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Classical Source of Competitive Advantage
The classical sources of competitive advantage:
Low-cost strategy
Differentiation strategy
Cost-Based StrategiesDiscussion Question:
How do cost-based strategies (cost advantages) provide a powerful competitive advantage?
Pursue options unavailabe to other firms
Lower cost base ability to win on price and gain market share and volume
Win on profit margin and reinvest for further competitive advantage
Technology and Cost ReductionPorter’s 10 cost drivers:
1. Economies of scale2. Learning3. Capacity utilization4. Linkages among activities5. Interrelationships among business units6. Degree of vertical integration7. Timing of market entry8. Firm’s policy of cost or differentiation9. Geographic location10. Institutional factors
Wal-Mart
One of the most efficient retail operators in the world
Grown at a double-digit annual pace
2 million employees
Technology or scale and supply chain capabilities?
http://www.youtube.com/watch?v=b5K1yrICMII
Total Cost of Ownership (TCO)
TCO:A tool to assess both direct and indirect costs and benefits
Integration costs
Maintainance and support costs Learning
Ambiguities in process change New technology
Change
Cost-Based Strategies - Challenges
Organizational change Cost savings
Easy to become over-reliant on cost-based advantage
Innovation is the determinator
Differentiation-Based StrategiesDiscussion Question:
What makes a differentiation strategy different from a cost-based strategy?
Highly ambiguous measure
Multiple valuable and unique attributes
Multiple firms can succeed
Customer based
Technology and DifferentiationDrivers of success in differentiation:
1. In-depth understanding of the target customer base
Relevance Tradeoffs
2. The ability to generate uniqueness
Technology and DifferentiationThree approaches to creating a potentially unique
application:
1. As an integral part of a product or service
2. Indirectly in the production of the product or service
3. Through the delivery of the product or service
Differentiation - Challenges
A misstep can result in added cost or negative value
Changing customer preferences and substitute offerings
”Differentiate its differentiation” Image/Reputation Time in business Installed base Visibility Market share
Narrow or Broad Customer Target?Important issues determining focus:
1. The extent to which individual segments are homogenous and unique in their needs
2. The ability of the firm to develop unique advantages aimed at a segment
References
http://www.atwebo.com/porter%27s_comptetitive_strategy.htm
http://www.netmba.com/strategy/value-chain/ http://searchdatacenter.techtarget.com/sDefin
ition/0,,sid80_gci342316,00.html http://www.tascomi.com/images/elements/lco
w.gif
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