who earns superior returns by commanding a price premium; 2) To illustrate how tailoring of and tight fit among a firm's activities both strengthen its position and influence its assessment of options; 3) To show how one can analyze buyer value numerically in order to calculate the premium that a firm can command; 4) To demonstrate the intimate connection of a firm's strategy to its values, culture, organization, and leadership; and 5) To discuss repositioning in the face of competitive and environmental change. Subjects: Competition, Corporate strategy. Setting: Canada; plastics industry; $600 million; 1996 5. Dual Advantage Leadership Samsung Electronics Jordan Siegel When is it possible to create a dual advantage of being both low cost and differentiated? In this case, students assess whether Samsung Electronics has been able to achieve such a dual advantage, and if so, how this was possible. Moreover, Samsung Electronics' long-held competitive advantage is under renewed attack. Students also can assess how Samsung should respond to large-scale Chinese entry into its industry. Learning Objective: To teach advanced concepts of competitive advantage; to determine the conditions under which dual advantage is possible; and to discuss how industry incumbents should best respond to large-scale Chinese entry. Subjects: Business policy; Competition; Competitive advantage; Globalization; International business; International management; Technology. Setting: China, global, South Korea; electronics industry, semiconductor industry; $78.5 billion; 2005.
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Competitive Advantage: An HBSP Course Module Alternative: IKEA Invades America Youngme Moon In 2002, the IKEA Group is the world's top furniture retailer, with 154 stores worldwide. In the United States, IKEA operates 14 stores, all of which have been enormously popular despite their self-service requirements. The company's goal is to have 50 stores in operation in the United States by 2013. Explores various options for managing this growth strategy. Learning Objective: To explore several nontraditional positioning strategies, specifically, how a company was able to fashion together a unique--and heretofore unheard of--combination of benefits that ultimately ended up creating a distinctive brand experience for American consumers. Also, to illustrate the advantages associated with establishing a market position that is highly differentiated from the competition. Subjects: Consumer marketing; Furniture; Market positioning; Marketing strategy; Target markets. Setting: United States, Sweden; furniture industry; $12.2 billion; 2002.
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