Strategic Management in Action
Ch. 6
Andrew Etlinger
Ashley Harris
Blake Green
David Styers
Carolynn Schnaubelt
Competitive Advantage
• Competitive Advantage is a key concept in
strategic management
• “Getting it and keeping it what managing is all
about”
• Competitive Advantage- when an organization
does something that others cant or does it better
than others do (distinctive capability). Or, an
organization has something that other
competitors don’t (unique resources)
Understanding Competition
• Competition- occurs when organizations
battle or vie for some desired object or
outcome, typically customers, market share,
survey rankings, or needed resources
• What competition might an organization face?
Who are competitors?
• There are three approaches to defining an
organization’s competition
– Industry
– Market
– Strategic Groups
Industry Approach and Market
Approach
• Industry: Identifies competitors who make the
same or very similar goods and services
• Example: video rental industry, automobile
industry, credit card industry, or the spa
industry
• Market: Identifies competitors who offer the
same customer needs
• Example: Entertainment Industry
Strategic Groups Approach
• Identifies not only a firms competitors but
shows which are most relevant
• Based on the Strategic Groups covered in Ch.3
• Figure 6.2
Competitive Strategy
• Organizations attempt to create a sustainable
competitive advantage. An organization does
this by using its competitive strategy, which is
based on the competitive advantages that the
firm has developed.
• Examples: Netflix
Approaches to Defining
Competitive Strategy
• Miles & Snow’s Adaptive Strategies
– Prospector Strategy
– Defender Strategy
– Analyzer Strategy
– Reactor Strategy
• Porter’s Generic Competitive Strategies
– Cost Leadership Strategy
– Differentiation Strategy
– Focus Strategy
Miles & Snow’s Adaptive Strategies
• Prospector Strategy- an organization that
continually innovates by finding and exploiting
new product and market opportunities.
– Constantly innovating, developing, and testing
new products.
– Creates uncertainty for the prospector’s
competitors because they never know what to
expect next.
– Examples: Fox Broadcasting Network & MTV
Miles & Snow’s Adaptive Strategies
(Cont.)
• Defender Strategy- used to protect current
market share by emphasizing existing products
and producing only a limited product line.
– Prevent competitors from stealing ideas from their
company.
• Analyzer Strategy- strategy of analysis and
imitation. Analyzers look for and copy the ides of
successful prospectors.
– Ex. Suave Shampoo and skin care
Miles & Snow’s Adaptive Strategies
(Cont.)
• Reactor Strategy- characterized by the lack of
a coherent strategic plan or apparent means
of competing.
– Reactors react to environmental changes and
make adjustments only when finally forced to do
so by environmental pressures.
– Can be thought of as a “default” strategy because
it is not a recommended competitive strategy for
developing competitive advantage.
Porter’s Generic Competitive Strategies
• Porter believes competitive advantage can only
come from 2 sources:
– Having the lowest costs in the industry
– Possessing significant and desirable differences from
competitors.
• Cost Leadership Strategy- an organization strives
to have the lowest costs in its industry and
produces products for a broad customer base.
– Main objective is to keep costs as low as possible.
– Ex. Wal-Mart
Porter’s Generic Competitive
Strategies
• Differentiation Strategy- an organization
competes by providing unique products with
features that customers value, perceive as
different , and are wiling to pay a premium for.
– Try to create brand loyalty: when customers
consistently seek out, purchase, and use a
particular brand.
– Ex. Pottery barn used to be unique in their
industry.
Focus Strategy
• It’s when an organization pursues either a cost of differentiation
advantage but within a limited (narrow) customer group or
segment.
• There are three broad ways to segment specialized market niches:
– Geographical
– Type of customer
– Product line segment
• What’s involved in a focus strategy?
– Cost focuser competes by having lower costs than the overall industry
cost leader in specific and narrow niches.
– Differentiation focuser uses whatever forms of differentiation the
broad differentiator might use and specializes in one or a few
segments.
Focus Strategy (cont.)
• Advantages:
– Focuser knows its market niche well and can stay close to
customers and respond quickly to their changing needs.
– They can develop strong brand loyalty by effectively and
efficiently responding to customers needs.
• Drawbacks:
– Focuser can often operates on a small scale making it difficult to
lower costs significantly.
– The niche customers might change their tastes or needs.
– There’s always the threat of a broad-based differentiator taking
notice of the focuser’s market niche.
• Stuck in the middle
– Happens when an organization hasn’t developed a low cost or a
differentiation competitive advantage.
Contemporary Views on Competitive
Strategy
• Integrated low cost-differentiation strategy
involves simultaneously achieving low costs
and high levels of differentiation.
– This is not easy to pursue because an organization
basically has to be good at everything.
– Technology is what makes this strategy possible
– Increasing affordability of information technology
has made it easier for organizations to pursue
product and service differentiation and still keep
their costs low.
Contemporary Views on Competitive
Strategy (cont.)
• Mintzberg’s Generic Competitive Strategies were
developed because he felt they better reflected the
increasing complexity of the competitive environment.
– Differentiation by price: having the lowest costs didn’t
provide a competitive advantage by itself but the
advantage came from the fact that is allowed the
organization to charger below-average market prices.
– Differentiation by marketing image: create a certain image
in customers’ minds and use it as a competitive weapon.
– Differentiation by product design: compete on the basis of
providing desirable product features and design
configurations.
Contemporary Views on Competitive
Strategy (cont.)
– Differentiation by quality: compete by delivering a
higher reliability and performance at a
comparable price.
– Differentiation by product support: emphasized
the customer support services provided by the
organization.
– Undifferentiated strategy: situations in which an
organization had no basis for differentiation or
when it deliberately followed a copycat strategy.
Strategy Implementation
• If a strategy is not implemented, then it is only
an idea
• Once it is implemented, it must be evaluated
and changed if necessary
• The organization’s functional strategies play a
major role in strategy implementation
Roles
• Dual Roles
– 1st choice depends on the organization’s resources
and capabilities being acquired and developed
through functional strategies
– Once the competitive strategy is determined, the
resources, capabilities and competencies found
are HOW they are implemented
Offensive Competitive Actions
• An organization’s attempt to exploit and strengthen its
competitive position through attacks
• Different types:
– Frontal assault – going head to head with competitor and
matching them in everything
– Attach competitor’s weakness
– All out attack – hitting them from product and market
segment side
– Maneuvering around competitor and changing rules of the
game
– Guerilla attacks
Defensive Competitive Actions
• An organization’s attempt to exploit and
strengthen its competitive position through
attacks
• Different types:
– Don’t give them areas to attack
– Increase competitor’s beliefs that retaliation will
occur if they are attacked
– Lower incentive for competitor to attack
Evaluating Competitive Strategies
• Ask questions:
– What are the results?
– Are they having the intended effect?
– Are we successfully exploiting our competitive
advantage?
• Don’t ONLY look at results
• You must determine what happened and why
– Pinpoint areas of competitive weakness
• If levels of performance haven’t been reached,
change might need to occur
Takeaways (Conclusions)
• Competitive Advantage
• Approaches to defining a competitor are:
– Industry perspective
– Market perspective
– Strategic groups concept
Takeaways (Cont.)
• Miles and Snow’s Four Adaptive Strategies
– Prospector, Defender, Analyzer, and Reactor
• Porter’s three strategies
– Cost leadership, differentiation, and focus
• Two Contemporary views on competitive
strategy: integrated low cost-differentiation vs.
Mintzberg’s generic competitive strategies.