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The Nature and Sources of Competitive Advantage-Management Practices-Presentation, Slides of Management Fundamentals

Dayalbagh Educational Institute Management Fundamentals

This is project presentation for Management Practices course at Dayalbagh Educational Institute. It includes: Nature, Source, Competitive, Advantage, Sustaining, Types, Cost, Differentiation, Strategic, Innovation

Typology: Slides

2011/2012

Uploaded on 07/06/2012

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The Nature and Sources of

Competitive Advantage

•The emergence of competitive advantage

•Sustaining competitive advantage

•Competitive advantage in different market

settings

•Types of competitive advantage: cost and

differentiation

OUTLINE

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The Nature and Sources of

Competitive Advantage

The emergence of competitive advantage
Sustaining competitive advantage
Competitive advantage in different market

settings

Types of competitive advantage: cost and

differentiation

OUTLINE

What is competitive advantage?

• The potential to earn a persistently high rate

of profit

• Not the same as profitability

– Long term investments may not show up in

short term profits

• Investing in market share, technology, customer

loyalty or even executive perks

Competitive Advantage from Internally-

Generated Change: Strategic Innovation

Many argue innovation is the only remaining source of competitive

advantage (e.g. Hamel)

Kao (2007) Innovation Nation: How America is Losing its Innovation Edge, Friedman (2005) The World is Flat - Talent is everywhere, capital is everywhere, Silicon valley is everywhere

Characteristics of innovation strategies:

Associated with new entrants to an industry (e.g. Nucor in steel, IKEA in furniture, Home Depot in DIY, Dell in PCs, American Apparel in casual clothing)
Reconcile conflicting performance goals (e.g. Toyota’s lean production system combines low cost, high quality, and flexibility. Retailers Primark and Target combine low cost with stylishness.)
Reconfiguring the value chain e.g.---
- Nike’s system for manufacturing and distributing shoes totally different from traditional shoe manufacturer
- Southwest Airlines simplification of the normal airline value chain
- Zara’s system of design, manufacture, and distribution

REQUIREMENT FOR IMITATION

Identification - Obscure superior performance

Deterrence --signal aggressive Incentives for imitation intentions to imitators
Pre-emption --exploit all available investment opportunities
Rely upon multiple sources of Diagnosis competitive advantage to create “causal ambiguity”
Base competitive advantage upon Resource acquisition resources and capabilities that are immobile and difficult to replicate

ISOLATING MECHANISM

Sustaining Competitive Advantage Against Imitation

Sources of Competitive Advantage

COST ADVANTAGE

DIFFERENTIATION ADVANTAGE

COMPETITIVE

ADVANTAGE

Concept of “stuck in the middle”

Porter’s Generic Strategies

SOURCE OF COMPETITIVE ADVANTAGE Low cost Differentiation

Industry-wide COST DIFFERENTIATION

COMPETITIVE LEADERSHIP

SCOPE

Single Segment F O C U S

Cost Advantage

Economies of experience curve and the

benefits of market share

Sources of cost advantage
Using the value chain to analyze costs
Current approaches to managing costs

OUTLINE

The Experience Curve

The “Law of Experience”

The unit cost value added to a standard product declines by a constant % (typically 20-30%) each time cumulative output doubles.

Cost per unit of output (in real $)

Cumulative Output

The Importance of Market Share

If all firms in an industry have the same experience curve, then:

Change in relative costs over time = f (relative market share)

This implies that market share is linked to profitability. This is

confirmed by PIMS data:

BUT : - Association does not imply causation

Costs of acquiring market share offset the returns to market

ROS (%)

0-10 10-20 20-30 30-40 over 40 Market Share (%)

Drivers of Cost Advantage

PRODUCTION TECHNIQUES

PRODUCT DESIGN

INPUT COSTS

CAPACITY UTILIZATION

RESIDUAL EFFICIENCY

ECONOMIES OF LEARNING

ECONOMIES OF SCALE

Organizational slack; Motivation & culture; Managerial efficiency
Ratio of fixed to variable costs
Speed of capacity adjustment
Location advantages
Ownership of low-cost inputs
Non-union labor
Bargaining power
Standardizing designs & components
Design for manufacture
- Process innovation
- Reengineering business processes
Increased dexterity
Improved organizational routines
Indivisibilities
Specialization and division of labor

The Costs Developing New Car Models

(including plant tooling)

$ billion

Ford Mondeo / Contour 6

GM Saturn 5

Ford Taurus (1996 model) 2. Ford Escort (new model 1996) 2

Renault Clio (1999 model) 1.

Chrysler Neon 1.

Honda Accord (1997 model) 0.

BMW Mini 0.

Rolls Royce Phantom (2003 model) 0.

10 20 50 100 200 500 1, Annual sales volume (millions of cases)

Advertising Expenditure ($ per case)0.

Pepsi Coke

Seven Up

Sprite^ Dr. Pepper

Diet Pepsi

Tab

Fresca

Diet Rite

Diet 7-Up

Schweppe s (^) SF Dr. Pepper

Despite the massive advertising budgets of brand leaders Coke and Pepsi, their main brands incur lower advertising costs per unit of sales than their smaller rivals.

Scale Economies in Advertising: U.S. Soft Drinks

Applying the Value Chain to Cost Analysis:

The Case of Automobile Manufacture

STAGE 1. IDENTIFY THE PRINCIPAL ACTIVITIES

STAGE 2. ALLOCATE TOTAL COSTS

PURCH- ASING

PARTS INVEN- TORIES

R&D DESIGN ENGNRNG

COMPONENT MFR

ASSEMBLY

TESTING, QUALITY CONTROL

GOODS INVEN- TORIES

SALES & MKITG

DISTRI- BUTION

DEALER & CUSTOMER SUPPORT

PURCH- ASING

PARTS INVEN- TORIES

R&D DESIGN ENGNRNG

COMPONENT MFR ASSEMBLY^

TESTING, QUALITY CONTROL

GOODS INVEN- TORIES

SALES & MKITG

DISTRI- BUTION

DEALER & CUSTOMER SUPPORT

--Plant scale for each -- Level of quality targets -- No. of dealers component -- Frequency of defects -- Sales / dealer -- Process technology -- Level of dealer -- Plant location support -- Run length -- Frequency of defects -- Capacity utilization under warranty

Prices paid --Size of commitment -- Plant scale --Cyclicality & depend on: --Productivity of -- Flexibility of production predictability of sales -- Order size R&D/design - - No. of models per plant --Customers’ --Purchases per --No. & frequency of new -- Degree of automation willingness to wait supplier models -- Sales / model -- Bargaining power -- Wage levels -- Supplier location -- Capacity utilization

STAGE 3. IDENTIFY COST DRIVERS

The Nature and Sources of Competitive Advantage-Management Practices-Presentation, Slides of Management Fundamentals

Related documents

Partial preview of the text

Download The Nature and Sources of Competitive Advantage-Management Practices-Presentation and more Slides Management Fundamentals in PDF only on Docsity!

The Nature and Sources of

Competitive Advantage

settings

differentiation

What is competitive advantage?

• The potential to earn a persistently high rate

of profit

• Not the same as profitability

– Long term investments may not show up in

short term profits

• Investing in market share, technology, customer

loyalty or even executive perks

advantage (e.g. Hamel)

Characteristics of innovation strategies:

REQUIREMENT FOR IMITATION

ISOLATING MECHANISM

Sustaining Competitive Advantage Against Imitation

Concept of “stuck in the middle”

Cost Advantage

benefits of market share

If all firms in an industry have the same experience curve, then:

Change in relative costs over time = f (relative market share)

This implies that market share is linked to profitability. This is

confirmed by PIMS data:

BUT : - Association does not imply causation

share

ROS (%)

PRODUCTION TECHNIQUES

PRODUCT DESIGN

INPUT COSTS

CAPACITY UTILIZATION

RESIDUAL EFFICIENCY

ECONOMIES OF LEARNING

ECONOMIES OF SCALE

(including plant tooling)

Ford Mondeo / Contour 6

Scale Economies in Advertising: U.S. Soft Drinks

Applying the Value Chain to Cost Analysis:

The Case of Automobile Manufacture

Applying the Value Chain to Cost Analysis: The

Case of Automobile Manufacture (continued)