SUMMARY OF LESSONS: 2Presentation By:

Courtney Karcasinas, Adam Hall, Robert Brinkmann, Justin Weden, & Stephen Gonzalez

Objectives

1.Understand the term “Competitive Advantage”

2. Predict potential for competition to wear away competitive advantage

3. Recognize how resource conditions create imperfections in the competitive process that offer opportunities for competitive advantage

4.Distinguish the two primary types: cost advantage and differentiation advantage

5.Use value chain framework to analyse potential sources of cost and differentiation advantage to recommend strategies for enhancing competitiveness

6. Appreciate the pitfalls of being ‘stuck in the middle’ and the challenge of achieving effective differentiation and low cost

1. Understand the term “Competitive Advantage”

When two or more firms compete within the

same market, one firm possesses a competitive

advantage over its rivals when it earns (or has the

potential to earn) a persistently higher rate of profit.

nderstand the term “Competitive Advantage”

In the long run competition wears away

differences in profitability between firms but eternal

and internal change can both create opportunities

for advantage and destroy them.

2. Predict potential for competition to wear away competitive advantage

Firms owning resources or having

capabilities that are in some way unique and offer

the firms some protection against imitation by

rivals.

3. Recognize how resource conditions create imperfections in the

competitive process that offer opportunities for competitive advantage

Competitive Advantage

Differentiation Advantage

Cost Advantage

Similar Product

at lower cost

Price Premiumfrom unique product

4. Distinguish the two primary types: cost advantage and differentiation advantage

1) Break down the firm into separate activities.

2) Establish the relative importance of different

activities in the total cost of the product.

3) Compare costs by activity.

4) Identify cost drivers.

5) Identify linkages.

6) Identify opportunities for reducing costs.

5. Use value chain framework to analyse potential sources of cost and

differentiation advantage to recommend strategies for enhancing competitiveness

Cost leadership and differentiation are

mutually exclusive strategies and firms that are

‘stuck in the middle’ are almost guaranteed low

profitability.

The most successful forms are often those

who have managed to differentiate themselves in a

highly cost-effective way.

6. Appreciate the pitfalls of being ‘stuck in the middle’ and the

challenge of achieving effective differentiation and low cost

Industry Life Cycle

ILC driving factors Demand Growth Production Knowledge

Demand Growth

Introduction Sales are often small

Growth Rapid market penetration

Maturity Stage Increased market saturation

Decline Stage Superior products are available from new

industries

Product Knowledge

Beginning Advances in product technology Consumers usually know little about

product Course of ILC

Customers become better informed Market expands Judge products better and make informed

decisions

Strategy at Various Stages of ILC Introduction

Product innovation and marketing Growth

Increase production efficiently and effectively Maturity

Cost efficiency, usually through mass production and lower input prices

Decline Find protected market niches, innovate, or exit

at appropriate time

Public and Not-for-profit Sectors Public

Ownership vested in government

Funding from government

Serve public interest

Not-for-profit Use excess funds for

organizational goals Usually in areas

such as education, health care, social services, arts and culture, and religion

Placed in special category for tax, regulatory, and legal purposes

Public and Not-for-profit Features

Multiple goals Different constraints than private sectors Market force absence Monopoly power Decreased flexibility Increased accountability Decreased Predictability

Types of Organizations

Stakeholder Analysis

Identify list of potential stakeholders Rank stakeholders by importance and

influence Find criteria each stakeholder will use to

judge performance See how organization is doing from

stakeholders’ perspective Identify how to satisfy each stakeholder Identify and record long term issues with

stakeholders, both individually and as a group

Scenario Analysis

Define purpose of analysis Decide on time horizon Identify key trends Identify key uncertainties Create scenarios and check for consistency Identify indicators that might signify which

scenario is unfolding Assess strategic implications of scenarios

Innovation Process The core aim of Boeing is to:

“ focus on the execution today and into the future in developing, producing and marketing commercial jet aircraft and providing related support services, principally to the commercial airline industry worldwide”

Invention: Creation of new product Innovation: the creation of new products and

processes through the development of new knowledge or from new combinations of existing knowledge.

The Jet Engine

Frank Witte first patented the engine in 1930.

In 1957, the first commercial jetliner, the De Havilland Comet, took flight.

Two years later, the Boeing 707 was introduced.

Boeing’s Value

Profitability of Innovation: Customers Value

Advance Aviation Performance Program: Provides 24/7 customer service support all

around the world Provide the best technical support to the

customers Delivers spare parts and equipment if urgently

needed

Four Factors to Competitive Advantage

Property Rights Tacitness and Complexity of the

technology Lead Time Complementary Resources

Property Rights

Intellectual Property: Patents Copyright, Trademarks Trade secrets

Patents: make the information public and only valid for 17 years

Tacitness and Complexity

Tacitness: In the absence of legal protection, the extent to which an innovation can be imitated by a competitor depends on how the innovation can be comprehended and replicated

Complexity: Boeing 787 Dreamliner

Boeing 787 Dreamliner

Able to carry passengers with non-stop point-to-point flights between secondary airports

Lead Time

Amount of time it will take followers to catch up Took 2 years to create the 707

Complementary Resources

Resources needed to finance, produce and market the innovation.

Boeing’s Resources

Airport Technology: planning and engineering

Boeing Capital Corporation: Airplane Financing

Commercial Aviation Services: Customer support, flight operations, fleets, maintenance, and material

management

Fuel Conservation Services: Increases fuel efficiency

Training Flight Services: Flight crew training activities

Strategies

Managing Risks: Market uncertainty 787 Dreamliner created to recover the

market shrink and compete with Airbus Began to lose market share after initial

success Delays in delivering products to customers

resulted in 120% increase in cost

Creating the Conditions for Innovation

People: Over $170,000 Facilities: 70 countries with 22,000

suppliers Information: Jet Engine Time: Founded in 1916

- Design organizational processes that capture, direct, and exploit individuals’ drive for success and commitment to their innovations.

4 Steps of Visualizing Strategy

Boeing 787

Before Boeing 787, the 767 was in line with competition.

Strategy canvas for Boeing 787 Included criteria such as:

Purchase Price Seating Capacity Maintenance Costs

Boeing 787 Four Actions

Eliminate

•Maintenance costs

Raise

•Passenger friendly environment•New aircraft (Boeing 787)

Reduce

•Purchase price

Create

•Fuel efficiency•Seating Capacity

Pioneer, Migrator, Settler Map

Overcoming Obstacles

Strategy should be the big picture and not solely numbers driven

Strategy canvases and the PMS map are good places to start

Details and numbers will fall into place.

First- Tier Noncustomers

“Soon to be” Noncustomers Minimal use of the market offering

Focus on similarities between first-tier customers to minimize chance of them leaving market

Second- Tier Noncustomers

“Refusing” Noncustomers Do not use or can’t afford the offering

Needs are met by something else, or are not met at all

Provide an untapped demand for the market

Third-Tier Noncustomers

Farthest away from an industry’s existing customers/cliental

“Unexplored” noncustomers Have not been targeted or thought of as

potential customers since their needs are thought to belong to another market.

Go for the Biggest Catchment Companies should focus on the tier that

represents the biggest catchment at the time.

Get the Strategic Sequence Right Buyer Utility

Is there a compelling reason for the mass of people to buy? Price

Is your offering price to attract the mass of the buyers so that they have a compelling ability to pay for your offering?

Cost Can you produce your offering at the target cost and still

earn a healthy profit margin? Adoption

What are the adoption hurdles among retailers or partners?

Ex: Netflix “Watching Instantly”

Buyer Utility

Is there a compelling reason for the mass of people to buy?

The Six Utility Levers

Price

Cost

Adoption

New ideas can be seen as threatening to the company.

Three main stakeholders may not accept new ideas, they are: Employees Partners General Public