Competitve Strategy and Generic Strategies

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Competitive Strategy andCompetitive Strategy and

Generic StrategiesGeneric Strategies

CarstenCarsten JoostJoost, Mitec,, Mitec,[email protected]@mitec.dk

11 July 200411 July 2004



Competitive StrategyCompetitive StrategyPoor firms ignore Poor firms ignore

their competitors; their competitors; average firms average firms

copy their copy their competitors; competitors; winning firms lead winning firms lead

their competitors.their competitors.( ( Kotler Kotler , 2002) , 2002)



Competitive ForcesFive Forces Determining SegmentFive Forces Determining Segment

Structural AttractivenessStructural Attractiveness

Threat of:Threat of:1.1. intense segmentintense segment

rivalryrivalry

2.2. new entrantsnew entrants3.3. substitutesubstituteproductsproducts

buyersbuyers’’ growinggrowingbargaining powerbargaining power

supplierssuppliers’’ growinggrowing

bargainingbargainingpowerpower



Barriers and ProfitabilityBarriers and Profitability



Identifying CompetitorsIdentifying CompetitorsIndustry Concept of CompetitionIndustry Concept of Competition

IndustryIndustry–– Number of Sellers andNumber of Sellers and

Degree of DifferentiationDegree of DifferentiationPure monopolyPure monopoly

OligopolyOligopoly–– Pure oligopolyPure oligopoly–– Differentiated oligopolyDifferentiated oligopoly

Monopolistic competitionMonopolistic competition

Pure competitionPure competition

–– Entry, Mobility, Exit BarriersEntry, Mobility, Exit BarriersEntry barriersEntry barriersMobility barriersMobility barriers

Exit barriersExit barriers–– Cost StructureCost Structure–– Degree of Vertical IntegrationDegree of Vertical Integration

Vertical integrationVertical integration

–– Degree of GlobalizationDegree of GlobalizationMarket Concept of CompetitionMarket Concept of Competition



ObjectivesObjectivesA Competitor’s Expansion Plans

Analyzing CompetitorsAnalyzing Competitors



Analyzing CompetitorsAnalyzing CompetitorsStrengths and WeaknessesStrengths and Weaknesses–– DominantDominant

–– StrongStrong

–– FavorableFavorable–– TenableTenable

–– WeakWeak

–– NonviableNonviable

CustomerCustomer’’s Ratings of Competitors on Key Success Factorss Ratings of Competitors on Key Success Factors

CustomerCustomerAwarenessAwareness

ProductProductQualityQuality

ProductProductAvailabilityAvailability

TechnicalTechnicalAssistanceAssistance

SellingSellingStaffStaff

Competitor ACompetitor A EE EE PP PP GG

Competitor BCompetitor B GG GG EE GG EE

Competitor CCompetitor C FF PP GG FF FF

Note: E = excellent, G = good, F = fair, P = poor.Note: E = excellent, G = good, F = fair, P = poor.



Designing The Competitive Intelligence SystemDesigning The Competitive Intelligence SystemFour Main StepsFour Main Steps–– Setting Up the SystemSetting Up the System–– Collecting the DataCollecting the Data

–– Evaluating and Analyzing the DataEvaluating and Analyzing the Data–– Disseminating Information and RespondingDisseminating Information and Responding

Selecting CompetitorsSelecting Competitors–– Customer Value Analysis (CVA)Customer Value Analysis (CVA)Customer Value = Customer BenefitsCustomer Value = Customer Benefits –– CustomerCustomerCostsCosts

Customer Benefits = product benefits, serviceCustomer Benefits = product benefits, servicebenefits, personnel benefits, image benefitsbenefits, personnel benefits, image benefitsCustomer Costs = purchase price, acquisitionCustomer Costs = purchase price, acquisitioncosts, usage costs, maintenance costs, ownershipcosts, usage costs, maintenance costs, ownership

costs, disposal costscosts, disposal costs



Hypothetical Market StructureHypothetical Market Structure

Designing Competitive Strategies

MarketMarket--Leader StrategiesLeader Strategies–– Expanding the Total MarketExpanding the Total Market

New UsersNew Users

–– MarketMarket--penetration strategypenetration strategy–– NewNew--market segment strategymarket segment strategy

–– GeographicalGeographical--expansion strategyexpansion strategy

New UsesNew UsesMore UsageMore Usage

–– Defending Market ShareDefending Market Share



Hypothetical Market StructureHypothetical Market Structure


–– Defense StrategiesDefense StrategiesPosition DefensePosition DefenseFlank DefenseFlank DefensePreemptive DefensePreemptive DefenseCounteroffensive DefenseCounteroffensive DefenseMobile DefenseMobile Defense

–– Market broadeningMarket broadening

–– Principle of the objectivePrinciple of the objective–– Principle of massPrinciple of mass–– Market diversificationMarket diversification

Contraction DefenseContraction Defense

–– Planned contractionPlanned contraction(Strategic withdrawal)(Strategic withdrawal)



Designing Competitive StrategiesDesigning Competitive StrategiesProcter & GambleProcter & Gamble–– Customer knowledgeCustomer knowledge–– LongLong--term outlookterm outlook

–– Product innovationProduct innovation–– Quality strategyQuality strategy–– LineLine--extension strategyextension strategy–– BrandBrand--extension strategyextension strategy

–– MultibrandMultibrand strategystrategy–– Heavy advertising and media pioneerHeavy advertising and media pioneer–– Aggressive sales forceAggressive sales force–– Effective sales promotionEffective sales promotion

–– Competitive toughnessCompetitive toughness–– Manufacturing efficiency and cost cuttingManufacturing efficiency and cost cutting–– BrandBrand--management systemmanagement system



Market StructureMarket Structure


MarketMarket--Challenger StrategiesChallenger Strategies–– Defining the Strategic Objective andDefining the Strategic Objective and

Opponent(s)Opponent(s)It can attack the market leaderIt can attack the market leader

It can attack firms of its own size that areIt can attack firms of its own size that arenot doing the job and are underfinancednot doing the job and are underfinanced

It can attack small local and regional firmsIt can attack small local and regional firmsChoosing a General Attack StrategyChoosing a General Attack Strategy




Types of competition:Types of competition:Overall cost leadershipOverall cost leadership (Low cost, broad cost, overall cost(Low cost, broad cost, overall cost

leadership)leadership)--lower than average cost, but commanding about averagelower than average cost, but commanding about averageprices, will earn above average profits (must not be a low costprices, will earn above average profits (must not be a low costproducers, but the lowest cost producer in the industry)producers, but the lowest cost producer in the industry)

Differentiation (broad differentiation):Differentiation (broad differentiation): As uniqueness in someAs uniqueness in some

dimension important to buyers across the industry (allow a firmdimension important to buyers across the industry (allow a firm totocharge an above average price its product, produce at average orcharge an above average price its product, produce at average ornearnear--average costs to earn average profit)average costs to earn average profit)

Cost focus or Differentiation focusCost focus or Differentiation focus: On the choice of a particular: On the choice of a particulartarget market segments with unusual or distinctive needs, and ontarget market segments with unusual or distinctive needs, and onthe optimisation of the firmthe optimisation of the firm’’s activities to serve those needss activities to serve those needs




Average Price

Average Cost

Differentiation Low Cost



Competitive StrategyCompetitive Strategy

Low Cost Uniques

BroadLow-Cost Leadership Differentiation

Focus DifferentiationFocus low-costleadership

Rynair Starbusk Coffe Co.

Enterprise Rent a Car Investments

Competitive Scope

Narrow

Competitive Advantages




Stock holdingthe organisation

back

Be as goodas competitors

Be clearly thebest

in the industry

Redefine theindustry’s

expectorations

Adapt bestpractices

Link strategywith

operations

Give anoperationsadvantages

I n c r e a

s i n g c

o n t r i b u t i o n

o f o p

e r a t i o

n s

Externally natural

Internally Supportive

Ex.Sup

Correct theworstproblems

Internally natural

Stage 1 Stage 2 Stage 3 Stage 4

The abilitytoimplement

The abilityto drivestrategy

The abilityto be

appropriate



In manufacturing: What are theIn manufacturing: What are the

critical factors for success?critical factors for success?1. The experience curve1. The experience curve is crucial. Concentrate onis crucial. Concentrate on high standardizationhigh standardization and largeand large

product volumes.product volumes.2.2. Make each unitMake each unit identical to all othersidentical to all others, so that customers can reliably use them as, so that customers can reliably use them as

components.components.3.3. Produce in precisely designed andProduce in precisely designed and measured modulesmeasured modules to ensure maximum repetitionto ensure maximum repetitionand minimum startand minimum start--up errors.up errors.

4.4. Build aBuild a large plantlarge plant with open space structures so that new modules can be createdwith open space structures so that new modules can be createdtoto

increase production (do not expand existing lines).increase production (do not expand existing lines).

5.5. For expansion,For expansion, duplicate existing linesduplicate existing lines exactly (theexactly (the ““MacIntelMacIntel”” approach).approach).6.6. Hire new people two months ahead of production to obtain thorougHire new people two months ahead of production to obtain thoroughh training andtraining and

indoctrinationindoctrination..7.7. 100% test100% test all products (no defects can be shipped out).all products (no defects can be shipped out).8.8. Keep modules smallKeep modules small and personal to obtain identity and to maximize informationand personal to obtain identity and to maximize information

exchange.exchange.9.9. Provide awardsProvide awards for superior performance on timing and quality.for superior performance on timing and quality.10.10. AutomateAutomate to the maximum extent possible and measure everything to ensureto the maximum extent possible and measure everything to ensure

consistency.consistency.11.11. Have a sufficientHave a sufficient planning horizonplanning horizon to anticipate when new plants will have to beto anticipate when new plants will have to be

available without the need to disrupt ongoing production operatiavailable without the need to disrupt ongoing production operations.ons.



In Engineering:In Engineering:1. Maintain1. Maintain small sized ad hoc groupssmall sized ad hoc groups to maximize the identity,to maximize the identity,

communications effectiveness, accountability, and motivation ofcommunications effectiveness, accountability, and motivation of designdesigngroups.groups.

2.2.Attract theAttract the very best peoplevery best people in the world (establish a value system,in the world (establish a value system,organization, culture, style, and atmosphere which attracts themorganization, culture, style, and atmosphere which attracts them).).3.3.OfferOffer special stock optionsspecial stock options to obtain critical people and reward internalto obtain critical people and reward internal

entrepreneurs with equity participation.entrepreneurs with equity participation.4.4.Obtain aObtain a direct interfacedirect interface between designers and customer needs.between designers and customer needs.

5.5. MaintainMaintain maximum flexibilitymaximum flexibility and fast movement capabilities inand fast movement capabilities indesign units ($250,000 in capital spent with no signatures).design units ($250,000 in capital spent with no signatures).

6.6.Mix spectacularMix spectacular new engineering graduatesnew engineering graduates on teams for new producton teams for new productdesign withdesign with experienced manufacturing peopleexperienced manufacturing people (mix vertically and(mix vertically andhorizontally).horizontally).

7.7.Keep engineeringKeep engineering physically closephysically close to manufacturing to be aware of andto manufacturing to be aware of andsensitive to the quality and reliability needs of production.sensitive to the quality and reliability needs of production.

8.8.Allow great flexibility in lateral movement (or conversely rotatAllow great flexibility in lateral movement (or conversely rotateeassignments) so that engineersassignments) so that engineers become intimately awarebecome intimately aware of marketingof marketingand production needs.and production needs.



Marketing: Critical Factors for SuccessMarketing: Critical Factors for Success

1.1. Recognize customer wantsRecognize customer wants absolute reliabilityabsolute reliability in delivery and quality.in delivery and quality.2.2.Realize that your product is a minuscule percentage of the costRealize that your product is a minuscule percentage of the cost of theof the

customer's product, but crucial to its performance, hencecustomer's product, but crucial to its performance, hence absoluteabsoluteattention to customer needsattention to customer needs is essential.is essential.

3.3.Make sure design and productionMake sure design and production understand precise quality andunderstand precise quality andreliabilityreliability needs.needs.

4.4. Avoid quotations or proposalsAvoid quotations or proposals when reliability specs cannot bewhen reliability specs cannot beassured.assured.

5.5.Go beyond the customerGo beyond the customer to the customersto the customers’’ customercustomer for marketfor marketinformation; this is the ultimate user.information; this is the ultimate user.

6.6.Become selected customersBecome selected customers’’ electronics research unitelectronics research unit (increase(increaseswitching costs).switching costs).

7.7.Get highly qualifiedGet highly qualified marketing engineers into customers' design groupsmarketing engineers into customers' design groups8.8.Focus on selected industry groups and large customers toFocus on selected industry groups and large customers to obtain highobtain high

volumevolume and toand to create entry barrierscreate entry barriers..9.9.DevelopDevelop inventory policiesinventory policies to ensure absolute customer deliveryto ensure absolute customer deliverysatisfaction.satisfaction.

10.10. DevelopDevelop personnel incentivespersonnel incentives to achieve the above.to achieve the above.

enera anagement: ritica actors orenera anagement: r t ca actors or



enera anagement: ritica actors orenera anagement: r t ca actors orSuccessSuccess

1.1. Develop anDevelop an overarching goal or philosophyoverarching goal or philosophy, which can attract the, which can attract thekinds of people desired.kinds of people desired.

2.2.

Develop a style ofDevelop a style of

openness and trustopenness and trust

, which allows, which allows

delegation and freedom, yetdelegation and freedom, yetconcentration and control.concentration and control.

3.3. Develop a style ofDevelop a style of constructive confrontationconstructive confrontation where openwhere openfactual discussion is essential.factual discussion is essential.

4.4. DevelopDevelop small unitssmall units to obtain maximum personal identity.to obtain maximum personal identity.5.5. MeasureMeasure ““absolutely everythingabsolutely everything”” to obtain maximumto obtain maximum

consistency in product.consistency in product.6.6. InstallInstall incentives at all levelsincentives at all levels for creativity, consistency,for creativity, consistency,

and identity with the company.and identity with the company.7.7. Develop aDevelop a collegial relationshipcollegial relationship (no privileges, no walls, 20%(no privileges, no walls, 20%solution, all share).solution, all share).

8.8. Develop a matrixDevelop a matrix adhocracy with MBO measuresadhocracy with MBO measures to supportto supportall goals and to obtain consistency.all goals and to obtain consistency.

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Competitve Strategy and Generic Strategies