445_Chap001_Spr10

							           Strategy and
The quest for competitive advantage




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Thinking Strategically:
The Three Big Strategic Questions

1.    Where are we now?
     ► Situation analysis (chapters 4 and 5)

2. Where does the company want to go from
 here?
     ►answering this question requires Choosing when there is no right or
      wrong answer

3. How should it get there?
     ► Company’s business strategy




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Strategy and the Quest for
Competitive Advantage

   The heart and soul of any strategy are the
    actions and moves in the marketplace that a
    company makes to strengthen its competitive
    position and gain a competitive advantage
    over rivals
   A company achieves sustainable
    competitive advantage when an attractive
    number or buyers prefer its products/services
    over those of rivals and when the basis for
    this preference can be maintained over time

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Four Basic Strategic Approaches to
Building Sustainable Competitive
Advantage

   Being the industry’s low-cost provider (a cost-based competitive
    advantage)
   Incorporate differentiating features (a “superior product” type of
    competitive advantage keyed to higher quality, better
    performance, wider selection, value-added services, or some
    other attribute)
   Focusing on a narrow market niche (winning a competitive
    edge by doing a better job than rivals of serving the needs and
    preferences of buyers comprising the niche)

   Developing expertise and resource strengths not easily imitated
    or matched by rivals (a capabilities-based competitive
    advantage)


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Examples
   Strive to be the industry’s low-cost provider
     • Wal-Mart
     • Southwest Airlines
   Outcompete rivals on a key differentiating
    feature
     • Johnson & Johnson – Reliability in baby products
     • Harley-Davidson – King-of-the-road styling
     • Rolex – Top-of-the-line prestige
     • Mercedes-Benz – Engineering design and performance
     • L.L. Bean – Good value
     • Amazon.com – Wide selection and convenience
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Examples (cont)

   Focus on a narrow market niche
     • eBay – Online auctions
     • Jiffy Lube International – Quick oil changes
     • McAfee – Virus protection auctions
     • The Weather Channel – Cable TV
   Develop expertise, resource strengths, and
    capabilities not easily imitated by rivals
     • FedEx – Next-day delivery of small packages
     • Walt Disney – Theme park management and family entertainment
     • Toyota – Sophisticated production system
     • Ritz-Carlton – Personalized customer service


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Fig. 1.2: A Company’s Strategy evolves. It is
Partly Proactive and Partly Reactive




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What Is a Business Model?

   A business model addresses “How do we
    make money in this business?”
    •   Is the strategy capable of delivering
        good bottom-line results?
   Do the revenue-cost-profit economics
    of the strategy make good business sense?
    •   Look at revenue streams the strategy is expected to produce
    •   Look at associated cost structure and potential profit margins
    •   Do resulting earnings streams and ROI indicate the strategy makes
        sense and the company has a viable business model for making
        money?




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Relationship Between
Strategy and Business Model

    Strategy . . .             Business Model . . .
Deals with a company’s             Concerns whether
 competitive position             revenues and costs
                               flowing from the strategy
                                demonstrate a business
                                   can make money




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    Microsoft’s                          Red Hat’s Business
    Business Model                       Model
Employ skilled programmers to
                                              Rely on volunteer programmers to
develop proprietary code; keep
                                              create the software
source code hidden from users
Sell OS and software packages to              Collect and test enhancements and
PC makers and users at prices to              new applications for inclusion in
achieve 90% market share                      Linux
                                              Market to large companies. Charge
Most costs are fixed; variable costs
                                              subscription fee for 24/7 within 1 h.
are small.
                                              in 7 languages

Provide modest level of technical             Make source code open and
support to users at no cost                   available to all users

Periodically introduce next-                  Fee-based training, consulting,
generation inducing PC users to               software customization, and
upgrade                                       client-directed engineering
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The three tests of a winning strategy
   Does the strategy fit the company’s situation?
     • Does it fit the competitive conditions in the industry and
       environment.
     • Is it tailored to the company’s resources strengths,
       competencies, and competitive capabilities.
   Has the strategy yield a sustainable competitive advantage?
     • Does is it have a (sustainable) advantage over rivals?
   Has the strategy produced good financial performance?




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To remember
   Business model is about developing the most advantageous margin
    equation.
   Margin = Revenues – Cost
   Strategy is about affecting this margin equation is a way that is
    different from the competition and appreciated by customers.
   A successful strategy builds on a sustainable competitive advantage.
   What are the ways in which we can influence the margin equation:
     • Increase perceived value in a way that permits to . . .
           • Increase sales volume and/or
           • Increase prices
     • Decrease cost. How do we decrease costs?
           • Decrease fixed cost (those incurred regardless of how much
             we produce and sell.
           • Decrease variable cost (those dependent on the amount that
             we produce and sell.



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