Slide of strategic management w6

BMA799 STRATEGIC MANAGEMENT Lecture Six: The Nature and Source of Competitive Advantage Learning Objectives • Identify the circumstances in which a company can create a competitive advantage and understand the contribution of responsiveness and innovation • Describe the variation of competitive advantage in different market settings • Recognise the different stages of industry development and understand the factors that drive the process of industry evolution Learning Objectives • Distinguish between slow-, standard-, and fast cycle market characteristics that promote temporal responses to competitive attacks based on unique capabilities and competencies • Analyse various levels of strategy and describe how strategic advantage can be sustained at each level • Identify and explain how different kinds of strategies create competitive advantage The Emergence of Competitive Advantage • To understand how competitive advantage emerges, we must first understand what is competitive advantage • Defining competitive advantage is not easy At a basic level, we can define it as follows: • Competitive advantage is a characteristic, feature or opportunity that an organisation possesses which will make it more attractive than its competitors The Emergence of Competitive Advantage Fig 6.1 Competitive Advantage From Responsiveness to Change • External changes create opportunities (and threats) for organisations • Responsiveness to change has become increasingly important as a source of competitive advantage • The ability to identify and respond to change is a key management capability of entrepreneurship • Information and flexibility are essential to deal effectively with environmental change Competitive Advantage From Innovation • Innovation is a powerful tool in terms of • Enhancing organisational competitive advantage and • Overturning the competitive advantage of competitors • Innovation should be viewed in a broader context to include ‘new approaches to doing business • Management literature suggests several approaches of formulating innovative strategies Sustaining Competitive Advantage Fig 6.2 First-Mover Advantage • A company’s ability to challenge an incumbent depends on the extent and the sources of firstmover advantage in the market • First-mover refers to the initial occupant of a strategic position or niche gains access to resources and capabilities that a follower cannot match Competitive Advantage in Different Market Settings Fig 6.3 Industry Evolution and Strategic Advantage • Everything is in a state of constant change — the business environment especially • The greatest challenge of management is to ensure that adaptation of the enterprise matches the changes occurring within the business environment, while upholding the company’s strategic advantage • Change in the industry environment is driven by a number of forces - technology, consumer preferences, economic growth and a host of other influences Industry Life Cycle • While products have life cycles, so too the industries that produce them • The industry life cycle is the supply-side equivalent of the product life cycle and is likely to be of longer duration than that of a single product • The life cycle comprises four phases: • introduction (or emergence) • growth • maturity • decline Industry Life Cycle Fig 6.5 Driving Forces of Industry Life Cycle • Two major forces drive industry life cycle including: • Changes in the growth rate of an industry, and • New knowledge • Classification of industries based on their stage of development and life cycle stage can assist in strategic planning and implementation Industry life cycle and cycle markets • It is useful to think of industry life cycle in terms of cycle markets Three types exist: • Slow cycle markets • Standard cycle markets • Fast cycle markets Competitive advantage at the introduction and growth stages • In emerging industries at the introduction and growth stages, nurturing and exploiting innovation is the fundamental source of competitive advantage • A common problem in emerging industries is the speed of change and the difficulty of forecasting change • Strategies aimed at the exploitation of innovation, choices of whether to be a leader or a follower, and the management of risk must take careful account of organisational characteristics Strategic Innovation • At the early growth stage of a company, the pressure of competition and the opportunities for technology-based advantage create impetus for innovation in competitive strategy • Strategic innovation refers to the development of new strategies of offering new products or services that will generate significant new value for customers and have the potential to change market demand Competitive Advantage in Mature Industries • Two challenges are associated with maturity stage: • Number of opportunities for creating competitive advantage reduce significantly, and • There is shift in the emphasis from differentiation to cost based approaches • There is often a downward pressure on profitability due to overcapacity and international competition Strategies for Declining Industries • Key features of declining industries include: ― ― ― ― ― Excess capacity Lack of technical change (reflected in lack of new product introduction and stability of process technology) A declining number of competitors, but some entry as new companies acquire the assets of exiting companies cheaply High average age of both physical and human resources Aggressive price competition Strategies for Declining Industries • The smooth adjustment of industry capacity to declining demand is the key to stability and profitability during the decline phase • Where a market is segmented, the general pattern of decline can obscure the existence of pockets of demand that are not only comparatively resilient, but also price inelastic Competitive advantage at various levels of a company Fig 6.7 Competitive advantage at the network level • Inter-organisational cooperation often leads to the establishment of networks • A network strategy is a cooperative strategy used by several organisations to form multiple partnerships based on shared objectives • Networks can act as a resource to facilitate organisational development Competitive advantage from a global perspective • Many barriers to international trade have been removed during last couple of decades • Some industries have befitted more from globalisation than others • Understanding of global industries and dynamics of global competition is important to gain competitive advantage Developing global market entry methods • An important part of a global-level strategy is the method that the company will use to enter the foreign markets • There are four possible methods of global market entry: • exporting • licensing (includes franchising) • joint venture • foreign direct investment (FDI) Summary • Imperfection in the competitive process is required for competitive advantage to be possible • The relationship between strategies and competitive advantage needs to be considered at different levels • Competitive advantage can also considered further in terms of industry life cycle and levels of strategies • Competitive advantage is the base on which companies can compete in the market ... choices of whether to be a leader or a follower, and the management of risk must take careful account of organisational characteristics Strategic Innovation • At the early growth stage of a company,... Difficulties of resource acquisition Industry Evolution and Strategic Advantage • Everything is in a state of constant change — the business environment especially • The greatest challenge of management. .. stage of development and life cycle stage can assist in strategic planning and implementation Industry life cycle and cycle markets • It is useful to think of industry life cycle in terms of cycle