Today: Strategic CoherenceCurrent EventsChapter 5: Strategy FormulationHandout on Strategic CoherenceChoose Team Presentation Day Assign American Airlines Case

WEBSITE: www.sba.pdx.edu/faculty/stephens/ss.html

Business Strategies

Competitive Strategycreates a defendable position in an industry so that a firm can outperform competitors.

Cooperative Strategygain competitive advantage by working with rather than against other firms.

Competitive Strategy

Porter’s Generic Competitive Strategies

Lower cost strategy – design, produce and market a comparable product more efficiently than competitors.

Differentiation strategy – provide unique and superior value to buyers

Generic Competitive Strategies

Cost Leadership

Focused DifferentiationCost Focus

Differentiation

Lower Cost DifferentiationN

arro

w T

arge

tB

road

Tar

get

Competitive AdvantageC

ompe

titi

ve S

cope

Cost Leadership

Drivers for Controlling Costs

Economies of Scale

Learning / Experience curve

Cost of key resource inputs

Cost Leadership

Advantages, if successful

Reduce risk of pricing pressures

Lower rivalry

Increased barriers on to entry

Decreased power of substitutes

Decreased supplier power

Cost Leadership

Risks

Imitable

Chasing cost leadership can be a trap

Efficiency as only competitive objective

Changes in environment

Differentiation

Advantages, if successful

Decrease in rivalry

Lower buyer power

No real substitutes

Brand loyalty as entry barrier

Differentiation

Risks

Real differentiation vs. perceived differentiation

Pricing of substitutes

Changes in environmentBranding challengeInefficiencies

Middling

All things to all people

Success stories – how do they do it?Toyota

Intel

What does research tell us?

Hypercompetition

What is it?

Escalation – how does it happen?

Perfect competition

What is the common result?

How does an industry avoid hypercompetition?

Tactics – Market Location

Offensive Tactics

Frontal Assault (Head-to-Head)Key: superior resources and will to persevere

Example: Sprint and MCI/WorldComm versus AT&T

Flanking ManeuverKey: attack competitors’ weakness

Example: Cyrix

Tactics – Market Location

Offensive Tactics

EncirclementKey: product variety and market reachExample: Honda motorcyclesBypassKey: obsolete competitors’ productExample: MS Windows

Tactics – Market Location

Offensive Tactics

Guerilla WarfareKey: “hit and run”

Example: Microbreweries

Tactics – Market Location

Defensive Tactics

Raise Structural BarriersSaturate market with productBlock channel access by signing exclusive agreements with distributorsDecrease first-time product purchase barriersEconomies of scaleGovernment controls

Tactics – Market Location

Defensive Tactics

Increase Expected RetaliationStay vigilantReady retaliatory tacticsMaintain adequate resources

Lower Inducement for AttackAttractiveness of market“Fly below the radar”

Environmental Dynamics

Environment changes FAST!

Question:

Should we commit all of our resources to one specific strategy or keep our options open?

First Mover AdvantageDefinition: A first mover is a firm that takes an initial competitive action.

Commitment is valuableGame theory (visible, understandable, and credible)

Product/market frameworkNew Product: DVD (Toshiba, Sony)Geographic Market: First Foreign Investor in China

Sources of First Mover AdvantageProduct patent/industry standard

Economies of Scale

Experience or Learning Curve Effects

Brand Equity/Customer loyalty

Political support

- How are you going to use these effects to get a first mover advantage?- How does this lead to a sustainable advantage?

Disadvantages of first movers -Risky!

ImitationScooter

Technological improvementComputer chips

Changing consumer tastes Saturn vs. Chrysler

Cost

Second Mover AdvantagesHow can you compete with an entrenched competitor?Learning From Their Mistakes

An Absolute Cost AdvantageLeveraging Customer Knowledge

PositioningThe Uncovered or Emerging NicheA Focused Customer Base

The Scale of EntryJudo EconomicsMicrobreweries vs. National Brewers

Strategic Flexibility

Sometimes, the smartest thing you can do is . . .

Wait!

Strategic Coherence

Complement and Reinforce

Sustainable competitive advantage

Spill-over effects

Cooperative Strategies

Strategic Alliance

Mutual Service Consortium

Joint Venture

Licensing

Value-Chain Partnership

Company Profiles

Rank

Team 1: Krispy Kreme 2

Team 2: Nike 1

Team 3: Hollywood Video 3

Team 4: Vivendi/Universal 4

Team 5: Herman Miller, Inc. 5

Team 1

Natalie Abrams

Aurea Calvo

Howard Lazier

Jennie Bones

Team 2

Annalisa Bansen

Lisa Conley

Jay Lee

Pavel Yeremenko

Team 3

Telena Correa

Kevin Joyce

Danielle Parmelee

Heather Walker

Team 4

Stephanie Best

Steve Crowder

Jaime Johnson

Anthony Pham

Team 5

Cynthia Gilstrap

Matt Lawrence

Kristi Plump

Melissa Sakouhi

Questions for American Airlines Case

How should American Airlines proceed?

What strengths can they leverage? What are relevant threats?

What other options might they have?

Which areas of the value chain need to be modified to execute a dramatic change in strategy?

How will they measure success? Should they do this immediately or wait?

Next Time: Strategy Formulation

Read Chapter 6 & 7Handout on Strategic FlexibilityAnalyze American AirlinesGuest Speaker

Steve Rosenbaum, Co-Founder/CEOPOPART, LLC

WEBSITE: www.sba.pdx.edu/faculty/stephens/ss.html