CREATING STRATEGIC

ADVANTAGE
What is strategic advantage? It is the development of a coherent
and appropriate strategy that will build on the internal resources and
capabilities, capitalize on external opportunities and provide a distinct
competitive advantage for the organization. Competitive advantage is the
process of identifying a unique and enduring basis from which to compete.
Aaker (1998) put forward a useful framework for considering enduring
sustainable competitive advantage. According to him, an organization can
compete in many different ways:--e.g. through distribution strategies, pricing
strategies, positioning strategies as well as global strategies. To gain
competitive advantage, one must compete based on identified bases of
competition, the markets to compete in and having the ability to identify who
your competitors are.
 Bases of Competition:-These include:
. The firm’s assets and competencies needed to work effectively.
Where to Compete:-
This relates to the market in which the firm decides to compete.
Whom you compete against:-
You must deal with the right set of competitors. Remember strategic
groupings.
The way to compete
SCA
APPROACHES TO DEVELOPING STRATEGIC ADVANTAGE
A number of approaches to developing strategic advantage are outlined as
follows. These are not mutually exclusive and many organizations use a
combination of approaches to develop their own distinctive competitive
advantage.
PORTER’S GENERIC STRATEGIES:-
Overall cost leadership
Differentiation
Focus
Cost Focus
Differentiation Focus
Overall Cost Leadership:-
The source of competitive advantage lies in the ability of the firm to be the
lowest cost producer in the industry. Firms pursuing a cost leadership strategy
would typically concentrate on continually striving to reduce their base cost
and improving efficiencies. This could be done through activities such as
achieving economies of scale ,cutting costs, global sourcing and using
technology to develop more efficient means of production. Low-cost
producers do not necessarily have to offer the lowest price.Instead,they could
use the additional revenue to invest back into R&D so that new ways can be
found to reduce costs. Cost leadership relies on large scale production and
the presence of the experience curve. Cost leadership can be a difficult
strategy to sustain in the long-term due to the threats of competitors that
may have even lower cost structures.e.g Aldi in the low cost retail market,
Toyota Corolla.
WAYS TO ACHIEVE THE STRATEGY:
Size and economies of scale
Globalization of operations
Relocating to low cost parts of the world
Modification and simplification of designs-
Greater labour effectiveness
Greater operating effectiveness
Strategic alliances
New sources of supply
DIFFERENTIATION:-
Firms pursuing this strategy strive to offer products/services that are
seen to be superior to those offered by competitors. The uniqueness
of the products enables the firm to charge a premium price. For this
strategy to succeed customers must perceive that the higher price is
justified in terms of the augmented benefits that accrue. A
differentiated strategy is sustainable so long as customers perceive a
firm’s offering to be of greater value than those of
competitors.e.g.Toyota Camry,Avensis,Avalon among others.
WAYS TO ACHIEVE THE STRATEGY:-
The creation of strong brand identities
The consistent pursuit of those factors which customers perceive to
be important
High performance in one or more of a spectrum of activities
Emphasis on augmented aspects of the brand
FOCUS:-
While both cost leadership and differentiation target a broad market, a focus
strategy concentrates on a narrow segment of the market that is particularly
attractive. Is is also called the NICHE strategy and based on the assumption
that these niche markets can be served more effectively and /or efficiently
than by firms that are competing more broadly. Firms pursuing a focus
strategy can adopt either a cost focus or a differentiation focus strategy
WAYS TO ACHIEVE THE STRATEGY:-
Concentration upon one or a small number of segments
The creation of a strong specialized reputation.
COST FOCUS:-
Firms using a cost focus strategy are concentrating on a niche market
but also concentrating on reducing costs.e.g. easyJet has adopted a
cost focus strategy, Toyota Starlet,Yaris;Tercel,Vitz among others.
DIFFERENTIATION FOCUS:-
This is concerned with producing superior products for narrow
market segments, such as Rolex watches and Ferrari, Lexus for
Toyota and 4x4s e.g.Sequia,Landcruiser,Prado,among others.
STRATEGIC ADVANTAGE---DAVIDSON’S
APPROACH:-
Davidson has identified TEN ways of attaining a sustainable
competitive advantage:-
Superior product or service:-this strategy is based on having a
product or service that is in reality better than competitors e.g.
Mercedes –Benz autos.
Perceived advantage:-rather than the product actually being superior
to competing products, it is perceived as different,i.e.the competitive
advantage lies in the branding and perceived benefits the product
delivers.e.g LEXUS SUVS
Global skills:-this competitive advantage lies in the ability of firms to operate
on a global basis.e.g.Coca –Cola,McDonalds.
Low-cost producer:-this equates to Porter’s cost leadership strategy.
Superior competencies:-Swiss watch makers-using superior competencies.
Superior assets:-superior brands are seen to make a great contribution to the
value of a company.
Scale advantages:-achieving economies of scale can be a source of
competitive advantage.
Attitude advantages:-attitudes of managers and staff can be a source of
competitive advantage e.g. if they have vision and commitment,innovative.
Legal advantages:-if a firm can protect its position, for example through
patents.
Superior advantages:-superior relationships may exist between
suppliers,distributors,partners,customers,government and other opinion
leaders.e.g. strategic alliances Fidelity bank Prudential Insurance.
COMPETITIVE POSITIONS AND STRATEGY:-The position a firm
holds in the marketplace will influence the basis of their competitive
advantage. Kotler and Singh(1981) developed a framework that classified
firms according to their position in the industry and identifies FOUR distinct
categories:
Market leaders
Market challengers
Market followers
Market nichers
MARKET LEADERS:-They are usually dominant in terms of market share. They
are often the target of aggressive competitors that strive to take market share away
from them. A number of options are available to market leaders:-
Expand the total market:-by identifying new uses or users for the product or by
increasing usage. This will expand the total market and as a result the leader will
have a share of a larger market.
Expand the current market share:-through offensive strategies they attempt to take
share away from competitors. This may include developing new products, expanding
distribution channels,mergers,acquisitions or strategic alliances and expanding into
new geographic markets.
Defend market share:-using strong market positioning, development and refinement
of an effective competitive advantage, a proactive approach, continuous innovation,
strong distribution channels, good customer relationships and substantial
advertising .
There are a number of defence strategies a company can adopt:-
Position defence
Flank defence
Pre-emptive defence
Counter defence
Mobile defence
Contraction defence
Position Defence:-It is concerned with blocking out
competition and trying to improve current position. Market leaders
always look for ways to improve their business in an attempt to fend
off the threat of challengers. This can be done by continually
investing in your business in order to stay ahead of the competition.
Flank Defence:-This strategy involves defending the business’s
non-core activities.e.g.a bank can become critical about developing
social relationships with key accounts.
Pre-emptive Defence:-It involves attacking competitors
before they attack you.e.g.an electricity generating firm can enter
the gas market as a pre-emptive measure.
Counter Defence:-These are largely reactive strategies where a market
leader responds to an attack by a competitor. For example,WH Smith
launched an on-line bookshop in response to the threat of Internet sales
operators such as Amazon.com.
Mobile Defence:- It is concerned with continually looking for new
opportunities and moving into new areas of business in order to remain
flexible.e.g.an airline moving into car rental.
Contraction Defence:-Market leaders may find themselves spreading
too thinly across many sectors and markets and may decide to concentrate on
their core business and withdraw from other markets.e.g. an Insurance firm
withdrawing from life and concentrating on the motor market.
MARKET CHALLENGERS:-
They are the number two in the market and often aggressively
attack market leaders in an attempt to beat them. A number of
attacking offensive strategies open to market challengers. These are:-
Frontal (head-on) attack
Flank attack
Encirclement attack
Bypass attack
Guerrilla attack.
Three key conditions must be present for a successful frontal attack”-
The market challenger must have a sustainable competitive advantage
The challenger has to be able to negate the leader’s advantage, generally by
being able to deliver the leader’s key attributes at almost the same level.
There has to be an obstacle hindering the leader from retaliation.
FRONTAL ATTACK:-
Competitors are attacked head on. For market challengers to be able to
sustain this type of attack, which can be very costly, they must have sufficient
resources to sustain any short-term damage they may incur.e.g Virgin Atlantic
took on British Airways head to head in business class on transatlantic flights.
Flank Attack:-
This strategy relies on the identification of a competitor’s weak
sports and attacking them. Ford acquired Land Rover to help attack
their competitors’ weaknesses in the area of off-road vehicles.
Encirclement Attack:-This strategy is based on the idea of
‘surrounding the enemy’ and attacking on all sides. It can prove
costly due to the additional resources necessary to serve multiple
segments.e.g. the VW group offers a diverse product range that
serves a wide range of segments.—Skoda,Seat,Audi and VW.
Bypass Attack:-
This strategy relies on the ability of a firm to identify new opportunities in
new areas. This can be achieved by identifying new market segments, new
geographical markets and also technological leapfrogging.e.g.Old Mutual
Insurance moved into the Ghanaian market.
Guerilla Attack:-
The military similarities are apparent here because this type of attack relies
on random and sporadic attacks on competitors. Tactical marketing
programmes such as price promotions are used to achieve short-term gains
which will hopefully erode market share in the long –term. Supermarket
retailers often employ this attack strategy.
Market challengers must decide not only how to attack but also whom to attack----market leader, firms
of similar size and small and regional firms.However,this decision will depend to a large extent on the
resources that a firm has at its disposal
Specific Attack Strategies will include:-
Price discounting
Cheaper goods strategy
Prestige goods strategy
Product proliferation strategy
Product innovation strategy
Improved services strategy
Distribution innovation strategy
Manufacturing cost reduction strategy
Intensive advertising strategy
MARKET FOLLOWERS:-
Such competitors are likely to be positioned third,fourth.or fifth in
the market and often duplicate the strategies of the market leader.
There are cost advantages such as R&D costs being lower in being a
follower. The follower can use counterfeiting,cloning,imitation
through to adaptation. South Korea Samsung is renowned for their
innovative approach to consumer electronics and being rivalled by
China’s High Sense.
MARKET NICHERS:-
Market nichers do not compete against the market leader; they
identify a specialist segment and concentrate their efforts on serving
the needs of this niche market.e.g Rolex watches ,Morgan cars,Rolls
Royce. Market nichers can specialize by end use, vertical level
specialization, specific customer specialization, quality/price
specialist or channel specialist.
ANSOFF’S MATRIX:PRODUCT /MARKET
STRATEGY:-
Ansoff provides a useful framework for identifying alternative
strategic options based on products and markets. It does not show
how to gain competitive advantage, but it helps firms to consider the
different options available to them in terms of growth strategies. The
matrix is based around new and existing markets and new and
existing products.
The further a firm moves away from existing customers and existing
products, the higher the level of risk involved. Diversification as an
option is therefore regarded as the most risky while market
penetration is the least.
TYPES OF GROWTH OPPORTUNITIES”-
1. INTENSIVE GROWTH:-
a) Market Penetration:-the firm considers whether it could
gain more market share with current products in their current
markets.
This is done by encouraging customers to use a product more
frequently
Convert non-users into users by offering incentives
Attract competitor’s customers e.g. some on-line banks have enticed
customers away from the competition by using ATMs,and offering
incentives such as reducing their credit card balance.
PRODUCT DEVELOPMENT:-
The company can produce different versions of quality of products
Develop additional models and sizes
Modify by changes in colour,motion,sound,odour,form or shape
Substitute other ingredients
MARKET DEVELOPMENT:-
Selling current products in new markets
Opening new and additional geographic markets
Regional expansion
National expansion
International expansion
Attracting other market segments
Developing product versions to appeal to other segments
Entering other channels of distribution
Advertising in other media
DIVERSIFICATION:-
There are different types of diversification
Concentric:-e.g. Gillette expanded from its core business of men’s
razors by redefining its mission first as men’s grooming products. This
took the firm into (a) shaving creams (b) deodorants (c) aftershaves
Later its mission was expanded further to personal care which took
the firm successfully into dental products, small appliances and
stationary
Horizontal
Conglomerate
INTEGRATIVE GROWTH:-
1.Horizontal Integration:- This is where a firm’s long-term
strategy is based on growth through the acquisition of one or more
similar firms operating at the same stage of the production-
marketing chain.Such acquisition can eliminate competitors and
provide the acquiring firm with access to new markets.e.g White-
Westinghouse acquiring Kelvinator Appliances,SG acquiring SSB
(Ghana) to make it stronger to compete in the banking industry.
Vertical Integration:-A firm can decide to acquire its suppliers
or its customers for the purposes of growth. This strategy is called
vertical integration. There are TWO forms of this type of integration.
1.Foward Integration:-This is where a firm takes over
ownership and control of its customers e.g. Pepsi Co. began
acquiring its bottlers in the 1990s in order to gain greater control
over the sales effort. Or if a shirt manufacturer should merge with a
clothing store, it can help it have grater control over sales.
2.Backward Integration:-If the shirt manufacturer should
acquire a textile producer by purchasing its common shares, buying
its assets or exchanging ownership interests, this will constitute
backward vertical integration.
Xxx fig for forward & backward intergration
 Conglomerate Diversification:-
This is where a large firm, plans to acquire a business because it represents the
most promising investment opportunity available. The sole concern of acquiring
the firm is the profit pattern of the venture.e.g Virgin Atlantic acquiring a bank
or a clothing chain.
.Other Grand strategies include:-
.Turnaround
.Divestiture
.Liquidation
.Strategic Alliances
.Bankruptcy