STRATEGY AND COMPETITIVE ADVANTAGE

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5

The essence of strategy lies in creating tomorrow’s competitive advantages

faster than competitors mimic the ones you possess today.

Gary Hamel and C.K. Prahalad

Strategies for taking the hill won’t necessarily hold it.

Amar Bhide

Competitive Strategies:

Michael Porter’s Generic Strategies:

Low-Cost Leadership Strategy.

Broad Differentiation Strategies.

Best-Cost Provider Strategies.

Focused Low-Cost Strategies.

Focused Differentiation Strategies.

Vertical Integration Strategies.

Merger and Acquisition Strategies.

Co-operative Strategies.

Offensive & Defensive Strategies.

First-Mover Advantages & Disadvantages.

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Chapter Outline

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5-C

OFFENSIVE / DEFENSIVE STRATEGIES

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Offensive & Defensive Strategies

Offensive Strategies

Used to build new or stronger market position and/or

create competitive advantage.

Defensive Strategies

Used to protect competitive advantage

(rarely are they the basis for creating advantage)

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OFFENSIVE STRATEGIES

Siz

e of

Com

pet

itiv

e A

dvan

tage

Benefit Period Erosion PeriodBuildup Period

Strategic moves

produce

competitive

advantage

Moves by rivals

erode competitive

advantage

Size of

competitive

advantage

achieved

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Any competitive advantage currently held will eventually be eroded by the actions of competent, resourceful competitors !

OFFEN

The Building & Eroding of a Competitive Advantage

Initiatives to match or exceed competitor strengths.

Initiatives to capitalize on competitor weaknesses.

Simultaneous initiatives on many fronts.

End-run offensives.

Guerrilla warfare tactics.

Preemptive strikes.

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OFFEN

Options for Mounting Strategic Offensives

Objectives:

Attack on rival’s competitive advantage.

Gain market share by out-matching strengths of weaker rivals.

Options:

Offer equally good product at a lower price.

Develop low-cost edge, then use it to under-price rivals.

Leapfrog into next-generation technologies.

Add appealing new features.

Run comparison ads.

Construct new plant capacity ahead of the rival or in the rival’s market strongholds.

Offer a wider product line.

Develop better customer service capabilities.

Challenging strong competitors with a lower price is foolhardy unless the aggressor has a

cost advantage or advantage of greater financial strength!

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OFFEN

Attacking Competitor’s Strength

Objective:

Concentrate company strengths & resources directly against a rival’s

weaknesses.

Go after:

Those customers a rival has that it is least equipped to serve.

Rivals providing sub-par customer service.

Rivals with weaker marketing skills .

Geographic regions where rival is weak.

Segments rival is neglecting.

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OFFEN

Attacking Competitor’s Weaknesses

Objective:

Launch several major initiatives to:

Throw rivals off-balance.

Splinter their attention.

Force them to use substantial resources to defend their position.

A challenger with superior resources can overpower weaker rivals by out-

competing them across-the-board long enough to become a market leader.

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OFFEN

Launching Simultaneous Offensives on Many Fronts

Dodge head-to-head confrontations that escalate competitive intensity or risk

cutthroat competition.

Attempt to maneuver around strong competitors — concentrate on areas of market

where competition is weakest.

Options:

Introduce new products that redefine market & the terms of competition.

Build presence in geographic areas, where rivals have little presence.

Create new segments by introducing products with different features to better meet

buyer needs.

Introduce next-generation technologies to leapfrog rivals.

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OFFEN

End-Run Offensives

Approach: Use principles of ‘surprise’ and ‘hit-and-run’ to attack in the locations and

at the times, where conditions are most favorable to the initiator.

Appeal: Well-suited to small challengers, with limited resources & market visibility.

Options:

Make random, scattered raids on leaders’ customers:

Occasional low-balling on price.

Intense bursts of promotional activity.

Special campaigns to attract buyers from rivals plagued with a strike or having

problems meeting delivery schedules.

Challenge rivals encountering problems with quality, meeting delivery times, or

providing adequate technical support.

File legal actions charging antitrust violations, patent infringements, or unfair

advertising.

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OFFEN

Guerrilla Offensives

Approach:

Involves moving first to secure an advantageous position that rivals are foreclosed or

discouraged from duplicating!

Options:

Acquire firm which has exclusive control of a valuable technology.

Secure exclusive/dominant access to best distributors.

Tie up best or most sources of essential raw materials.

Secure best geographic locations.

Obtain business of prestigious customers.

Expand capacity ahead of demand in hopes of discouraging rivals from following suit.

Build an image in buyers’ minds that is unique or hard to copy.

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OFFEN

Preemptive Strikes

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OFFEN

Launching Simultaneous Offensives on Many Fronts

(Strength)

(Weakness)

(End-Run)

(Many Fronts)

Four types of firms can be the target of an fresh offensive:

Market leaders.

Runner-up firms.

Struggling rivals on verge of going under.

Small local or regional firms not doing a good job for their customers.

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OFFEN

Choosing Who to Attack

Strategic offensive offering strongest basis for competitive advantage usually entail.

Developing lower-cost product design.

Making changes in production operations that lower costs or enhance differentiation.

Developing product features that deliver superior performance or lower users’ costs.

Giving more responsive customer service.

Escalating marketing effort.

Pioneering a new distribution channel.

Selling direct to end-users.

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The chances for a successful offensive initiative are improved when it is based

on a company’s resource strengths and strongest competencies and capabilities! OFFEN

Offensive Strategy & Competitive Advantages

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DEFENSIVE STRATEGIES

Objectives:

Fortify firm’s present position.

Help sustain any competitive advantage held.

Lessen risk of being attacked.

Blunt impact of any attack that occurs.

Influence challengers to aim attacks at other rivals.

Approaches:

Approach-1: Block avenues open to challengers.

Approach-2: Signal challengers that vigorous retaliation is likely.

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DEFEN

Defensive Strategy

Participate in alternative technologies.

Introduce new features, add new models, or broaden product line to close gaps rivals

may pursue.

Maintain economy-priced models.

Increase warranty coverage.

Offer free training and support services.

Reduce delivery times for spare parts.

Make early announcements about new products or price changes.

Challenge quality or safety of rivals’ products using legal tactics.

Sign exclusive agreements with distributors.

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DEFEN

Block Avenues Open to Challengers

Publicly announce management’s strong commitment to maintain present market share.

Publicly announce plans to put adequate capacity in place to meet forecasted demand.

Give out advance information about new products, technological breakthroughs, and

other moves.

Publicly commit firm to policy of matching prices and terms offered by rivals.

Maintain war chest of cash reserves.

Make occasional counter-response to moves of weaker rivals.ST

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DEFEN

Signal the Challengers: “Retaliation is Likely”

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FIRST MOVER’S ADVANTAGE

When to make a strategic move is often as crucial as what move to make.

First-mover advantages arise when:

Pioneering helps build firm’s image and reputation.

Early commitments to emerging trends can produce cost advantage.

Loyalty of first time buyers is high.

Moving first can be a preemptive strike.

Moving early can be a disadvantage (or fail to produce an advantage) when:

Costs of pioneering are sizable and loyalty of first time buyers is weak.

Innovator’s products are primitive, not living up to buyer expectations.

Rapid technological change allows followers to leapfrog pioneers.

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FM

First Movers

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FM

First Movers

Principle-1:

Being a first-mover holds potential for competitive

advantage in some cases but not in others.

Principle-2:

Being a fast follower can sometimes yield as good a

result as being a first mover.

Principle-3:

Being a late-mover may or may not be fatal -- it varies

with the situation.