Technology and Traditional Sources of

Competitive Advantage

Tonje Hovland Berntsen

Classical Source of Competitive Advantage

The classical sources of competitive advantage:

Low-cost strategy

Differentiation strategy

Generic Competitive Strategy Matrix

Cost-Based StrategiesDiscussion Question:

How do cost-based strategies (cost advantages) provide a powerful competitive advantage?

Pursue options unavailabe to other firms

Lower cost base ability to win on price and gain market share and volume

Win on profit margin and reinvest for further competitive advantage

Technology and Cost Reduction

Technology and Cost ReductionPorter’s 10 cost drivers:

1. Economies of scale2. Learning3. Capacity utilization4. Linkages among activities5. Interrelationships among business units6. Degree of vertical integration7. Timing of market entry8. Firm’s policy of cost or differentiation9. Geographic location10. Institutional factors

Technology and Cost Reduction

Wal-Mart

One of the most efficient retail operators in the world

Grown at a double-digit annual pace

2 million employees

Technology or scale and supply chain capabilities?

http://www.youtube.com/watch?v=b5K1yrICMII

Total Cost of Ownership (TCO)

TCO:A tool to assess both direct and indirect costs and benefits

Integration costs

Maintainance and support costs Learning

Ambiguities in process change New technology

Change

Total Cost of Ownership (TCO)

Cost-Based Strategies - Challenges

Organizational change Cost savings

Easy to become over-reliant on cost-based advantage

Innovation is the determinator

Differentiation-Based StrategiesDiscussion Question:

What makes a differentiation strategy different from a cost-based strategy?

Highly ambiguous measure

Multiple valuable and unique attributes

Multiple firms can succeed

Customer based

Technology and DifferentiationDrivers of success in differentiation:

1. In-depth understanding of the target customer base

Relevance Tradeoffs

2. The ability to generate uniqueness

Technology and DifferentiationThree approaches to creating a potentially unique

application:

1. As an integral part of a product or service

2. Indirectly in the production of the product or service

3. Through the delivery of the product or service

Differentiation - Challenges

A misstep can result in added cost or negative value

Changing customer preferences and substitute offerings

”Differentiate its differentiation” Image/Reputation Time in business Installed base Visibility Market share

Narrow or Broad Customer Target?Important issues determining focus:

1. The extent to which individual segments are homogenous and unique in their needs

2. The ability of the firm to develop unique advantages aimed at a segment

Pursuing Both Strategies

Questions or comments?

Thank you!!

References

http://www.atwebo.com/porter%27s_comptetitive_strategy.htm

http://www.netmba.com/strategy/value-chain/ http://searchdatacenter.techtarget.com/sDefin

ition/0,,sid80_gci342316,00.html http://www.tascomi.com/images/elements/lco

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