STRATEGY Core Concepts and Approaches ConceptsAnalytical and

STRATEGY Core Concepts and Approaches ConceptsAnalytical and Analytic Strategy – Core 5th 5th Edition Edition (2018-2019) (2018-2019) Arthur Arthur A. A. Thompson Thompson Approaches 5e The of The University University of Alabama Alabama Authur A. Thompson, The University of Alabama CHAPTER 5 CHAPTER 1 What Is Strategy and Why The Five Generic Is Competitive It Important? Strategy Options: Which One to Employ An Ane-book e-bookpublished publishedand anddistributed distributed by byMcGraw McGrawHill Hill Education, Education, Burr BurrRidge, Ridge, Illinois Illinois Copyright Copyright 2018 2018 by byArthur ArthurA. A. Thompson, Thompson, Glo-Bus Glo-Bus Software, Software, Inc. Inc. All Allrights rightsreserved. reserved. Not Notfor fordistribution. distribution.

Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value. Michael E. Porter Professor, Harvard Business School Copyright 2018 by Glo-Bus Software, Inc. 5–2

Strategy is all about combining choices of what to do and what not to do into a system that creates the requisite fit between what the environment needs and what the company does. Costas Markides Copyright 2018 by Glo-Bus Software, Inc. 5–3

The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today. Michael A. Cusamano and Richard W. Selby Copyright 2018 by Glo-Bus Software, Inc. 5–4

Learning Objectives 1. Understand what distinguishes each of the five generic competitive strategies and the type of competitive advantage each can produce. 2. Gain command of why each of the five competitive strategies works better in certain market situations than in others. 3. Learn the major avenues for achieving a competitive advantage based on lower costs. 4. Learn the major avenues for achieving a competitive advantage based on differentiating a firm’s product or service offering from the offerings of rivals. 5. Understand the attributes of a best-cost provider strategy. Copyright 2018 by Glo-Bus Software, Inc. 5–5

Chapter 5 Roadmap The Five Generic Competitive Strategies 1. Low-Cost Provider Strategies 2. Broad Differentiation Strategies 3. Focused Low-Cost Strategies 4. Focused Differentiation Strategies 5. Best-Cost Provider Strategies Copyright 2018 by Glo-Bus Software, Inc. 5–6

What Does the Term “Competitive Strategy” Refer To? A company’s “competitive strategy” deals exclusively with the specifics of management’s game plan for competing successfully: Actions and approaches to please customers Offensive and defensive moves to counter maneuvers of rivals Responses to shifting market conditions Initiatives to strengthen the firm’s market position and achieve a particular kind of competitive advantage. Competitive strategy is narrower in scope than business strategy Copyright 2018 by Glo-Bus Software, Inc. 5–7

Why Do Competitive Strategies Differ Among Firms in the Same Industry? Managers at different firms have different views on: How to deal with competitive pressures and industry driving forces What future market conditions will be like What strategy specifics makes the most sense in light of Their company’s particular resources and capabilities (especially those that have the greatest competitive power in the marketplace) Their company’s resource weaknesses and competitive deficiencies Their company’s most attractive market opportunities Their company’s vulnerability to external threats Their company’s specific competitive strengths and weaknesses vis-à-vis rivals The strategic vision, mission, core values, and performance targets that company managers have established Copyright 2018 by Glo-Bus Software, Inc. 5–8

The Factors that Distinguish One Competitive Strategy from Another Factors that distinguish one firm’s competitive strategy from another Whether a firm’s market target is broad or narrow Whether a firm is pursuing a competitive advantage linked to lower costs or differentiation These two factors give rise to five competitive strategy options for staking out a market position, operating the business, and delivering superior value to buyers A low-cost provider strategy A broad differentiation strategy A focused low-cost strategy A focused differentiation strategy A best-cost provider strategy Copyright 2018 by Glo-Bus Software, Inc. 5–9

FIGURE 5.1 The Five Basic Competitive Strategy Options Copyright 2018 by Glo-Bus Software, Inc. 5–10

Low-Cost Provider Strategies A low-cost provider’s strategic target is lower overall costs than rivals—but not necessarily the lowest possible costs. In striving for a low-cost advantage over rivals, it is first necessary to incorporate features and services that buyers consider essential, then go all out to provide these at a lower cost than rivals. A product offering that is too frills-free sabotages the attractiveness of the firm’s product even if it is cheaper-priced. Keys to Success Having good cost-reduction skills and capabilities Pursuing long-term cost-saving approaches and capabilities that are difficult for rivals to copy or match Copyright 2018 by Glo-Bus Software, Inc. 5–11

Core Concept A low-cost leader’s basis for competitive advantage is lower overall costs than rivals with similar product offerings. A low-cost advantage over rivals can translate into better profitability than rivals. Successful low-cost leaders are exceptionally good at finding ways to drive costs out of their businesses and using their low-cost advantage over rivals to achieve better profitability than rivals. Copyright 2018 by Glo-Bus Software, Inc. 5–12

Translating a Low-Cost Advantage into Higher Profits Option 1: Use the lower-cost edge to underprice competitors and attract price-sensitive buyers in great enough numbers to increase total profits Option 2: Charge a price comparable to other low-priced rivals, be content with the resulting sales volume and market share, and rely upon the low-cost edge over rivals to earn a bigger profit margin per unit sold, thereby boosting the firm’s total profits and return on investment. Copyright 2018 by Glo-Bus Software, Inc. 5–13

Strategic Insight A lower price improves profitability only if the lower price results in gains in unit sales (and thus revenues) that are big enough to overcome the combined effects of a smaller profit margin and the added costs of the extra units sold. Copyright 2018 by Glo-Bus Software, Inc. 5–14

FIGURE 5.2 Cost Drivers—The Keys to Driving Down Costs Copyright 2018 by Glo-Bus Software, Inc. 5–15

The Two Major Avenues for Achieving a Cost Advantage Approach Approach 11 Perform Perform value value chain chain activities activities more more cost cost effectively effectively than than rivals. rivals. Approach Approach 22 Revamp Revamp the the firm’s firm’s overall overall value value chain chain to to eliminate eliminate or or bypass bypass some some cost-producing cost-producing activities. activities. Copyright 2018 by Glo-Bus Software, Inc. 5–16

Approach 1: Manage Value Chain Activities Very Cost Efficiently Performing value chain activities at lower cost than rivals: Striving to capture all available economies of scale Taking full advantage of experience and learning-curve effects Trying to operate facilities at full capacity Substituting low-cost for high-cost raw materials or component parts that do not sacrifice product quality or product performance Using the firm’s bargaining power vis-à-vis suppliers to gain concessions Improving supply chain efficiency Pursuing ways to boost labor productivity, reduce workforce size, and otherwise trim compensation costs Improving product design and employing cost-saving production techniques Using online systems and sophisticated software to achieve operating efficiencies Being alert to the cost advantages of outsourcing and vertical integration Copyright 2018 by Glo-Bus Software, Inc. 5–17

Adopt Economical Strategy Elements That Lead to Lower Costs Than Rivals Have lower specifications for purchased materials, parts, and components than rivals Strip frills and features from product offerings that are not highly valued by price-sensitive or bargain-hunting buyers Offer a limited selection or few versions of a product line by deleting slow-selling items and being content to meet the needs of most buyers rather than all buyers Distribute firm’s product only through low-cost distribution channels and avoid high-cost distribution channels Use the most economical method for delivering customer orders (even if it results in longer delivery times) Copyright 2018 by Glo-Bus Software, Inc. 5–18

Approach 2: Revamping the Value Chain Reengineer the chain to eliminate costly work steps and bypass cost-producing chain activities: Sell direct to consumers to cut out the activities and costs of distributors and dealers Use technologies and/or information systems to bypass the need to perform certain value chain activities Streamline operations by eliminating low-value-added or unnecessary work steps and activities Have suppliers locate their plants or warehouses close to a firm’s own facilities to reduce materials handling and shipping costs Copyright 2018 by Glo-Bus Software, Inc. 5–19

Wal-Mart’s Approach to Managing Its Value Chain Institute Instituteextensive extensiveinformation informationsharing sharingwith withvendors vendorsvia viaonline onlinesystems systems Pursue Pursueglobal globalprocurement procurementof ofsome someitems itemsand andcentralize centralizemost mostpurchasing purchasingactivities activities Invest Investin instate-of-the-art state-of-the-artautomation automationat atthe thecompany’s company’sdistribution distributioncenters centers Strive Striveto tooptimize optimizethe theproduct productmix mixand andachieve achievegreater greatersales salesturnover turnover Install Installsecurity securitysystems systemsand andstore storeoperating operatingprocedures proceduresthat thatlower lowershrinkage shrinkagerates rates Negotiate Negotiatepreferred preferredreal realestate estaterental rentaland andleasing leasingrates rateswith withowners ownersof ofstore storesites sites Manage Manageand andcompensate compensatethe theworkforce workforcein inaamanner mannerthat thatleads leadsto tolower lowerlabor laborcosts costs Copyright 2018 by Glo-Bus Software, Inc. 5–20

Nucor Corporation’s Low-Cost Provider Strategy Key Elements of Nucor’s Strategy Use electric arc furnaces to lower investment costs and eliminate expensive steps in making steel products from scratch Use incentive compensation to achieve high productivity and low labor costs per ton produced Locate plants close to customers to keep shipping costs down Cost Advantages and Bottom-line Results Lower capital investment and operating costs Ability to charge lower prices than traditional steel companies using make-it-from-scratch technology Consistently good profitability in an industry where profits have often been terrible Copyright 2018 by Glo-Bus Software, Inc. 5–21

Key Characteristics of Southwest Airlines’ Low-Cost Provider Strategy Mastery of fast turnarounds at boarding gates (25 minutes versus 45 minutes for rivals) allows: Planes to fly more hours per day More flights to be scheduled per day with fewer aircraft More revenue to be generated per plane on average than rivals Elimination of several services results in cost savings: In-flight meals Assigned seating Baggage transfer to connecting airlines First-class seating and service Fast, user-friendly online reservation system: Facilitates e-ticketing Reduces staffing needs at reservation centers and airport counters Copyright 2018 by Glo-Bus Software, Inc. 5–22

The Keys to Being a Successful Low-Cost Provider Scrutinize each cost-creating activity—understand the cost drivers and use them as levers to lower costs Use knowledge about the cost drivers to streamline or reengineer how activities are performed Engage all company personnel in continuous cost improvement Use benchmarking to keep close tabs on how the firm’s costs compare with its rivals and other firms performing comparable activities in other industries Strive to operate with exceptionally small corporate staffs Spend aggressively on resources and capabilities that promise to drive costs out of the business Copyright 2018 by Glo-Bus Software, Inc. 5–23

Strategic Insight Success in achieving a low-cost edge over rivals comes from out-managing rivals in finding ways to perform value chain activities faster, more accurately, and more cost efficiently. Understand the cost drivers for each value chain activity and use them as levers to drive down costs. Copyright 2018 by Glo-Bus Software, Inc. 5–24

When a Low-Cost Provider Strategy Works Best A low-cost provider strategy becomes increasingly appealing and competitively powerful when: Price competition among rival sellers is vigorous The products of rival sellers are essentially identical and supplies are readily available from several eager suppliers It is hard to achieve product differentiations that buyers value Most buyers use different brands of the product in same ways Buyers incur low costs in switching purchases to other sellers A big fraction of the industry’s sales are made to large-volume buyers with significant power to bargain down prices Industry newcomers use introductory low prices to attract buyers and build a customer base Copyright 2018 by Glo-Bus Software, Inc. 5–25

Pitfalls to Avoid in Pursuing a Low-Cost Provider Strategy Getting carried away with overly aggressive price cutting to win sales and market share away from rivals Reducing price does not lead to higher total profits unless the incremental gain in total revenues exceeds the incremental increase in total costs Relying on cost reduction approaches easily copied by rivals. The value of a cost advantage depends on its sustainability in achieving cost savings that are hard for rivals to copy or otherwise overcome Becoming too fixated on reducing costs and ignoring: Growing buyer interest in added features, service or an upscale product Declining buyer sensitivity to price New developments that alter how buyers use the product Copyright 2018 by Glo-Bus Software, Inc. 5–26

Strategic Insight A low-cost provider’s product offering must always contain enough attributes to be attractive to prospective buyers—low price, by itself, is not always appealing to buyers. Copyright 2018 by Glo-Bus Software, Inc. 5–27

Beware of Charging a Price That Is Too Low Low price, by itself, is not always appealing to buyers—a low-cost provider’s product offering must always contain enough attributes to be attractive to prospective buyers. Reducing price to capture a bigger sales volume does not lead to higher total profits unless the incremental gain in total revenues exceeds the incremental increase in total costs. Copyright 2018 by Glo-Bus Software, Inc. 5–28

Broad Differentiation Strategies Broad Differentiation Strategies Entail offering unique product attributes that a wide range of buyers find appealing, valuable, and worth paying for Are attractive when buyer needs and preferences are too diverse to be fully satisfied by a single, standardized product offering Keys to Success Incorporating buyer-desired attributes into product offering that: Will appeal to a broad range of buyers Will be different enough to stand apart from rival product offerings Creating a product offering that is strongly differentiated rather than weakly differentiated from the offerings of rivals Copyright 2018 by Glo-Bus Software, Inc. 5–29

Core Concept The essence of a broad differentiation strategy is to offer unique product attributes that a wide range of buyers find appealing and worth paying for. Copyright 2018 by Glo-Bus Software, Inc. 5–30

Differentiation and Competitive Advantage A product/service with unique, appealing attributes can create a competitive advantage for a firm and allow it to do one or more of the following: Command a premium price for its product (because many buyers believe the unique attributes are worth the extra price) Increase unit sales (because additional buyers are won over by the differentiating features) Gain buyer loyalty to its brand (because some buyers really like the differentiating features and bond with the firm and its products) Copyright 2018 by Glo-Bus Software, Inc. 5–31

Is Differentiation the Road to Profits or to Failure? Differentiation enhances profitability whenever a firm’s product can: Command a sufficiently higher price or produce sufficiently bigger sales to more than cover the added costs of achieving the differentiation Broad differentiation strategies fail when Buyers don’t value the brand’s uniqueness A firm’s approach to differentiation is easily copied or matched by its rivals. Copyright 2018 by Glo-Bus Software, Inc. 5–32

Options for Differentiating Unique taste – Dr. Pepper, Listerine Multiple features – Microsoft Office, Apple’s iPhone Wide selection and one-stop shopping – Home Depot, Amazon.com Superior service – Nordstrom, Ritz-Carlton Engineering design and performance – Mercedes, BMW Prestige and distinctiveness – Rolex Quality manufacture – Michelin Technological leadership – 3M Corporation Spare parts availability – Caterpillar Full range of services – Charles Schwab Wide selection – Campbell’s soups High-fashion design – Gucci, Chanel Copyright 2018 by Glo-Bus Software, Inc. 5–33

FIGURE 5.3 Value Drivers—Keys to Successful Differentiation Copyright 2018 by Glo-Bus Software, Inc. 5–34

Using the Value Drivers to Achieve Stronger Differentiation and Deliver Added Value Perhaps the most systematic approach managers can take to achieve successful differentiation involves focusing on the value drivers, those factors that are particularly effective in creating differentiation and adding value for buyers. Astutely using the value drivers to create unique product attributes that have high buyer appeal (because of the added value they deliver) is often “the secret” to creating a successful differential strategies Copyright 2018 by Glo-Bus Software, Inc. 5–35

Managing Value Chain Activities in Ways That Enhance Differentiation Astute use of the value drivers creates opportunities all along an industry’s value chain to achieve stronger differentiation: Create value-adding product features and performance attributes that appeal to a wide range of buyers Pursuing continuous quality improvements in products and processes Emphasizing new product R&D and product innovation Improving product selection Investing in production-related R&D, striving for technological advances, and implementing better production techniques Improving customer service and/or providing more service options. Emphasizing human resource management activities that improve the skills, expertise, and knowledge of company personnel Pursuing sales, marketing, and advertising activities that lead to greater brand name power. Improving distribution capabilities and collaborating with distribution allies to enhance customer perceptions of value Copyright 2018 by Glo-Bus Software, Inc. 5–36

Signaling the Value of a Firm’s Differentiated Product Offering to Buyers Stronger differentiation is achieved by sending signals to buyers that a product offering has value Signaling value is particularly useful when: Nature of differentiation is subjective or hard to quantify Buyers are making a first-time purchase and are unsure what their experience with the product will be Buyers are not fully aware of a product’s many attributes Repurchase is infrequent and buyers need to be reminded of a product’s value Copyright 2018 by Glo-Bus Software, Inc. 5–37

How Is Value Signaled to Buyers? Typical signals of value include: A high price (in instances where high price implies better quality or better performance) More appealing or fancier packaging Ongoing ad campaigns (which impact a product’s image and make it more widely known) Ad content that emphasizes a product’s standout attributes The quality of brochures and sales presentations The luxuriousness and ambience of high-end retailers and sales sites frequented by customers Making buyers aware that a company (or its products) has prestigious customers The professionalism, appearance, and personalities of the seller’s employees Copyright 2018 by Glo-Bus Software, Inc. 5–38

Achieving Competitive Advantage Via a Broad Differentiation Strategy To build sustainable competitive advantage via broad differentiation, a firm typically must do one or more of the following: Focus on continuous product innovation Incorporate features that raise product performance and deliver added value to the buyer/end-user Incorporate product attributes and user features that lower the buyer’s overall costs of using the firm’s product Incorporate features or features that enhance buyer satisfaction in intangible ways Deliver value to customers using competitively potent resources and capabilities that rivals do not have or cannot afford to match Copyright 2018 by Glo-Bus Software, Inc. 5–39

When a Broad Differentiation Strategy Works Best Buyer needs and uses of the product are diverse. There are many ways to differentiate the product or service that have value to buyers. Few rival firms are following a similar differentiation approach. Technological change is fast paced and competition revolves around rapidly evolving product features and attributes. Copyright 2018 by Glo-Bus Software, Inc. 5–40

Pitfalls to Avoid in Pursuing a Differentiation Strategy Differentiation keyed to product/service attributes and features that are easily and quickly copied Incorporating differentiation attributes that produce an unenthusiastic response on the part of buyers Overspending to differentiate the firm’s product offerin, thus eroding profitability Failing to achieve meaningful differences in quality, service or performance features vis-à-vis rival products Adding frills and extra features that exceed the needs and use patterns of most buyers Charging too high a price premium Copyright 2018 by Glo-Bus Software, Inc. 5–41

Core Concept Any differentiating feature that works well is a magnet for imitators. Copyright 2018 by Glo-Bus Software, Inc. 5–42

Pursuing a Differentiation Strategy: Three Principles to Keep in Mind A differentiating feature that works well is a magnet for imitators Over-differentiating and overcharging are fatal strategy mistakes Small differences among the product offerings of rival firms may not be important to buyers—a good differentiation strategy must aim at strong rather than weak product differentiation Copyright 2018 by Glo-Bus Software, Inc. 5–43

Focused (or Market Niche) Strategies Focused strategies concentrate attention on a narrow piece of the total market The target segment, or market niche, can be defined by: Geographic uniqueness Specialized requirements in using the product Special product attributes that appeal only to those buyers that comprise the market niche Copyright 2018 by Glo-Bus Software, Inc. 5–44

Focused Low-Cost Strategies Seek competitive advantage by serving a target market niche at a lower cost and lower price than rivals Are attractive when a firm can lower its costs significantly by limiting its customer base to a well-defined segment Achieve a cost advantage over rivals by: Managing value chain activities more cost effectively than rivals Finding innovative ways to bypass certain value chain activities The difference between a low-cost provider strategy and a focused low-cost strategy is the size of the buyer group being targeted. Copyright 2018 by Glo-Bus Software, Inc. 5–45

Examples of Focused Low-Cost Strategies Budget motel chains Motel 6, Sleep Inn, Super 8, and Days Inn The producers and retailers of private-label goods The makers of generic prescription drugs The makers of economically-priced replacement ink cartridges for printers (which carry a substantially lower price tag than those offered by makers of name brand printers) Copyright 2018 by Glo-Bus Software, Inc. 5–46

Focused Differentiation Strategies Aim at securing a competitive advantage with a product offering designed to appeal to the unique preferences and needs of a narrow well-defined group of buyers Depend on A buyer segment looking for special product attributes or seller capabilities A firm’s ability to create a product offering that stands apart from the offerings of rivals in the same target market niche The difference between a broad differentiation strategy and a focused differentiation strategy is the size of the buyer group being targeted. Copyright 2018 by Glo-Bus Software, Inc. 5–47

Examples of Firms Using Focused Differentiation Strategies Louis Vuitton Copyright 2018 by Glo-Bus Software, Inc. 5–48

When a Focused Low-Cost or Focused Differentiation Strategy Is Attractive The target niche is big enough to be profitable and offers good growth potential Industry leaders do not view having a presence in the niche as crucial to their own success It is costly or difficult for multi-segment competitors to meet the specialized needs of niche members The industry has many different niches and segments, thereby allowing a focuser to pick a competitively attractive niche suited to its resource strengths and capabilities Few other rivals are specializing in same target niche (a condition that reduces the risk of segment overcrowding) The focuser can draw upon customer goodwill and loyalty to defend against ambitious challengers Copyright 2018 by Glo-Bus Software, Inc. 5–49

The Risks of a Focused Low-Cost or Focused Differentiation Strategy Competitors find effective ways to match a focuser’s capabilities in serving the niche The preferences and needs of niche members shift over time to match those of mainstream buyers, thus causing the niche to dissolve into the overall market A segment is so attractive that entry of new rivals results in overcrowding, thereby intensifying rivalry and splintering segment profits Copyright 2018 by Glo-Bus Software, Inc. 5–50

Best-Cost Provider Strategies Stake out a middle ground: Between pursuing a low-cost advantage and a differentiation advantage Between appealing to the broad market as a whole and a narrow market niche Are aimed squarely at buyers looking for appealing extras and functionality at an appealingly low price The Objective Copyright 2018 by Glo-Bus Software, Inc. Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations 5–51

The Standout Traits of Best-Cost Provider Strategies The essence of a best-cost provider strategy is giving customers more value for the money by: Satisfying buyer desires for appealing features/performance/quality/service Charging a lower price for those attributes than its rivals To profitably employ a best-cost provider strategy, a firm must incorporate attractive upscale attributes at lower costs than its rivals Copyright 2018 by Glo-Bus Software, Inc. 5–52

A Best-Cost Provider’s Competitive Advantage A best-cost provider’s competitive advantage is its lower costs in incorporating upscale attributes than rivals This low-cost advantage allows a firm to underprice rivals and still earn attractive profits (provided the size of the price discount does not squeeze profit margins) Competitive Strategy Principle Copyright 2018 by Glo-Bus Software, Inc. It is usually not difficult to entice buyers away from rivals with an equally good product at a more economical price 5–53

Core Concept The competitive advantage of a best-cost provider is lower costs than rivals in incorporating upscale attributes (appealing features or functionality or quality or more satisfying customer service), thereby putting the company in a position to underprice rivals whose products have similar upscale attributes. Copyright 2018 by Glo-Bus Software, Inc. 5–54

How a Best-Cost Strategy Differs from a Low-Cost Strategy Upscale product attributes in a best-cost provider’s offering entail added costs that a low-cost provider avoids by offering a basic product with few frills The two strategies are aimed at different buyers: Best-cost provider’s target market is value-conscious buyers looking for valued extras and utility at an appealingly low price Low-cost provider’s target market is price-conscious buyers seeking a basic product at a bargain price Copyright 2018 by Glo-Bus Software, Inc. 5–55

When a Best-Cost Provider Strategy Works Best Markets where product differentiation is the norm The buying side of the market consists of attractively large numbers of value-conscious buyers that can be induced to purchase mid-range or near-luxury products rather than The cheap basic products of low-cost producers The expensive products of top-of-the-line differentiators Economically tough times when there are even more buyers attracted to economically-priced products/services with especially appealing attributes Copyright 2018 by Glo-Bus Software, Inc. 5–56

The Big Risk of a Best-Cost Provider Strategy A best-cost provider is squeezed between low-cost and high-end differentiation rivals when: Low-cost providers are able to lure customers away with a lower price (despite their less-appealing attributes) High-end differentiators are able to steal customers away with better product attributes (despite the higher price tag) Thus, to be successful, a best-cost provider must Offer buyers significantly better product attributes to justify a price above what low-cost leaders are charging Achieve significantly lower costs in providing upscale features so it can outcompete high-end differentiators on the basis of a significantly lower price Copyright 2018 by Glo-Bus Software, Inc. 5–57

Questions for Simulation Company Co-Managers Which generic competitive strategy has your firm decided to pursue? Have you studied rivals to determine which strategies they pursuing? Which rivals are pursuing a strategy similar to your firm’s strategy? Are rivals pursuing a competitive strategy similar to yours, resulting in segment overcrowding and splintered profits? If so, should your firm consider shifting to a different strategic group? Which rivals have obscure or muddled or unclear strategies—perhaps because their management teams are pursuing inconsistent or confused actions or are changing strategies every year (because the strategies they have pursued have produced weak results)? Are firms with shifting or unclear strategies likely to keep experimenting until they find a strategy that works well enough to stick with for a while? Copyright 2018 by Glo-Bus Software, Inc. 5–58

Questions for Simulation Company Co-Managers After each decision round, should your team closely study the data in the Competitive Intelligence Reports (CIRs) for the purposes of Tracking the number of rivals that appear to be pursuing low-cost, differentiation, and best-cost strategies—and most especially those firms with a strategy similar to yours and in your strategic group? Learning what rivals did in the prior year to fine-tune or overhaul their strategies? Using the CIR analysis to make guestimates about what close rivals are likely to do next and thereby better craft your own strategic moves for the upcoming decision round? If you are not currently doing these things, shouldn’t you start doing them immediately? How can you hope to outwit and outmaneuver rivals if you are not carefully studying what they are doing? Copyright 2018 by Glo-Bus Software, Inc. 5–59

Tips for Company Co-Managers Commit to a basic competitive strategy and aggressively pursue the competitive advantage potential it offers. Avoid “getting stuck in the middle” by mixing the five strategies and not achieving a clear-cut competitive edge. Consider switching to a different strategy if: “Too many” rivals have adopted much the same strategy and your firm finds itself in a strategic group that is “overcrowded” Rivals pursuing much the same strategy as your firm are effectively blocking your company’s path to achieving better overall business results Opportunities are more promising in a different strategic group Copyright 2018 by Glo-Bus Software, Inc. 5–60

Successful Competitive Strategies Are Always Underpinned by Resources and Capabilities That Allow the Strategy to Be Well-Executed Successful strategies rely on an appropriate set of resources, know-how, and competitive capabilities A low-cost provider must have the resource strengths and capabilities to keep costs below those of competitors. To pursue a differentiation strategy, a firm must have the resources and capabilities to incorporate unique attributes into its product offering that buyers will find appealing, valuable, and worth paying for. Focus strategies require the resources and capabilities to outcompete rivals in satisfying the needs and expectations of buyers in the target market niche. A best-cost strategy requires the resources and capabilities to incorporate upscale attributes/features at a lower cost than rivals. Copyright 2018 by Glo-Bus Software, Inc. 5–61

Core Concept A company’s competitive strategy is unlikely to result in good performance or sustainable competitive advantage unless the company has a competitively potent collection of resources and capabilities that enable the company to execute its strategy with great proficiency. Copyright 2018 by Glo-Bus Software, Inc. 5–62