Understand competitive advantage and

MAN302 Week Three The Nature of Competitive Advantage 1 Copyright Notice COPYRIGHT COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 WARNING This material has been reproduced and communicated to you by or on behalf of Kaplan Higher Education pursuant to Part VB of the Copyright Act 1968 (the Act). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Do not remove this notice 2 Week 3 Objectives Understand competitive advantage and its importance in todays business environment Analyse various levels of strategy and describe how strategic advantage can be sustained at each level Discuss the importance of strategic innovation for sustainable competitive advantage 3 What is Competitive Advantage? A characteristic, feature or opportunity that an organisation possesses that will make it more attractive than its competitors A condition that enables a company to operate in a more efficient or responsive manner than its competitors Companies must effectively compete in the marketplace, otherwise risk going out of business 4 Competitive advantage is the key success factor of a companys survival. 5 Why do you think this is so? Questions Concerning Competitive Advantage Where do competitive advantages come from, and how are they sustained? Why do some companies consistently outperform their competitors? Why do some companies succeed in the same industry environments where others fail? 6 Competitive Advantage Can emerge from internal and external sources of change Internal: more creativity and innovative capability External Changing customer demand Changing prices Technological change 7 With external change, the speed of response is critical to exploiting opportunities Need resources (information) Need capability (flexibility) Required environmental scanning 8 Competitive Advantage Internal Change Strategic Innovation Development of new strategies or offering new products or services that will generate significant new value for customers and have the potential to change market demand Creating value from novel experiences, products or product delivery or bundling May also be based on redesigned processes and novel organisational change 9 Formulating Innovative Strategies Get expert advice Innovations in management Create new markets (Blue Ocean Strategy) Comprise entirely new industries Re-creation of existing industries New game strategy: reconfiguring the industry value chain in order to change the rules of the game 10 Activity https://hbr.org/video/5278216527001/the-explainer-blue-ocean-strategy 11 WATCH THE VIDEO Watch the video. Explain the difference between Red Ocean and Blue Ocean markets. What is value innovation? What did Cirque du Soleil to attract a audiences to the new style of circus? Sustaining Competitive Advantage Competitive imitation (one company imitating the strategy of another) Needs four conditions Identification: rival possesses competitive advantages Incentive for imitation: profit incentive Diagnosis: must understand the basis of the rivals success Resource acquisition: Buy them Build them 12 First Mover Advantage When the initial occupant of a strategic position or niche gains access to resources and capabilities that a follower cannot match Simplest form: patent or copyright Very important in high-tech companies Being first does not always guarantee success 13 Five primary sources Has to have the opportunity to exploit network effects and positive feedback Must be able to establish significant brand loyalty May be able to increase sales volume ahead of rivals and thus reap cost advantages May be able to create switching costs the therefore make it difficult for rivals to enter the market May be able to accumulate valuable knowledge related to customer needs, distribution channels, etc. 14 First Mover Advantages Has to bear significant pioneering costs Must pioneer the technology, distribution channel costs, educate consumers, etc. Expensive and time-consuming Later entrants may be able to free-ride on the first movers investments More prone to mistakes due to many uncertainties in the market May invest in inferior or obsolete technology Run the risk of building the wrong resources and capabilities 15 First Mover Disadvantages Capturing First Mover Advantages Three strategies Develop and market the technology itself Do so jointly with another company License the technology to existing companies 16 The decision to choose which strategy will depend on: The complementary assets required to capture a first-mover advantage The height of barriers to information Capability of competitors 17 Capturing First Mover Advantages Activity 18 Fisher College of Buisness. 18 Aug 2009. Innovation and Fast-followers explained by Fisher College of Business. ONLINE: https://www.youtube.com/watch?v=K6Efl5f8wf4 Watch the Video: How does innovation relate to first mover advantage and also fast follower? Why is being a fast follower more difficult in todays environment? Competitive Advantage Two Perspectives Longitudinal Perspective Strategy formulation and implementation can be analysed at various stages (Industry Life Cycle) Hierarchical Perspective Three basic levels examined: Corporate Business Functional 19 Industry Life Cycle Introduction Sales are small and market penetration is low Growth Characterised by accelerating market penetration Mature Increasing market saturation and slowing growth Declining Industry is challenged by new industries that produce technologically superior products 20 Industry Life Cycle Driving forces Primarily defined by changes in an industrys growth rate over time Knowledge / new knowledge Cycle markets Slow-cycle markets Standard-cycle markets Fast-cycle markets 21 Activity In groups of 3-4, have each person identify a product that was purchased within the past week or two. Are the companies that produced these products market leaders or followers? At which stages of the industry life cycle are each of the products? Identify at least two competitors of each of the products and explain how they compete with each other. 22 Hierarchical Perspective Corporate level Business level Functional level Network level Global level 23 Creating Strategic Advantage Level of Strategy Scope of Activities Examples of Activities Global-level Expanding to the overseas market Exporting, licensing, joint ventures, foreign direct investment Network-level Defining the interrelationships of the company with other companies Forming joint ventures, strategic alliances and trade associations 24 Level of Strategy Scope of Activities Examples of Activities Corporate-level Defining the overall positioning of the company in relation to markets Developing new products and exploring new markets Business-level strategy Defining the market segments for individual products of the company Identifying market niches and developing strategies for each product 25 Creating Strategic Advantage Level of Strategy Scope of Activities Examples of Activities Functional-level Supporting corporate and business strategies Related functions such as marketing, finance, human resources, production, research and development 26 Creating Strategic Advantage Activity In groups of 3-4, discuss the following: Amazon has entered into Australia and is challenging much of the retail sector. How has Amazon used a global-level strategy to become dominant in the online retail sector? How has Amazon used a network-level strategy to become dominant in the online retail sector? Compare Amazon and e-Bay. How has each company differed in their (a) global-level strategy, and (b) network-level strategy? 27 Summary To be successful in business requires establishing and sustaining competitive advantage. There are five different strategy levels: functional, business, corporate, network and global. Various stages in the industry life cycle present challenges for the formulation and implementation of business strategies. Strategic innovation is a way for companies to sustain competitive advantage. 28 Any Questions? 29

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