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Chapter 5 Functional and Competitive Strategies

CHAPTER 5 FUNCTIONAL AND COMPETITIVE STRATEGIES

LEARNING OUTCOMESUse this Learning Outline as you read and study the chapter:

5.1 Describe the functional strategies an organization needs and explain how those strategies are implemented and evaluated.

5.2 Explain competitive advantage and what it implies.5.3 Describe the different competitive strategies.5.4 Discuss how competitive strategies are implemented and evaluated.

TEXT OUTLINE

Active Learning HintHand out an “empty” chapter outline or one with key information missing for the students to use in note taking. This outline will help the students to organize the information, while keeping the students actively listening for the information needed to complete the outline.

Strategic Management in Action Case #1: Driving for SuccessYou may wish to open with a Question and Answer exercise. The Toyota vignette illustrates the interrelationships of an organization's functional strategies and

their contributions to the company’s success. Additionally, you may want to review what a learning organization is and link Toyota's two main principles with their status as a learning organization.

Questions to connect previous discussion with this chapter:• What is Toyota’s competitive advantage?• What is Toyota’s core competency that provides the basis for their competitive advantage?• What advantages does the Toyota five-day custom car manufacturing system provide for the

marketing department?• How can this manufacturing pace be sustained? Can't other manufacturers imitate the Toyota

system?

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Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall1


LEARNING OUTCOME 5.1 DESCRIBE THE FUNCTIONAL STRATEGIES AN ORGANIZATION NEEDS, AND EXPLAIN HOW THOSE STRATEGIES ARE IMPLEMENTED AND EVALUATED

FUNCTIONAL STRATEGIES AND STRATEGIC MANAGEMENT PROCESS

A. Strategic Management in Action: Process (Figure 5.1)1. Top-level decision makers (i.e., CEO and top management team) develop the overall goal

of what the organization hopes to achieve (i.e., its vision, mission and strategic objectives) and establish the overall corporate strategies.

2. Functional strategies are developed taking into account the organization’s vision, mission(s), overall corporate and competitive strategies.

3. When the organization is first founded, corporate strategies are addressed immediately where the overall strategic goal(s) and directions are formulated by the CEO and top management team and then functional strategies are addressed.

4. The vast majority of strategic situations are ones where the organization is not new. In these situations; functional strategies are looked at first in the process of deciding the most appropriate strategies—that is, the ones that will lead to a sustainable competitive advantage.

B. What Happens after the SWOT Analysis?1. Decision makers have information about the positive and negative aspects of both the

external and internal environments (i.e., Internal [Strengths and Weaknesses] and External [Opportunities and Threats]).

2. If the organization’s strengths in the various functional units can be exploited as competitive advantages, particularly in light of any relevant external opportunities, the organization may well be on its way to achieving high levels of performance.

3. If negative trends are found in any of the organization’s external areas or weaknesses, changes in functional strategies might be needed to counteract these.

4. Serious functional weaknesses that might be preventing a competitive advantage from being developed may need to be corrected or minimized.

Active Learning HintConduct a SWOT analysis for Domino’s Pizza and address the issues presented in the Strategic Management in Action highlight. Divide the class into groups of 4-5 students to work on the SWOT, and then ask several of the groups to report their findings. Another method would be to divide the class into 4 groups (or multiples of four). One group identifies the strengths, another group the weaknesses, etc. Ask each group to report their findings to the class.

Strategic Management in Action: Super Bowl and Pizza1. Discuss whether to try to meet peak demand – does it lead to loyalty? Is it a weakness if a company cannot meet demand on that particular day. If you cannot supply your customers you open the door to rival suppliers and you may lose some to other pizza-makers if you turn them away.2. A SWOT analysis may reveal if production or delivery capacity are inadequate for the peak demand

or if there may be excess capacity.

C. What Functional Strategies Does an Organization Need?Functional (or operational) strategies are the short-term, goal-directed decisions and actions of the organization’s various functional units (Figure 5.2).

All organizations perform three basic functions as they create and deliver goods and services:



1) Product Strategies (design, production-operations, marketing)2) People Strategies (human resources)3) Support Process Strategies (information and financial-accounting systems)

1. Functional Strategies – The Producta). Product design strategies typically involve an organization’s R&D functionb). Once products are ready to be produced, production-operations strategies ensuec). Next, marketing strategies are implemented

2. Functional Strategies – The Peoplea). High-performance Work Practices are human resource policies and practices that lead to both high individual and high organizational performance.b). Table 5.1 lists some of the high-performance work practices that have been identified.

These types of HR strategies can:(1) Improve knowledge, skills and abilities of organization’s current and

potential employees(2) Increase employees’ motivation(3) Reduce loafing on the job(4) Help retain quality employees(5) Encourage nonperformers to leave the organization

c). Strategic choices include:i. Getting people into the organization (HR planning, recruiting and staffing)

ii. Making sure they have the knowledge and skills to do their jobsiii. Helping them do their jobs better (orientation and training)iv. Assessing how well they do those jobs and making needed corrections

(performance appraisal and disciplinary actions)v. Motivating high levels of effort and compensating them fairly and

appropriately (compensation and benefits)vi. Other HR Issues (employee relations, job design, diversity efforts,

workplace safety and health, workplace misbehavior)vii. An organization’s HR policies reflect its commitment to and treatment of its

employees. Must closely align with those other strategies to assure that the right numbers of appropriately skilled people are in the right place at the right time and that the organization’s workforce is being used effectively and efficiently.

3. Functional Strategies – The Support Processa). Organizations have two main support processes – information systems and

financial-accounting systemsb). Information affects how effectively and efficiently organizational members can do

their workc). Two strategic decisions most associated with the organization’s information system

are the choice of system technology and the choice of types of information systems needed

d). Financial-accounting systems provide strategic decision makers with information about the organization’s financial transactions, accounts, and standing

e). Strategic choices include:i. Collecting and using financial and accounting data

ii. Evaluating financial performanceiii. Doing financial forecasting and budgetingiv. Determining the optimum financing mix



v. Effectively and efficiently managing the financial-accounting functional area

Strategic Management In Action: Loading the Airplane In light of all the delays and flight cancellations the airlines industry experienced in Summer 2007,

have the students discuss some ideas on how the airlines might adopt some production-operations strategies that might make each airplane’s turnaround at the gate faster.

For Your Information—To Layoff or Not to Layoff• Student responses may vary based on the students’ life and work experiences and the state of the United States and global economy.

The Grey Zone – Corporate BlogsCorporate blogs are popular and legal but not necessarily in the best interests of the company. Should organizations promote things that are popular but may be harmful or at least may not be beneficial to the company?When an employee raises a concern, what are the risks to the organization of responding? Or not responding? How might stakeholders see it?What about government regulators or juries? Will they be more sympathetic if you ignore the concerns of your stakeholders and it turns out that your company’s actions were harmful? What could happen then?Do you have to respond to every stakeholder concern?

Strategic Management in Action: Caesars EntertainmentGreat service leads to more spending by gamblers. Ask your students if they think that this would hold true to other businesses outside of the gambling environment? Does great service lead to more spending in hotels, resorts, restaurants, retail stores, or bars?

Learning Review: Learning Outcome 5.1 How does the work done in the functional areas support the creation of a competitive

advantage? If the organization’s strengths in the various functional units can be exploited as competitive advantages, particularly in light of any relevant external opportunities, the organization may well be on its way to achieving high levels of performance.

What happens after the SWOT analysis is completed? After completing the SWOT analysis, decision makers have information about the positive and negative aspects of both the external and internal environments. The SWOT analysis points to the strategic issues organizational decision makers need to address in their pursuit of sustainable competitive advantage and high levels of performance.

What are the three functional concerns of organizations? The three functional concerns for organizations are the product, the people, and the support processes.

What strategies are important to each of those functional concerns? For product, the strategies are design, production-operations, and marketing. For people, it is HR strategies. And for support process, it’s strategies related to information systems and financial-accounting systems.





LEARNING OUTCOME 5.2 EXPLAIN WHAT COMPETITIVE ADVANTAGE IS AND WHAT IT IMPLIES

A. Competitive Advantage1. Is a key concept of strategic management (getting it and keeping it is what managing

strategically is all about)2. Sets an organization apart (its competitive edge)3. Is what an organization’s competitive strategies are designed to exploit4. Implies that there are other competitors also attempting to develop competitive advantage

and attract customers5. An organization does something that others can’t do or does it better than others do

(distinctive capability)6. An organization has something that other competitors don’t (unique resource)7. Can be eroded easily (and often quickly) by competitors’ actions

B. Understanding the Competitive Environment1. Competition is everywhere. Most industries and organizations have experienced at some

point.2. What is Competition?

a) Competition is when organizations battle or vie for some desired object or outcome—typically customers, market share, survey ranking, or needed resources.

Strategic Management in Action Describe situations, outside business and athletics, where competition is taking place.

Answers will vary based on the students and their business and life experiences.

3. Who are Competitors?Competitors can be described according to:a) Industry Perspective

(1) Identifies competitors as organizations that are making and selling the same or very similar good or service.

(2) Describes industries according to the number of sellers and the degree of differentiation (i.e., similarities or differences of the products or services).(a) The number of sellers and the level of product-service differentiation will affect

how intensely competitive the industry is. (b) The most intense competition is “pure competition” where there are many

sellers and no differentiation exists among the sellers.b) Market Perspective

(1) Competitors are organizations that satisfy the same customer need.(2) Intensity of competition depends on:

(a) How well the customer’s need is understood or defined(b) How well different organizations are able to meet that need

c) Strategic Groups Perspective (1) Recall “current rivalry” in Porter’s Five Forces Model from Chapter 3.(2) Strategic group is a group of firms competing in an industry that have similar

strategies, resources and customers.(3) A single industry could have a few or several strategic groups depending on what

strategic factors are important to customers.(a) Two strategic factors, important to customers, used in grouping competitors are

price and quality.(b) Important strategic factors, or strategic dimensions, used to determine an

organization’s competitors are different for every industry and can be different



even for different industry segments.(c) Table 5.2 lists some dimensions that might be used to distinguish strategic

groups.(4) The most relevant competitors are those in an organization’s own strategic group.(5) Level of intensity of competition from this perspective depends on:

(a) How effectively each competitor has developed its competitive advantage(b) The competitive strategies used by each competitor in the strategic group

(6) Controversy exists over whether or not specific, identifiable strategic groups even exist.(a) These questions generally concern:

(1) The factors that are used to define a strategic group(2) How those factors are chosen and used to separate specific and identifiable

groups

Strategic Management in Action—Hot Sauce Ask students how many are familiar with these two brands of hot sauce. Ask the students why they choose one sauce over another. Ask the students if an ad campaign changes their mind about a product or brand. Ask the students what actions a hot sauce manufacturer might take to protect its competitive position.

C. The Role of Resources and Distinctive Capabilities in Gaining Competitive AdvantageEvery organization has resources and capabilities to do whatever it’s in business to do.1. Not every organization is able to:

a) Effectively exploit the resources or capabilities it hasb) Obtain the resources or capabilities it needs but doesn’t havec) Classic case of “the haves” and “the have-nots” or “the can do’s” and “the can’t do’s”

2. Some organizations “put it all together” and develop distinctive organizational capabilities that provide a sustainable competitive advantage, others don’t.

3. Organizations will develop strategies to:a) Exploit their current resources and capabilitiesb) Vie for needed-but-not-owned resources and capabilities to pursue and attain desired

outcomes (customers, market share, resources)c) While other organizations (few to many) are doing exactly the same thing

4. Competitive advantage, by its very nature, implies trying to gain the edge on others.5. As organizations fight for a sustainable competitive advantage, the stage for competition—

intense, moderate, or mild—is set.

Strategic Management—The Global Perspective: Sukhoi Holding Company Ask students to research other aircraft manufacturers. How is the Sukhoi Holding Company going to develop a competitive advantage over other aircraft

manufacturers?

D. From Competitive Advantage to Competitive StrategiesCompetitive strategy is the way organizations set themselves apart to compete to create a sustainable competitive advantage1. The choice of competitive strategy

a) Depends on how an organization or business unit is going to compete in its particular industry or market

b) Is based on the competitive advantage(s) that the organization has been able to develop2. Refining and sharpening its sustainable competitive advantage (in unique resources or



distinctive capabilities) provides the basis for an organization’s competitive strategy.

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Learning Review: Learning Outcome 5.2 Is competition an issue for all organizations? Discuss.

• Competition is a given for all organizations, regardless of size, type, or geographic location. Even not-for-profit organizations compete for resources and customers.

What is competitive advantage?• Competitive advantage is what sets an organization apart—its competitive edge.

Compare and contrast the three approaches to defining competitors.• The industry perspective identifies competitors as organizations that are making the same

product or providing the same service. The marketing perspective says competitors are organizations that satisfy the same customer

need. The strategic groups perspective identifies a group of firms competing in an industry that have

similar strategies, resources and customers. What role do resources and distinctive capabilities play in gaining competitive advantage?

• Organizations will develop strategies to exploit their current resources and capabilities or to vie for needed-but-not-owned resources and capabilities to pursue and attain desired outcomes such as customers, market share and resources. They do this while other organizations (few to many) are doing exactly the same thing. Competitive advantage, by its very nature, implies trying to gain the edge on others. As organizations strive for a sustainable competitive advantage, the stage for competition—intense, moderate, or mild—is set.

Define competitive strategy. What’s the connection between competitive advantage and competitive strategy?• Competitive strategy is the way organizations set themselves apart to create a sustainable

competitive advantage.• The choice of a competitive strategy is based on the competitive advantage(s) that the

organization has been able to develop.

LEARNING OUTCOME 5.3DESCRIBE THE DIFFERENT COMPETITIVE STRATEGIES

Although it may seem there are numerous ways an organization competes, the number of competitive strategies is actually few of possible types of competitive strategies, there are actually a limited number of ways to describe how an organization competes.

A. Traditional Approaches to Defining Competitive Strategy1. Miles and Snow’s Adaptive Strategies (1978) (Table 5.3):

a) Based on the strategies organizations use to adapt to their uncertain competitive environments.

b) Generally been supportive of the appropriateness of these strategies for describing how organizations are competing.



c) Prospector Strategy(1) Strategy in which an organization continually innovates by finding and exploiting

new product and market opportunities.(2) Prospector’s competitive strength is ability to:

(a) Survey a wide range of rapidly changing environmental conditions, trends and situations to create new products and services to fit this dynamic environment.

(3) Prospector’s competitive strategy is to continually innovate, develop and test new products and services (i.e., find new directions to pursue).

(4) Constant search for innovation creates uncertainties for prospector’s competitors who never know what’s going to happen next or what to expect.

(5) If prospector can develop new products or services that the market desires and is willing to pay for, it has a competitive advantage.

(6) Examples: Fox Broadcasting Network and MTV known for innovative television network programming and willingness to pursue new directions based on its ability to assess environmental trends.

b) Defender Strategy(1) Strategy used by organizations to protect current market share by emphasizing

existing products and producing only a limited product line.(2) Defenders have well-established businesses that they’re seeking to defend.(3) Defender has success with this strategy as long as the primary technology and

narrow product line remain competitive.(4) Over time, defenders can carve out and maintain niches within their industries that

competitors find difficult to penetrate.(5) Example: Lincoln Electric of Cleveland, OH; Anheuser-Busch; IBM

c) Analyzer Strategy – strategy of analysis and imitation.Analyzers(1) Watch for and copy the successful ideas of prospectors(2) Compete by following the direction that prospectors pioneer(3) Thoroughly analyze new business ideas before jumping in(4) Systematically assess and evaluate whether the move is appropriate for them(5) Examples: Unilever’s Suave shampoo and skin care products, COSMI Corporation

(education, entertainment and business software)

Strategic Management—The Global Perspective: Pague Menos Ask students what they think about the Brazilian retailer copying Wal-Mart’s strategies? How successful can Pague Menos be by taking the low cost approach? What are the drawbacks to using a low cost strategy? Is it sustainable? What is to keep another emerging competitor from copying Pague Menos? What if the new

competitor undercuts Pague Menos’ prices?

d) Reactor Strategy – the lack of a coherent strategic plan or apparent means of competing.(1) Reactors:

(a) Simply react to environmental changes and make adjustments only when finally forced to do so by environmental pressures

(b) Oftentimes unable to respond quickly to perceived environmental changes because:(1) They lack the needed resource or capabilities OR(2) They’re not able to exploit their current resources and capabilities



(2) This is not a recommended competitive strategy for developing a competitive advantage.

(3) Thought of as a “default” strategy, almost a nonstrategy position.(4) Without significant strategic changes, a reactor will always be in a weak

competitive position.(5) Examples: Sears; Sizzler International, Inc.; Digital Equipment Corporation

For Your Information – The Copycat Economy Ask the students to evaluate Clorox’s decision to market ReadyMop and determine what strategy is

being used. Was it an offensive or a defensive move on Clorox’s part? Ask the students if they can think of any other examples of “copycatting?” In the soft drink business

every new flavor is virtually matched immediately by a competing flavor from a rival. Diet Pepsi and Diet Coke have spawned cherry, lemon, lime, and vanilla flavored varieties, as well as C2, a low carb Coke and Pepsi One a very low calorie add-on to the Diet Pepsi line. The key seems to be to not allow any competitor an advantage for any length of time. Fast-food makers have done the same thing with gourmet salads. Wendy’s started the war with a very successful introduction of gourmet salads and McDonald’s followed with several varieties within months. Automobile financing and rebates are another example where there is little difference between competitors.

How did Procter and Gamble respond to Clorox? Rather than cede any advantage to Clorox, P&G cut its price (and its profit margin) to not be out positioned by a “fast-follower.” Possible responses range from increased advertising to win customer attention to price cuts that then limit the ability of new entrants to garner profits…perhaps discouraging their entry before it occurs.

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2. Porter’s Generic Competitive Strategies (1980)a) Porter’s approach is based on an organization’s competitive advantage.b) Competitive advantage can come from only one of two sources:

(1) Having the lowest costs in the industry(2) Possessing significant and desirable differences from competitors

c) Another important strategic factor is the scope of the product-market in which the organization wishes to compete—that is, broad (i.e., all or most market segments) or narrow (i.e., only one segment or a few segments).

d) The mix of these factors provides the basis for Porter’s approach.e) The term generic simply refers to the fact that these strategies can be pursued by any

type or size organization in any type or size industry. (1) Cost leadership Strategy (or low-cost strategy) is one in which an organization

strives to have the lowest costs in its industry and produces products for a broad customer base.(a) Cost leader

(1) Chooses to compete on the basis of having the lowest costs.



(2) The main goal is to have the lowest (total unit) costs in the industry (emphasis on costs, not prices).(a) With the lowest costs in its industry, the cost leader:

(1) Can potentially charge the lowest prices and(2) Still earn significant profits, even during a price war

(b) Successful pursuit of the cost leadership strategy(1) Everything the cost leader does—every strategic decision made, every

strategic action taken—is aimed at keeping costs as low as possible.(2) Efficiency in all areas of operations is the main objective, and all resources,

distinctive capabilities, and functional strategies are directed at that.(3) The cost leader isn’t going to have deep and wide product lines as

providing these product or service variations is expensive.(4) ,The cost leader has chosen to compete on the basis of low costs, not on being different than competitors.

(5) The cost leader will market products aimed at the “average” customer.(6) Little or no product frills or differences will be available. No fancy artwork or

plush office furniture at corporate headquarters and no corporate jets.(7) Cost leader won’t have an elaborate high-tech, multimedia interactive Web site

unless it’s an extremely cost effective and efficient way to reach masses of potential customers.

(8) Examples: Payless Shoe Source, Collective Brands, Nucor Corporation and Wal-Mart. Ask the students to identify common characteristics between these organizations1. Other characteristics of cost leaders include:

a. Strict attention to production controlsb. Rigorous use of budgetsc. Little product differentiation—just enough to satisfy what the mass

market might demandd. Limited market segmentation—products or services aimed at the

mass markete. Emphasis on productivity improvementsf. Resources, distinctive capabilities and core competencies found in

production-operations and materials management2. Drawbacks of the cost leadership strategy:

a. The main danger is that competitors might find ways of lowering costs even further; taking away the cost leader’s cost advantage.

b. Competitors might be able to easily imitate what the cost leader is doing and erode the cost advantage.

c. Cost leader, in its all-out pursuit of lowering costs, might lose sight of changing customer tastes and needs.

(2) Differentiation Strategya) Organization competes by providing unique (different) products with features that:

i. Customers value, ii. Perceive as different, and iii. Are willing to pay a premium price for

b) The main goal of the differentiator is to provide products or services that are truly unique and different in the eyes of customers.

c) Doing this, the differentiator can charge a premium price because customers perceive that the product or service is different and that it uniquely meets their needs.

d) This premium price provides the profit incentive to compete on the basis of differentiation.



For Your Information—Selling Luxury Have your students visit some of the Web sites mentioned as they consider these questions. Perhaps

several of your students have already used some of the services such as Lexus and General Electric’s Profile washer and dryer. Encourage the students to share these “experiences” with the class. • Are there other examples of luxury marketers trying new approaches to selling their products? Student responses will vary on this question. Encourage students to identify as many luxury

marketers as possible. ● What do you think of these pitches?

Student responses to this question may vary based on their life and professional experiences.• Is the differentiation strategy one that’s appropriate only in good economic times? Student responses may vary, but should include differentiation will work in conditions where a

company’s products or services provides customers value, is perceived as different and customers are willing to pay a premium price.

e) A successful differentiator:i. All its capabilities, resources and functional strategies are aimed at

isolating and understanding specific market segments and developing product features valued by customers in those various segments.

ii. Has broad and wide product lines—that is, many different models, features, price ranges and so forth.

iii. Has countless variations of market segments and product features so that the customer perceives the product or service as different and unique and worth the extra price.

iv. Because the differentiation strategy can be expensive, the differentiator also needs to control costs to protect profits, but not to the extent that it loses its source of differentiation.

f) Examples: Gap, Old Navy, Pottery Barng) Other characteristics of differentiators include:

i. Differentiating themselves along as many dimensions as possible and segmenting the market into many niches.

ii. Establish brand loyalty, where customers consistently and repeatedly seek out, purchase and use a particular brand. Brand loyalty can be a very powerful competitive weapon for the differentiator.

iii. The differentiator’s distinctive capabilities tend to be in marketing and research and development.

h) Drawbacks of the differentiation strategyi. Must remain unique in customers’ eyes, which may be difficult

depending on competitors’ abilities to imitate and copy successful differentiation features.

ii. Customers might become more price sensitive, and product differences might become less important.

(3) Focus strategy is when an organization pursues either a cost or differentiationadvantage but in a limited (narrow) customer group or segment.

a) A focuser:i. Concentrates on serving a limited (narrow) customer group or segment

known as a market niche:a. Geographical niche can be defined in terms of region or

locality.b. Type of customer niche focuses on a specific group of

customers.c. Product line niche would focus on a specific and specialized

product line.



2. Pursues either a cost or differentiation advantagea. Cost focuser competes

i. By having lower costs than the overall industry cost leader in specific and narrow niches

ii. Also successful if an organization can produce complex or custom-built products that don’t lend themselves easily to cost efficiencies by the industry’s overall cost leaders

b. Differentiation focuser can use whatever forms of differentiation the broad differentiator might use, such as:

i. Product featuresii. Product innovations

iii. Product qualityiv. Customer responsivenessv. Specializes in one or a few segments instead of all

market segments.c. Advantages of the focus strategy:

i. The focuser knows its market niche well and can build strong brand loyalty by responding to changing customers’ needs

ii. The focuser who can provide products or services that the broad competitors can’t or won’t, will have the niche all to itself.

Strategic Management—The Global Perspective: Abraaj Capital Do you think a cost focus or differentiation focus strategy might be more appropriate?

A differentiation focus strategy might be more appropriate as Abraaj Capital might focus on product features, product innovation, product quality, or customer responsiveness to outcompete its rivals (i.e., Goldman Sachs, Citigroup) in the Middle East and Southeast Asia markets.

d. Drawbacks of the focus strategyi. The focuser often operates on a small scale making it

difficult to lower costs significantly. However, with technological advancements such as flexible manufacturing systems, this drawback is not as critical as it once was. As information and computer technology become more affordable, focusers have discovered that economies (cost efficiencies) don’t necessarily have to come from large-scale production runs.

ii. The niche customers might change their tastes or needs. Because it is often difficult for a focuser to change niches easily and quickly, this could be a serious problem. In addition, any technological changes that might impact the niche can have a similar effect.

iii. The threat of the broad differentiator taking notice of the focuser’s market niche, especially if the focuser is enjoying a significant level of success, and moving in to offer products and services to those customers.

(4) Stuck in the Middle a) Happens when an organization isn’t successfully pursuing either a low-cost



or a differentiation competitive advantageb) Occurs when an organization’s:

1. Costs are too high to compete with the low-cost leader.2. Products and services aren’t differentiated enough to compete with the

differentiator.c) This is not a preferred or profitable strategic direction.d) Becoming “unstuck” means making consistent strategic decisions about what

competitive advantage to pursue and then doing so by aligning resources, distinctive capabilities and core competencies.

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3. Contemporary Views on Competitive StrategySome of the newer perspectives provide an expanded, and perhaps more realistic, description of what competitive strategies organizations are using.

a. Integrated Low-Cost Differentiation Strategyi. Competitive advantage by simultaneously achieving low costs and high levels of

differentiation.ii. Technological advancements that make this hybrid competitive strategy possible are:

a) Flexible manufacturing systemsb) Just-in-time inventory systemsc) Integrated manufacturing systems

b. Just because these technological advancements are available and accessible doesn’t mean that every organization that uses them will be able to successfully implement an integrated low-cost differentiation strategy.

Strategic Management in Action: Dell A classroom discussion may be beneficial, given that many of your students will be quite familiar

with Dell computer. Ask your students to discuss whether they have Gateway, Hewlett-Packard, IBM, or another PC manufacturer. Ask your students how Dell has lost its market share and ask for suggestions on how it might regain the competitive edge it had.

b. Mintzberg’s Generic Competitive Strategiesi. Henry Mintzberg developed an alternative typology of six possible competitive

strategies that better reflected the increasing complexity of the competitive environment.The following is taken from Figure 5.4: Mintzberg’s Generic Competitive Strategies.

a) Differentiation by price: Modification of Porter’s cost leadership; advantage from organization’s ability to charge below-average market prices. Differentiated on basis of price.

b) Differentiation by marketing image: Organization attempts to create a certain image in customers’ minds. Uses marketing image as potent competitive weapon.



c) Differentiation by product design: Competition on basis of providing desirable product features and design configurations; offers wide selections of product features and different designs.

d) Differentiation by quality: Deliver higher reliability and performance at a comparable price. Superior product quality pursued at a comparable price.

e) Differentiation by product support: Emphasizing customer support services. Providing all-encompassing bundle of desired customer support services.

f) Undifferentiated strategy: No basis for differentiation or following a copycat strategy.

ii. The verdict on Mintzberg’s alternative generic competitive strategies typology appears to have merit.

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Learning Review: Learning Outcome 5.3 Describe each of Miles and Snow’s four adaptive strategies?

• Prospector strategy is one in which an organization continually innovates by finding and exploiting new product and market opportunities.

• Defender strategy is characterized by the search for market stability and producing only a limited product line directed at a narrow segment of the total potential market.

• Analyzer strategy is one of analysis and imitation.• Reactor strategy is the lack of a coherent strategic plan or apparent means of competing.

According to Porter, what are the two types of competitive advantage?• Competitive advantage can come from either having the lowest costs in the industry or from

possessing significant and desirable differences from competitors. Describe each of Porter’s generic competitive strategies.

• Cost leadership strategy is one in which an organization strives to have the lowest costs in its industry and produces products or services for a broad customer base.

• Differentiation strategy is a strategy in which the organization competes on the basis of providing unique (different) products-services with features that customers value, perceive as different and are willing to pay a premium price for.

• A Cost Focuser competes by having lower costs than the overall industry cost leader in specific and narrow niches.

• The Differentiation Focuser can use whatever forms of differentiation the broad differentiator might use—product features, product innovations, product quality, customer responsiveness, or whatever. The only difference is that the focuser is specializing in one or a few segments instead of all market segments.



What does it mean to be “stuck in the middle?”• Stuck in the middle happens when an organization isn’t successfully pursuing either a low cost

or a differentiation competitive advantage. An organization becomes stuck in the middle when its costs are too high to compete with the low-cost leader or when its products and services aren’t differentiated enough to compete with the differentiator.

What is the integrated low-cost differentiation strategy and how does it contradict the concept behind Porter’s generic competitive strategies?• An integrated low-cost differentiation strategy is one in which an organization develops a

competitive advantage by simultaneously achieving low costs and high levels of differentiation.• Porter’s original work maintained that an organization couldn’t simultaneously pursue a low-cost

and a differentiation advantage. Despite strong empirical support for Porter’s strategy framework, several strategy researchers questioned this “mutual exclusivity.” Instead of having to pursue one or the other, strategy research evidence is starting to show that organizations can pursue an integrated low-cost differentiation strategy and do so successfully.

Describe each of the competitive strategies in Mintzberg’s generic strategy typology.• Differentiation by price is a modification of Porter’s cost leadership strategy.• Differentiation by marketing image described a competitive strategy in which an organization

attempted to create a certain image in customers’ minds.• Differentiation by product design can be used to describe organizations that competed on the basis

of providing desirable product features and design configurations.• Differentiation by quality described a strategy in which organizations competed by delivering

higher reliability and performance at a comparable price.• Differentiation by product support emphasized the customer support services provided by the

organization.• Undifferentiated strategy described situations in which an organization had no basis for

differentiation or when it deliberately followed a copycat strategy.

LEARNING OUTCOME 5.4DISCUSS HOW COMPETITIVE STRATEGIES ARE IMPLEMENTED AND EVALUATED

The Grey Zone: The Class of 2015Have students brainstorm a list of companies who have targeted them simply because they are in college. What do these companies have in common? What approaches do they use to gain the students as customers? Does it work? What turns them off?

A. Implementing Competitive StrategyImplementation utilizes resources, distinctive capabilities and core competencies. If a strategy is not implemented, then it’s nothing more than an idea. Functional strategies play a significant role in implementing competitive strategy.1. The Role of Functional Strategies

a) Functional strategies:(1) Play a critical role in the implementation of its competitive strategy.

(a) The challenge in implementing the organization’s competitive strategy is to create and exploit a sustainable competitive advantage.

(b) This competitive advantage comes from the organization’s ability to use its resources to develop capabilities that may become distinctive.

(c) All of these details happen through the actual strategies that are being used in the various functional work units of the organization.

(2) Have a dual role that influence both:(a) What competitive strategy is most appropriate?

(1) Depends on what organizational resources and capabilities currently available or being acquired and developed through the functional strategies.



(2) To successfully attain a sustainable competitive advantage, each of Porter’s generic competitive strategies requires certain skills, resources and organizational requirements. (Table 5.4)

(b) How is that strategy implemented?(1) The strategy(ies) being used in each functional area should support

whatever competitive advantage (and competitive strategy) is being pursued.(a) If competition is based on having the lowest costs, then:

(1) Functional strategies being used should support and reinforce that strategy.

(2) Cost efficiencies would be pursued in all operational areas, but particularly in production-operations.

(3) Financial strategies could support the quest for operational efficiency including such things as capital investment in technology if it’s needed and could contribute to lowering costs.

(4) All organizational resources, distinctive capabilities and core competencies would be directed at attaining the goal of having the industry’s lowest costs.

(b) If the organization chose to compete on the basis of both low costs and differentiation, then its functional strategies better reflect that choice or it will never be able to develop a sustainable competitive advantage.

Active Learning Hint• Define fast follower (copycat) and give an example to the class. Have students debate which skills,

resources and requirements best fit a company pursuing a “fast follower” strategy.To do this have students address the following questions:

▪ Do copycats need strong marketing abilities? Why? ▪ Do copycats need good engineering skills? Should those skills be for new product development or

for process/cost engineering?▪ Would you focus more on control or innovation in your production process? Explain.

Strategic Management Action: Singapore Airlines (SIA) This sidebar illustrates competitive action in the air travel industry. A key question is whether there will be any brand loyalty to specific airlines. What makes customers loyal to a particular airline? Is it the details or is it simply a price decision? Could famous people play a role as celebrity endorsers?

2. Competitive ActionsOnce an organization’s competitive strategy is implemented through functional decisions and actions, it will use certain postures, actions and tactics as it competes against other organizations for customers, market share, or other desired objects or outcomes.

a) Offensive moves are when an organization attempts to exploit and strengthen its competitive position through attacks on a competitor’s position.(1) Frontal assault is when the attacking firm goes head-to-head with its competitor by

matching it in every possible category, such as price, promotion, product features and distribution channel.

(2) Attack competitors’ weaknesses wherever those weaknesses are.(a) Concentrate on geographic areas where the competitor is weak.(b) Serve customer segments that a competitor is ignoring or the competitor’s

offerings are weak.



(c) Introduce new product models or features to fill gaps its competitors aren’t serving.

(3) All-out attack on competitors by hitting them from both the product and the market segment side.

(4) Avoid direct, head-on competitive challenges by maneuvering around competitors and subtly changing the rules of the game.(a) Create new market segments that competitors aren’t serving by introducing

products with different features.(b) This action cuts the market out from under the competitor.

(5) “Guerilla” attacks are small, intermittent, seemingly random assaults on competitors’ markets.(a) Use of special promotions, price incentives, or advertising campaigns.

b) Defensive moves describe when an organization is attempting to protect its competitive advantage and turf. These moves do not increase an organization’s competitive advantage, but can make the competitive advantage more sustainable.(1) Prevent challengers from attacking by not giving them any areas to attack.

(a) Offer full line of products.(b) Use of exclusive agreements with dealers to block competitors.(c) Protect technologies through patent and licenses.

(2) Increase competitors’ beliefs that significant retaliation can be expected if competitive attacks are initiated.(a) Public announcements by managers to “protect” market share.(b) Strong responses to competitors’ moves, such as matching price cuts.(c) Competitive counterattacks are critical if the markets or segments being

attacked are crucial to the organization.(d) Retaliation should be used with caution against a new entrant because research

shows that the typical new entrant does not pose a serious threat and retaliation can be expensive.

(3) The final type of defensive move involves lowering the incentive for a competitor to attack.(a) Lead the potential attacker to believe that the expectations of future profits are

minimal.(b) Keep prices low and continually invest in cost lowering action.

B. Evaluating and Changing Competitive StrategyThe responsibility of managing strategically doesn’t stop once the competitive strategy is implemented. Strategies must be monitored, assessed and evaluated for performance effectiveness and efficiency.1. Evaluation of the competitive strategy assesses the organization’s various functional areas

and the activities performed there. Some evaluation questions to ask:a) What are the results of the various strategies?b) Are they having the intended effect?c) Is competitive advantage being successfully exploited?d) Why or why not?e) What if results aren’t as high as expected, or what if they’re better than expected?f) Has the market changed and the organization hasn’t?g) Are the organization’s numerous resources and capabilities being used effectively and

efficiently so that the needed and crucial competitive advantage is being developed and exploited? Which ones are and which ones aren’t?

2. Changing organization’s competitive strategy when the evaluation shows the strategy isn’t having the intended impact or hasn’t resulted in desired levels of performance.a) Change in the organization’s fundamental competitive strategy isn’t something that



organizations want to do frequently or continually.(1) Each competitive strategy entails the development of specific resources, capabilities

and distinctive competencies. Changing the competitive strategy means modifying or redeveloping the organization’s resources and capabilities which is difficult and expensive.

(2) This doesn’t, and shouldn’t, mean that an organization would never change its basic competitive approach. What it does mean is that this type of major strategic change should be approached realistically and intelligently.

b) Although changing the organization’s basic competitive strategy isn’t highly likely, modifying the organization’s competitive actions is.

Teaching Notes:_______________________________________________________________________

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Learning Review: Learning Outcome 5.4 Why is strategy implementation critical?

• If a strategy is not implemented, then it’s nothing more than a strategic idea or plan. Describe the role(s) that functional strategies play in implementing the organization’s competitive

strategy.• In implementation, functional strategies play a dual role of what and how. What competitive

strategy is most appropriate and how that strategy is implemented. Describe the offensive and defensive competitive actions an organization might use.

• Offensive moves are when an organization attempts to exploit and strengthen its competitive position through attacks on a competitor’s position.

• A frontal assault is when the attacking firm goes head-to-head with its competitor and matches the competitor in every possible category such as price, promotion, product features, and distribution channel. Another offensive tactic is to attack competitors’ weaknesses. Another offensive tactic is to use an all-out attack on competitors by hitting them from both the product and the market segment side. Another type of offensive move is to avoid direct, head-on competitive challenges by maneuvering around competitors and subtly changing the rules of the game. Finally, another possible offensive tactic is to use “guerilla” attacks.

• Defensive moves describe when an organization is attempting to protect its competitive advantage and turf.



• One defensive move is to prevent challengers from attacking by not giving them any areas to attack. Another possible defensive move is to increase competitors’ beliefs that significant retaliation can be expected if competitive attacks are initiated. The final type of defensive move involves lowering the incentive for a competitor to attack.

How should an organization’s competitive strategy be evaluated?• The responsibility of managing strategically doesn’t stop once the competitive strategy is

implemented. Strategies must be monitored, assessed, and evaluated for performance effectiveness and efficiency.

• Most organizations’ competitive strategies are targeted at increasing sales revenues, market share, or profitability, so data on these particular performance areas would be required to determine what impact the competitive strategies are having.

THE BOTTOM LINE

Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and evaluated.

Functional strategies: short-term, goal-directed decisions and actions of the organization’s various functional areas.

All organizations must acquire and transform resources (inputs) into outputs (products), which are then made available to the organization’s customers or clients.

Organizations have three functional concerns: the product, the people, and the support processes.

The Product: product functional strategies include product design, production–operations, and marketing.

Product design and development strategies are part of the R&D functional area. Strategic choices include timing (first mover: organization that’s first to bring a new product or innovation to the marketplace); who will do design and development (separate R&D department, cross-functional team: a group of individuals from various departments who work together on product or process development, or some combination); and how design and development process will take place (formal or informal process, type of and how much research, and extensive or limited use of various R&D tasks).

Production-operations: process of creating and providing goods and services. Strategic choices include how and where products will be produced. These choices encompass the design and management of the production-operations process.

Marketing: process of assessing and meeting the wants and needs of individuals or groups by creating, offering, and exchanging products of value. Marketing strategies are directed at managing the two Cs: customers and competitors. Strategic choices involve segmentation or target market, differentiation, positioning, marketing mix, connecting with customers, gaining marketing insights, building strong brands, designing effective marketing communications and managing the marketing functional area.

The People: people (HR) functional strategies reflect an organization’s commitment to and its treatment of its employees. HR strategies can be a significant source of competitive advantage and can have a positive impact on performance (high-performance work practices: HR practices that lead to both high individual and high organizational performance). Strategic choices involve getting people into the organization, making sure they have the necessary knowledge and skills to do their jobs and helping them do those jobs better, assessing how well they do those jobs and making needed corrections, and motivating high levels of effort and compensating them



fairly. May also address other HR issues such as employee relations, diversity efforts, etc.

The Support Processes: support processes support the organization as it does its work. The two main ones include information systems and financial-accounting systems.

Information system: a system for collecting, processing, storing and disseminating information that managers need to operate a business. Strategic choices involve the choice of system technology and the choice of types of information systems desired.

Financial–accounting systems provide strategic decision makers with information about the organization’s financial accounts and financial position. Strategic choices include collecting and using financial–accounting data, evaluating financial performance, doing financial forecasting and budgeting, determining the optimum financing mix and effectively and efficiently managing the financial-accounting area.

Learning Outcome 5.2: Explain what competitive advantage is and what it implies. Competitive advantage: what sets an organization apart, which can come from

distinctive capabilities or unique resources. It implies there are other competitors. Competition: when organizations battle or vie for some desired object or outcome. The

types of competition an organization might face can be understood by looking at who competitors are.

Three approaches to defining an organization’s competitors include: (1) industry perspective, which identifies competitors as organizations that are making and selling the same or highly similar goods or services; (2) market perspective, which says competitors are organizations that satisfy the same customer need; and (3) strategic groups concept, which is based on the idea there are groups of firms competing within an industry that have similar strategies, resources and customers.

Organizations develop strategies that exploit resources and capabilities to get a competitive advantage, thus setting the stage for competition.

Competitive strategy: strategy for how an organization or business unit is going to compete.

Learning Outcome 5.3: Describe the different competitive strategies. The traditional approaches to defining competitive strategies are Miles and Snow’s

adaptive strategies and Porter’s generic competitive strategies. Miles and Snow’s four adaptive strategies include: (1) prospector: a strategy in which

an organization continually innovates by finding and exploiting new product and market opportunities, (2) defender: a strategy used by an organization to protect its current market share by emphasizing existing products and producing a limited product line, (3) analyzer: a strategy of analysis and imitation, and (4) reactor: a strategy characterized by the lack of a coherent strategic plan or apparent means of competing.

Porter’s generic competitive strategies are based on competitive advantage (either low costs or unique and desirable differences) and product–market scope (broad or narrow). He identifies three strategies: (1) cost leadership: a strategy in which an organization strives to have the lowest costs in its industry and produces products for a broad customer base; (2) differentiation: a strategy in which an organization competes by providing unique (different) products in the broad market that customers value, perceive as different, and are willing to pay a premium price for; the differentiator works hard to establish brand loyalty: customers consistently and repeatedly seek out, purchase, and use a particular brand; (3) focus: a strategy where an organization pursues either a cost or differentiation advantage in a limited customer segment.

Porter also identifies a strategy of stuck in the middle, which happens when an organization can’t develop a low cost or a differentiation advantage.



There are two contemporary views on competitive strategy. The first is the integrated low cost–differentiation strategy, which involves simultaneously achieving low costs and high differentiation. Some organizations have been able to do this because of technology.

The second contemporary view is Mintzberg’s generic competitive strategies. He proposes that an organization’s strategy is either differentiation or being undifferentiated. If it chooses differentiation, it does so by price, marketing image, product design, product quality, or product support.

Learning Outcome 5.4: Discuss how competitive strategies are implemented and evaluated.

Competitive strategies are implemented through the functional strategies; that is, the resources and distinctive capabilities found in the functional areas influence which competitive strategy is most feasible. In addition, the functional strategies support the organization’s competitive advantage and strategy.

Competitive strategies are also implemented through competitive actions, which include: (1) offensive moves: an organization’s attempts to exploit and strengthen its competitive position through attacks on a competitor’s position, and (2) defensive moves: an organization’s attempts to protect its competitive advantage and turf.

Competitive strategies are evaluated by the performance results obtained. What competitive weaknesses and strengths does the organization have?

Changing the competitive strategy isn’t something that organizations do frequently because it’s based on specific resources, distinctive capabilities and core competencies developed in the functional areas. Changing would mean modifying or redeveloping those. What is likely to be changed are the organization’s competitive actions.



Suggestions for using YOU as Strategic Decision Maker: Building Your Skills exercises

1. This is a good opportunity to discuss the "value chain" concept. Have your students conduct an Internet search for value chain related articles. One site of particular note is Industry Week's Web site (www.iwvaluechain.com). Have the students review various articles available for download or review. [Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and evaluated; Course Level Objectives: Identify and describe common types of functional strategies; AACSB: Reflective thinking skills]

2. There are many good articles available about Jack Welch from Fortune, Time, Business Week, etc. Have your students research this leader and his decisions over the last few years with General Electric with particular focus on functional activities. [Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and evaluated; Course Level Objectives: Identify and describe common types of functional strategies; AACSB: Reflective thinking skills]

3. Visit the Web site www.cybercrime.gov, link to “economic espionage” for a list of cases and press releases regarding economic espionage. It may be interesting for the students to visit the site, and select a case to review, and then evaluate the implications for functional strategy formulation and implementation. Ask the students to brainstorm ways there are to protect businesses from having their highly confidential information stolen. [Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and evaluated; Course Level Objectives: Identify and describe common types of functional strategies; AACSB: Reflective thinking skills]

4. Take a class poll to determine how many of the students have used online customer service activities, and why they use them. Is it easier/better than calling customer service? Why? From the organization’s point of view, what are the advantages and disadvantages? Ask the students to brainstorm how the strategic decision makers can address the disadvantages. [Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and evaluated; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

5. As an alternative, this exercise could be divided among groups in the class. Ask each group to research a different type of sponsorship, provide several examples and evaluate the strategy. Have the groups report back to the class. [Learning Outcome 5.2: Explain competitive advantage and what it implies; AACSB: Reflective thinking skills]

6. You may wish to have students record their “perfect job” description prior to assigning this exercise. Ask the students to do research on companies they would like to work for and then compare what they find in their research with their expectations. Quality of work life has been the focus of many research activities over the last couple of decades. [Learning Outcome 5.2: Explain competitive advantage and what it implies; AACSB: Communication skills, Reflective thinking skills]

7. You may wish to begin by establishing a few of the expectations organizations have for new information technology systems. Ask the class members to consider who will be using the system and how the information will be used. [Learning Outcome 5.2: Explain competitive advantage and what it implies; AACSB: Reflective thinking skills]

8. This a good exercise to illustrate the multifunctional dimensions of strategic planning. Ask the students in groups to prepare a one-page “talking points,” bulleted list of its key points for distribution and presentation to the entire class. [Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and



evaluated; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

9. You might discuss the criteria Fortune uses to select the top 100 and to compare the list year-to-year. Can the strategies employed work at all types of organizations? Why or why not? This exercise could be an individual, but might be more effective as a small group project. [Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and evaluated; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

10. This is a good extension of a discussion on sources of competitive advantage. You may wish to include “copyright” protection and international issues in the classroom discussion. [Learning Outcome 5.4: Discuss how competitive strategies are implemented and evaluated; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Use of information technology, Reflective thinking skills]

11. The Art of War can be a very interesting exercise. Inevitable comparisons will arise with United States military-related actions such as Iraq, Granada, the Gulf War, Vietnam and Korea. You may address some of the statements in this exercise for greater understanding, however, be prepared for students to take a different view than former generations. After the class discussion, have the students look for business examples. [Learning Outcome 5.3: Describe the different competitive strategies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

12. This assignment could be used as a group out-of-class assignment, as a lively, in-class discussion or exam essay question. [Learning Outcome 5.2: Explain competitive advantage and what it implies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Analytic skills]

13. This could be assigned as an out-of-class project for individuals or groups. The Web site [www.interbrand.com] will contain the brand survey for the students to use. [Learning Outcome 5.4: Discuss how competitive strategies are implemented and evaluated; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Use of information technology, Reflective thinking skills]

Strategic Management in Action Cases

Case #1 Driving for Success

1. Keys to Toyota’s success include: Tight control of the production process so that they know that they are within specifications or if variation has occurred. This system then allows Toyota to customize (by controlled variation) the product in a short period of time without risking losing control of the production process and suffering poor quality. Toyota produces very high quality products that are innovative enough to satisfy most customers. [Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and evaluated; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

2. Production is most important to Toyota as evidenced by their investment in such strong production controls and methods. Their cars are sold based on their quality and their resulting high resale values. These attributes support their marketing campaigns that showcase the quality of Toyota’s cars. Encourage students to list the production strategies detailed in the case to show the firm’s engineering and production expertise. [Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and



evaluated; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

3. Coordination among the strategies at Toyota is especially important as most contribute to the production process. Ask students: What would happen if Toyota launched marketing campaigns praising the highly innovative and sporty styling of a Camry (a fairly conservative model)? How would consumers react to that message which seems inconsistent with the car’s styling? [Learning Outcome 5.4: Describe how competitive strategies are implemented and evaluated; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

4. You might have students compare the advertising and descriptions of Toyota’s mainstream vehicles with the approach they are using to reach a more trendy and youthful market with the Scion car line. Scion is a big departure for Toyota from its traditional focus but still builds on its key strengths of cost control and engineering by introducing boldly styled cars with quality construction but at a low price. Ask students why Toyota introduced this new line? (Could it be to get first time buyers into the Toyota “family” hoping for their continued loyalty in future car purchases as they move beyond these low priced cars? [Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and evaluated; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Use of information technology, Reflective thinking skills]

Case #2 They’ve Got Game

1. Miles and Snow: A prospector is consistently developing new products and innovative advertising and endorsements.

Porter’s framework: Broad scope with differentiation between segments but the same overallapproach of designing innovative look and using big stars to promote. [Learning Outcome 5.2: Explain competitive advantage and what it implies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

2. Nike’s competitive advantages that have contributed to its competitive advantage are: high brand image; innovative designs; memorable ads and endorsers; and lots of store shelf space. Nike’s ability to advertise in unique ways complements innovative product design. [Learning Outcome 5.2: Explain competitive advantage and what it implies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

3. Yes, Nike’s functional strategies support its competitive strategy by the following: keeping its costs down but prices up to make room for expensive endorsements; efficient ad campaigns in that they can travel well across borders and still have meaning and stars have good recognition abroad also; and by staying innovative and having clever ads Nike continues to draw large numbers of enthusiastic buyers willing to pay higher prices for perceived value added. [Learning Outcome 5.3: Describe the different competitive strategies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

4. To maintain its strong competitive position, Nike is going to have to stay innovative; need to be perceived as the best product with serious sports enthusiasts not just the best marketers; continue to hire up-and-coming stars; and avoid any scandals so as to limit its competitors’ ability to make any inroads into Nike’s markets. [Learning Outcome 5.2: Explain competitive advantage and what it implies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]



Case #3 Rewind and Replay

1. Miles and Snow: Originally, Netflix was probably a Prospector as it sought innovation. However, recent decisions have put the company in the Reactor category. Some students could make a case that the firm is a Defender now that new competitors have entered the market.

Porter’s framework: Students may identify one or more of Porter’s strategies. However, based upon the information presented in the case, one might argue that a differentiation strategy is taking place as Netflix attempts to demonstrate to consumers its uniqueness compared to others. Although, a case could also be made that Netflix is now stuck in the middle as it is neither different nor low cost. [Learning Outcome 5.2: Explain competitive advantage and what it implies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

2. Students might identify any number of competitive advantages for Netflix. They should be able to explain how the firm’s resources, capabilities, and/or core competencies contributed to this competitive advantage, using material from the chapter. [Learning Outcome 5.2: Explain competitive advantage and what it implies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

3. Students may focus on all three functional concerns (product, people, and support processes). For product, be sure that they look at Netflix’s design – especially how product is delivered to the consumer. Also, the production/operations as well as marketing should be mentioned. For people strategies, well-trained customer service will be important when customers have a problem. Finally, for support processes, the information systems and financial-accounting systems must be modern and sound. [Learning Outcome 5.2: Explain competitive advantage and what it implies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

4. This is an opinion question, but students might focus on price (being the low cost provider) or on service (offering more selection in a faster format). [Learning Outcome 5.2: Explain competitive advantage and what it implies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

Case #4 Casting a Wider Net

1. Students may focus on the fact that there are literally thousands of widely different products in a single location – providing something for every type of buyer. Shopping at these huge stores becomes an experience with lots of participatory demonstrations of products. Restaurants and other features make the shop a destination…more fun than the average mall or “big box” store visit. Bass Pro Shops are a chain of locations that seek to duplicate the success of the original store. [Learning Outcome 5.1: Describe the functional strategies an organization needs and explain how those strategies are implemented and evaluated; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

2. Some challenges in replicating this strategy for Bass Pro are: The need to standardize what is sold and how it is promoted (efficiency argument for global or uniform production function) and how to incorporate local needs and interests that differ regionally. For example, Bass Pro in Minnesota might showcase camping and lake fishing, minimizing scuba or surf fishing equipment (not as much need for that in MN).

Another issue for Bass Pro is to ensure its sales associates are knowledgeable of their products. It may be a problem to hire skilled bass fishing experts in Nevada or New Mexico where fishing is not



as common a sport as in Missouri. In addition, as the chain of shops expands, Bass Pro will run up against competitors who are entrenched in the local market and may be able to successfully defend their markets making investment in new mega-stores less profitable. [Learning Outcome 5.2: Explain competitive advantage and what it implies; Course Level Objectives: Discuss best practices for strategy implementation; AACSB: Reflective thinking skills]

3. Visit the Web site. [Learning Outcome 5.2: Explain competitive advantage and what it implies; Course Level Objectives: Discuss the functions of vision statements, mission statements, and long-term corporate objectives; AACSB: Use of information technology, Reflective thinking skills]
