Competitive Strategy MGMT655 Survey of Management Texas A

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Competitive StrategyMGMT-655 Survey of
ManagementTexas AM UniversitySummer 2001

• Presented by
• Gaurav Maini
• Hari Premanath
• Alfin Priambudi
• Leonardo Urbiola

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Agenda

• Porters Five Forces Model of Competition
• Sun Tzu The Art of Business
• Three Generic Strategies
• Global Competition
• Local Groceries Store Competition

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Porters Five Forces Model
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Potential Competitors

• Barriers to entry are related to
• Brand Loyalty
• Buyers preference for the product of incumbent
  companies
• Absolute Cost Advantages
• Superior production operations - experience,
  patent
• Control of particular inputs - labor, materials
• Access to cheaper funds
• Economic of Scale
• The cost advantages associated with large
  company size
• Governmental Regulation
• Example Long-distance telephone service

vs.
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The Threat of Substitute Products

• Substitute products
• Those of industry serve consumers needs in a
  similar way
• Example
• Need for drinks
• Home insulation for severe winter weather

vs.
vs.
vs.
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The Bargaining Power of Suppliers

• A supplier group is powerful if
• It is dominated by few companies.
• Its product is unique or at least differentiated.
• It is not obliged to contend with other products
  for sale to the industry.
• It poses a credible threat of integrating forward
  into the industrys business.
• The buying firms are not important customers of
  the suppliers.
• Example
• Intel - Microprocessor for PCs

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The Bargaining Power of Buyers

• A buyer group is powerful if
• They are few in numbers and they purchase in
  large quantities.
• The product they purchase from the industry are
  standard.
• The suppliers depends on the buyers for a large
  percentage of its orders.
• They can switch orders between supplies companies
  at a low cost.
• It is feasible to purchase the input from several
  companies at once.
• The buyer pose a credible threat of integrating
  backward to make the industrys product.
• Example
• Large automobile companies

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Rivalry Among Established Companies

• Rivalry is more intense when
• The industrys competitive structure
• - Competitors are numerous or are roughly equal
  in size and power.
• - Fixed costs are high or the product is
  perishable.
• - The more diverse the competitors (strategies,
  personalities, corporate priorities, resources,
  and countries of origin).
• Demand conditions
• - Demand for the product is growing slowly.
• - The customers incur low costs in switching
  from one brand to another.
• The heights of exit barriers in the industry
• Exit barriers are high that it costs more to get
  out of a business than to stay in and compete.

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Jockeying for Position

• Price Competition - Local/Nationwide grocery
  stores
• Advertising Slugfests - Pepsi Cola vs. Coca Cola
• Product Introduction - Dr. Peppers Strategy

vs.
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SUN TZU and The Art of Business

• Introduction
• Sun Tzu was a Chinese General who wrote the book,
  The Art of War, that became a classic work on
  strategy in China.

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Competitive Strategy

• From Sun Tzus, The Art Of War six important
  and pertinent strategic principles have been
  extracted that can be applied to Competitive
  Strategy

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Six Principles

• Win All Without Fighting
• Capturing Your Market Without Destroying It
• Avoid Strength, Attack Weakness
• Striking Where They Least Expect It
• Deception and Foreknowledge
• Maximizing the Power of Market Information

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Six Principles (cont.)

• Speed and Preparation
• Moving Swiftly To Overcome your Competitors
• Shape Your Opponent
• Employing Strategy To Master the Competition
• Character-based Leadership
• Providing Effective Leadership in Turbulent Times

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First Principle

• Win All Without Fighting
• Goal
• Relative Market Dominance which is essential for
  Long-Term Survival and Prosperity
• Dominance must be achieved by not destroying your
  industry but in a manner that leaves the industry
  intact
• Example Microsoft, GE

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Second Principle

• Avoid Strength, Attack Weakness
• Application of your strength against the
  competitor's weak point
• Avoid Competition Imitation
• Result
• Maximizes the return on Investment
• Conserves resources and avoid costly wars of
  attrition
• Example KMART and WALMART Competition

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Third principle

• Deception and Foreknowledge
• Understand the strength and weakness of your
  business
• Learn everything about your competitors culture,
  capabilities and mindset
• Build an intelligent infrastructure which will
  provide market information
• Practice deception where prudent to mask your
  intentions from your competitor
• Example IBM and Hewlett Packard

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Fourth Principle

• Speed and Preparation
• Move with speed and end the battle quickly before
  your competitor can react
• Collect and analyze information rapidly, make
  decisions speedily and then act with dispatch
• Plan first and be prepared in advance for
  competitive moves and short lived opportunities
• Example General Electric and Siemens
  Westinghouse

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Fifth Principle

• Shape Your Opponent
• To shape your competition utilize both direct and
  indirect approaches, make proper use of
  alliances, limit your competitors moves and take
  advantage of their executives emotions
• To ensure that you do not allow your company to
  be shaped
• Example Microsoft and Novell Corporation

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Sixth Principle

• Character-based Leadership
• Lead by example. Say whats important and then
  follow through
• Communicate your strategy effectively to your
  employees
• Support Strategy with prompt action, determining
  which attacks are succeeding and which are not.
• Ruthlessly reinforce success and starve failure
• Example Jack Welch of General Electric

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• Competitive Strategy
• - quotes
• The goal of competitive strategy for a business
  unit in an industry is to find a position in the
  market when the company can best defend itself
  against competitive forces or can influence them
  in its favor.
• - M.E. Porter
• Its not the BIG that eat the SMALL its the
  FAST that eat the SLOW
• - J. Jennings
• By their very nature, speed and flexibility go
  hand in hand. Its hard to imagine that a firm
  can operate with speed without a fair measure of
  flexibility
• - B. Judson

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• Generic Competitive Strategies
• Overall Cost Leadership ? Reduced costs induce
  entry barriers
• Differentiation ? Uniqueness of product or
  service
• Customer loyalty
• Be the first
• Focus ? Target particular buyer, group or
  geographic market
• Attack where competitors are weakest
• Be the only
• Stuck in the Middle ? Danger !!
• Medium-sized firms are less profitable.

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• Environmental Factors Affecting a Competitive
  Strategy
• Changes in Consumer and Competitor Behavior
• Technological Advances
• Changes in Government Policy
• Social Changes
• Demographic Environment Changes
• Global Economy Changes

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• Risks of Competitive Strategies
• Cost Leadership
• Technological change
• Imitation of competitors
• Wrong selection of cost-reduced feature
• Reduction in profit
• Differentiation
• Loss of customer loyalty due large cost savings
• Wrong selection of differentiated feature
• New party in the contest with a substitute
  product or service
• Focus
• More powerful broad-range firms can invest in RD
  and narrow differences in achieved by focus.

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• Pick-Up Tips from Your Competitor
• Measure Competitor Product Performance
• RD
• Take Competitors Product to Bits
• Purchase the product ? tear the product down ?
  reverse engineer the product ? built-up costs ?
  establish economies of scale
• Assess Sales and Services
• How long the telephone rings ? how long it takes
  to reach the right sales person ? quality of the
  reply ? product knowledge ? sales effectiveness
  is product in stock? If not, what alternatives
  are offered?

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Target Market
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Competitive Strategies
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Competitive Strategies (cont.)
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• Three Conclusive Questions to Assess your
  Competitive Strategy
• What is my Strategy as opposed to my existing
• competitors Strategies?
• Is there anything happening in the external world
  that could lead someone else to enter my business
  in a new and different way?
• Could any recent developments make my business
  obsolete?
• .The End folks!!!