The Creation and Management of Competitive Advantage

NEXT 3 Weeks

We will cover the internal and external analysis and apply to Aldi

You should read about the relevant models/frameworks and apply them to Aldi

Key ModelsValue Chain AnalysisPorters five force model12 Ps4CsMix map ModelPlc/BcgmPestSwot/TowsMcKinsey MatrixAnsoff

Achieving competitive advantageHow can the business continue to survive or grow ?How do the resources deliver profits?Which resources enable the organisation to competei.e. Value added &Sustainable Competitive Advantage

Recognizing a firms core competences is required if it is to make rational strategic decisions With an understanding of its external environment it will drive the selection of strategiesAn inside- out approach.Based on what we have got!And. What we believe we can do. Relative to competition

Pressures on marketing

Basic positioning options

Porters Generic StrategiesCost/Price LeadershipDifferentiationDifferentiation FocusCost/Price FocusSector of MarketWhole MarketDistinct ProductLower PriceStrategic AdvantageStrategic Target

Cost/Price LeadershipLower prices than competitionCosts lower than competitionOften standardised commodity goods (hard to differentiate)Lower Costs enabled via economies of scaleLikely to require/result in large market shareRelies upon customers being price elasticNormally used at latter stages of market/product life cycle

DifferentiationMake products/services different to those of competitorsRelies on customers perceiving and valuing their differencesAccepted by and recognised by whole marketRequires substantial investment in innovate practices, R&D and marketing to inform the customers of its differences.

FocusFocus firms efforts on narrow sector of market- niche/segmentCan be differentiatedCan be Cost/Price led (But can economies of scale be developed?)

Example of strategic Group analysisFirms stuck in the middleWinning Cost LeaderFailing Cost leaderSuccessfulDifferentiatorsMixedDifferentiationFailingDifferentiatorsProfitability(Return on assets)Cost LeadershipGeneric Strategy

INTERNAL POSITIONINGAssumption - creating competitive advantage- need for investment in physical and human resources- need to manage interface between internal environment, technology and people- opportunity through adaptability; lower costs; product quality; enhanced service.

Components of Internal analysis leading to Competitive advantage, Lynch 2000;Hitt 2001, ResourcesTangibleIntangibleCapabilitiesStrategic CompetitivenessCompetitive AdvantageDiscover Core CompetencesCompetencesValue Chain Analysis7 Criteria of Sustainable AdvantagesTools available

CapabilitiesThe firms ability to deploy resources effectivelyEnable the firm to create and exploit external opportunities and develop sustained advantages when used with insight and adroitness. Lengnick-Hall & Wolff 1999Firms abilities are increasingly being derived not from things:But an ability to derive value from knowledge etc.Increasingly about people

Resources

Critical -customers; competition; resourcesTangible - locations(city centre, airports) size and facilities; technology (CRS); finance - supply & quality; peopleIntangible - Brand name; quality of people Labour : capital ratio - productivity

Contribute to Adding value - inputs-process-outputs

Core CompetencesManage current onesCreate new onescurrent ones will be erodedNot inherently valuableMust manage and control to create value and Competitive AdvantageImportant to identify those that are core and those that are not (just competences)

Establishing a Core Competence agendaPremier plus 10What new core competencies will we need to build to protect and extend our franchise in current markets?Meg-opportunitiesWhat new core competencies will we need to build to participate in the most exciting markets of the future?Fill in the blanksWhat is the opportunity to improve our position in existing markets by better leveraging our existing core competencies?White SpacesWhat new products or services could we create by creatively redeploying or recombining our current core competencies?ExistingExistingNewNewMarketCore CompetenceSource: Hill C. W., Jones G. R. (2002, pp354)

Sustainable Competitive AdvantageIs achieved when firms implement a value-creating strategy that is grounded in their own unique resources, capabilities and core competencies. Vignali et al., (2008)The key issue in strategy research-Rouse 1999The basic notion behind strategy is that a successful, high performing business requires a distinctive (or core) competence or competitive advantage. Hooley et al., (2011) Continuous development of Competitive advantage is required

CRITERIA OF SUSTAINABLE ADVANTAGESCore competences are a firms source of competitive advantageCompetitive Advantage is also a function of its relative resource uniqueness (sustainability)Acquired resources; innovative capability; competitiveness; substitutability; appropriability; durability; imitabilityAbout creating value (perceived or real)

Value- The creation and management of..Performance characteristics and attributes for which customers are willing to pay Created by exploiting core competencesFirms use strategy to create value for customersContinuouslyThroughout the firmValue will be duplicated over timeMust continually seek new valueA relative concept

Adding Value?The key goal of strategyThe outputs are considered to be worth more than the cost of the inputs to operationalise the delivery.Value management is about maximising value addition, which results in profit maximisation.

Identifying Value/Potential ValueThe value chain - an attempt to identify key activities within the organisation, their relationships and how the creation of core competence's (skills/knowledge) deliver synergistic benefits.The flow of products and services within the organisation - the chain or links between primary and secondary activities. Add it as cheaply as possible and capture the value

The Value ChainBefore the service establishment - the supply chain- control, sourcing, frills or not.Inside the service establishment - stocks, labour, culture, work in progress, Delivery process- scheduling, labour costs, overheads, techniques/procedures, repair & maintenanceService delivery and after - finished experience, complaint handling, relationship marketing.Use to determine where the firm has the potential to create and capture value

Firm infrastructureHuman resource managementTechnology developmentProcurementInbound logisticsOperationOutbound logisticsMarketing & sales ServicemarginPrimary ActivitiesSupport ActivitiesThe Value ChainAdopted from Porter M. 1985R&DProductionOutputs

Summary

Operations take time to plan/build and change can be difficult.Analysis is often around how to add value, internally (value chain) and externally (supply chain)influenced by identification of CSFs, resource utilisation, core competences, technologies, global behaviour, cost management.Adapt products/services to customer needsdeliver better services than competitorsenhance performance or qualitycut costsBut - will service quality rely on humans - training/dev!

Workshop Activity 1 :Choose an organization of your choice and answer the following (35mins)

Core Competences identify the organization's core competences ?Why are they core ?How can their advantage be preserved?What are the Critical Success Factors?What evidence is there of unique resource utilisation (7 elements Lynch pp280-282)What impact do these have on the Value chain and value system ?

Workshop Activity 2 :Read the assessment case and apply the following to Lidl (40mins)

Core Competences identify the organization's core competences ?Why are they core ?How can their advantage be preserved?What are the Critical Success Factors?What evidence is there of unique resource utilisation (7 elements Lynch pp280-282)What impact do these have on the Value chain and value system ?

Workshop Activity 3 (30mins)

Read the chapter on Value Chain Analysis which has been applied to Zara. Now apply the value chain to Lidl

For Next WeekComplete workshop tasks 2 & 3 using information from published sources. Each group should prepare 2 PowerPoint slides to present this information ready for discussion next week