Description
Module 06: Competitive Advantage
Module 06: Introduction
In this module, we discuss competitive advantage and take a specific look at cost and differentiation advantages. Students are invited to determine an individual definition of competitive advantage after critical analysis and reflection. Using various media forms to reinforce major points, we identify strategies aimed at cost advantage or differentiation advantage, the industry environment, and internal resources and capabilities.
Learning Outcomes
Examine competitive advantage in a real-world situation.
Assess the two general types of competitive advantage.
ReadingsRequired:
Chapter 7 The Sources and Dimensions of Competitive Advantage in Contemporary Strategy Analysis
Chapter 7 PowerPoint slides in Contemporary Strategy Analysis
Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic Capabilities and Strategic Management. Strategic Management Journal (John Wiley & Sons, Inc.) – 1980 to 2009, 18(7), 509–533. https://doi.org/10.1002/(SICI)1097-0266(199708)18:7<509::AID-SMJ882>3.0.CO;2-Z. https://search.ebscohost.com/login.aspx?direct=true&db=edb&AN=12493427&site=eds-live (seminal)
Porter, M. E., & Siggelkow, N. (2000). Contextuality within Activity Systems. Proceedings & Membership Directory – Academy of Management, F1–F6. https://doi.org/10.5465/APBPP.2000.5438547 (seminal) https://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=5438547&site=eds-live
Recommended:
Myung Sub Lim, Choo Yeon Kim, & Jae Wook Yoo. (2020). How Strategic Conformity Interacts with Innovation: An Empirical Study on Korean Manufacturing Firms from the Perspective of Optimal Distinctiveness. Journal of Open Innovation, 68(4), 1–18. https://doi.org/10.3390/joitmc6040121. (seminal) https://search.ebscohost.com/login.aspx?direct=true&db=asn&AN=147821629&site=eds-live
Module 06: Discussion
Creating and Sustaining Competitive Advantage
Read Case 1: Peloton Interactive, Inc.: Creating New Market Space in the Home Fitness Sector (R. M. Grant, Contemporary Strategy Analysis, 11th edn., Wiley, 2022).
Remember that a case study is a puzzle to be solved, so before reading and discussing the specific case questions below, develop your proposed solution by following these steps:
Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course module which apply to the situation described in the case study.
Record the facts from the case study which are relevant to the principles and concepts of the module. The case may have extraneous information not relevant to the current course module. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
Describe in some detail the actions that would address or correct the situation.
Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.
Discussion Questions:
Discuss the two general types of competitive advantage, and which type(s) does Peloton Interactive, Inc. possess?
Discuss how other companies in the home fitness equipment market attempt to gain a competitive advantage?
Discuss strategies that fitness businesses can use to differentiate themselves from competitors and create a strong brand identity?
Directions:
Discuss the concepts, principles, and theories from your textbook. Cite your textbooks and cite any other sources if appropriate.
Your initial post should address all components of the question with a 500 word limit.
Reply to at least two discussion posts with comments that further and advance the discussion topic.
Unformatted Attachment Preview
Contemporary Strategy Analysis
Eleventh Edition
Robert M. Grant
Chapter 7
The Sources and Dimensions of Competitive Advantage
The Sources and Dimensions of Competitive Advantage
Outline
• How is competitive advantage established?
• How is competitive advantage sustained?
• Cost analysis.
• Differentiation analysis.
• Pursuing both cost and differentiation advantage.
7-2
How is Competitive Advantage Established? (1 of 4)
The Emergence of Competitive Advantage
7-3
How is Competitive Advantage Established? (2 of 4)
Competitive Advantage from Internally-Generated Change: Strategic Innovation
STRATEGIC INNOVATION: creating customer value from new products, experiences, or modes of
product delivery.
Innovatory strategies may involve:
• Creating whole new markets/industries (e.g. Craig McCaw and wireless telephony services; My Space
and Facebook in social networking).
• Creating new customer segments (e.g. AirAsia in low-cost air travel in SE Asia; Nintendo’s Wii games
console;).
• New sources of competitive advantage.
o
o
o
Reconfiguring the value chain: Zara in fashion clothing; Southwest in airlines; Cemex in cement; IKEA in furniture.
Reconceptualizing the product: Cirque du Soleil in circuses; Starbucks in coffee shops; Apple in computers (iPad).
New performance combinations : e.g. Low prices with quality (Virgin Atlantic); low prices and style (H&M, Primark, Target).
7-4
How is Competitive Advantage Established? (3 of 4)
Historical Origins of Business Model Innovations
Business model innovation
Origin
Free content supported by
paid advertising
US commercial radio, early 1920s
Platform business models
The first platform businesses were auction houses: Sotheby’s, 1744; Christies, 1766.
Shared-ownership models
Began with real estate timeshares during 1960s. Currently: Airbnb, Zipcar, Netjets
Franchising
Singer Sewing Machine Company created global network of franchised dealers in 1880s
Consumer cooperatives
The Rochdale Society of Equitable Pioneers, 1844
Microfinance
Muhammad Yunus’s Grameen Bank, 1970s
Tied products (razor-andblades) model
Introduced by Gillette’s competitors in 1910
Mail order
Montgomery Ward, 1872
7-5
How is Competitive Advantage Established? (4 of 4)
Blue Ocean Strategy
Blue Oceans are uncontested market spaces such as: new customer segments for or
reconceptualizations of existing products, or novel recombinations of product attributes.
The Strategy Canvas can help identify blue ocean strategies by exploring new combinations of
product attributes. E.g. Cirque du Soleil.
7-6
How is Competitive Advantage Sustained? (1 of 2)
Sustaining Competitive Advantage Against Imitation
7-7
How is Competitive Advantage Sustained? (2 of 2)
Competitive Advantage in Different Industry Settings: Trading Markets and Production Markets
TRADING MARKETS
PRODUCTION MARKETS
Source of imperfection of competition
Opportunity for competitive advantage
•
•
•
•
•
None
Insider trading
Cost minimization
Superior diagnosis (e.g. chart analysis)
Contrarianism
None (efficient markets)
Imperfect information
Transactions costs
Systematic behavioral trends
Overshooting
• Barriers to imitation
• Barriers to innovation
Identify barriers to imitation (e.g. deterrence,
preemption, causal ambiguity, resource
immobility, etc.) and base strategy upon them.
Difficult to influence or exploit.
7-8
Cost Advantage (1 of 2)
Sources of Competitive Advantage
7-9
Cost Advantage (2 of 2)
Sources of Competitive Advantage
7-10
Cost Analysis (1 of 8)
Experience Curve for the Ford Model T, 1909-1920
7-11
Cost Analysis (2 of 8)
Examples of Experience Curves
7-12
Cost Analysis (3 of 8)
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)
PIMS data show that market share is positively related to profitability:
BUT: – Association does not imply causation
– Costs of acquiring market share offset the returns to market share
7-13
Cost Analysis (4 of 8)
Drivers of Cost Advantage
7-14
Cost Analysis (5 of 8)
Economies of Scale: The Long-Run Cost Curve for a Plant
7-15
Cost Analysis (6 of 8)
Some of the World’s Most Expensive New Product Development Projects
Product
Lead company
Estimated development cost
Launch date
F-35 Lightening II joint strike
fighter
Lockheed Martin
$240 billion
2012
B-2 Spirit “stealth bomber”
Northrup Grumman
$23 billion
December 1993
A380 “super-jumbo”
Airbus Industrie
$19 billion
October 2007
787 Dreamliner
Boeing
$16–18 billion
3rd Quarter 2010
Windows Vista
Microsoft
$7 billion
January 2007
PlayStation 3
Sony
$7 billion
November 2006
Iridium satellite communication
system
Motorola/Iridium Satellite LLC
$6 billion
July 1999
Ford Contour/Mondeo
Ford Motor Company
$6 billion
October 1992
7-16
Cost Analysis (7 of 8)
Scale Economies in Advertising: U.S. Soft Drinks
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.
7-17
Cost Analysis (8 of 8)
Using the Value Chain for Cost Analysis: Automobile Manufacture
Stages of the analysis:
1. Identify the main value chain activities.
2. Allocate total costs between value chain activities.
3. Identify the cost drivers at each stage of the value chain.
4. Identify linkages between activities.
5. Identify opportunities for cost reduction.
7-18
Differentiation Analysis (1 of 5)
The Nature of Differentiation: Differentiation and Segmentation
DIFFERENTIATION: concerns choices of how a firm distinguishes its offerings from those of its
competitors (i.e. How the firm competes)
SEGMENTATION: concerns choices of which customers, needs, localities a firm targets (i.e.
Where the firm competes).
DOES DIFFERENTIATION IMPLY SEGMENTATION?
—Not necessarily, depends upon the differentiation strategy:
BROAD SCOPE DIFFERENTIATION Appealing to what is common between different customers
(McDonalds, Honda, Gillette)
FOCUSED DIFFERENTIATION Appealing to what distinguishes different customer groups (MTV,
Harley-Davidson, Armani)
7-19
Differentiation Analysis (2 of 5)
Analyzing Differentiation: The Demand Side
7-20
Differentiation Analysis (3 of 5)
Analyzing Differentiation on the Supply Side
Sources of uniqueness:
• Product features and product performance.
• Complementary services (such as credit, delivery, repair).
• Intensity of marketing activities (advertising; promotion).
• Technology embodied in design and manufacture.
• Quality of purchased inputs.
• Procedures that impact the customer experience (e.g. the, rigor of quality control, service procedures,
frequency of sales visits).
• Skill and experience of employees.
• Location (e.g. with retail stores).
• Degree of vertical integration (allows control over inputs and intermediate processes).
7-21
Differentiation Analysis (4 of 5)
Product Integrity
Key to successful differentiation: consistency of all aspects of the firm’s
relationship with its customers.
Product Integrity: the total balance of product features.
Internal integrity: consistency between function and structure.
o External integrity: fit between the product and customers’ objectives, values, and
lifestyle.
o
Successful differentiation strategies achieve consistency of internal and
external integrity (e.g. Harley-Davidson, Apple, Starbucks).
7-22
Differentiation Analysis (5 of 5)
Using Value Chains Linkages to Identify Differentiation Opportunities: Can Manufacture
Linkages:
1. Distinctive can design can assist canners’ marketing activities.
2. High manufacturing tolerances can avoid breakdowns in customer’s canning lines.
3. Frequent, reliable delivery can permit canner to adopt JIT can supply.
4. Efficient order processing system can reduce customers’ ordering costs.
5. Competent technical support can increase canner’s efficiency of plant utilization.
7-23
Pursuing Both Cost and Differentiation Advantage
Features of Cost Leadership and Differentiation Strategies
Generic strategy
Cost leadership
Differentiation
Key strategy elements
•
•
•
•
•
•
Resource and organizational requirements
Scale-efficient plants
Design for manufacture
Control of overheads and R&D
Process innovation
Outsourcing/offshoring
Avoiding marginal customers
•
•
•
•
•
•
Access to capital
Process engineering skills
Frequent reports
Tight cost control
Specialization of jobs and functions
Incentives linked to quantitative targets accounts
• Emphasis on branding advertising,
design, service, quality, and new
product development
•
•
•
•
•
•
Marketing abilities
Product engineering skills
Cross-functional coordination
Creativity
Research capability
Incentives linked to qualitative performance targets
7-24
7/5/23, 11:31 AM
Operations Management
Name
Discussion 25
Description
25 points
Rubric Detail
Levels of Achievement
Criteria
Exceeds
Expectations
Meets
Expectation
Some
Expectations
Unsatisfactory
Quantity
5 to 6 points
3 to 4 points
1 to 2 points
0 to 0 points
Initial post and
two other posts
of substance.
Initial post and
one other post
of substance.
Initial post only.
Did not
participate.
5 to 6 points
3 to 4 points
1 to 2 points
0 to 0 points
Demonstrates
excellent
knowledge of
concepts, skills,
and theories
relevant to the
topic.
Demonstrates
knowledge of
concepts, skills,
and theories.
Demonstrates
satisfactory
knowledge of
concepts, skills,
and theories.
Did not
participate.
5 to 6 points
3 to 4 points
1 to 2 points
0 to 0 points
Discussion
post(s) exceed
expectations in
terms of support
provided and
extend the
discussion.
Discussion
post(s) meet
expectations in
terms of
support
provided.
Statements are
satisfactory in
terms of
support
provided.
Did not
participate.
6 to 7 points
4 to 5 points
1 to 2 points
0 to 0 points
Writing is well
organized, clear,
concise, and
focused; no
errors.
Some significant
but not major
errors or
omissions in
writing
organization,
focus, and
clarity.
Numerous
significant
errors or
omissions in
writing
organization,
focus, and
clarity.
Did not
participate.
Content
Support
Writing
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