~ THE FIVE GENERIC COMPETITIVE STRATEGIES ~

WHICH ONE TO EMPLOY ?

NUR FILZAH BINTI SULAIMAN

TMA 2

1110820

MGB4013 STRATEGIC MANAGEMENT

Why strategies differ ?

The key factors that distinguish one strategy from another :

1. Is the firm's market target broad or narrow ? or
2. Is the competitive advantage pursued linked to low costs or product differentiation ?

The Five (5) Generic Competitive Strategies.

• Low-Cost Provider : Striving to achieve lower overall costs than rivals on products that attract a broad spectrum of buyers. ( give a lower price to buyers )
• Broad Differentiation : Differentiating the firm's product offering from rivals' with attributes that appeal to a broad spectrum of buyers. ( the unit factors that different from other companies )
• Focused-Low Cost : Concentrating on a narrow price-sensitive buyer segment and on cost to offer a lower-priced product. ( focus more on target market )
• Focused Differentiation : Concentrating on a narrow buyer segment by meeting specific tastes and requirements of niche members.
• Best-Cost Provider : Giving customers more value for the money by offering upscale product attributes at a lower cost than rivals.

Figure 5.1  The Five Generic Competitive Strategies

Major avenues for achieving a cost advantage.

Low-cost advantage : A firm's cumulative costs across its overall value chain must be lower than competitors' cumulative costs.
How to gain a low-cost advantage :
- Perform value chain activities more cost-effectively than rivals.
- Revamp the firm's overall value chain to eliminate or bypass cost-producing activities.

Cost driver is a factor with a strong influence of a firm's costs. Its can be asset or activity-based.

Figure 5.2  Cost Drivers : The Keys to Driving Down Company Costs

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.
• A uniqueness driver is a factor that can have a strong differentiating effect.

Figure 5.3  Uniqueness Drivers : The Keys to Creating a Differentiation Advantage.

Revamping the value chain system to increase differentiation.

• Approaches to enhancing differentiation through changes in the value chain system.

1. Coordinating with channel allies to enhance customer perceptions of value.
2. Coordinating with suppliers to better address customer needs.

When the differentiation strategy work best ?

Pitfalls to avoid in pursuing a differentiation strategy :

• Relying on product attributes easily copied by rivals.
• Introducing product attributes that do not evoke an enthusiastic buyer response.
• Eroding profitability by overspending on efforts to differentiate the firm's product offering.
• Offering only trivial improvements in quality, service or performance features deal than the product of rivals.
• Adding frills and features such that the product exceeds the needs and use patterns of most buyers.
• Charging too high a price premium.

Focused ( or market niche ) Strategies.

Focused strategy approaches :
- Focused low-cost strategy

- Focused market niche strategy

Core Concept : Best-cost provider strategies are hybrid of low-cost provider and differentiation strategies that aim at providing desired quality, features, performance, service attributes while beating rivals on price.

~ Evaluating A Company's Resources, Capabilities, and Competitiveness ~

NUR FILZAH BINTI SULAIMAN

TMA 2

1110820

MGB4013 STRATEGIC MANAGEMENT

Firstly, we discussed about MacDonald. After that, we also discussed about the specific indicators of strategic success. 

• Growth in firm's sales and market share.
• Acquisition and retention of customers.
• Strengthening image and reputation with customers.
• Increasing profit margins, net profits and return on investment.
• Growing financial strength and credit rating.
• Leadership in factors relevant to market or industry success.
• Continuing improvement in key measures of operating performance.

The Key Financial Ratio.

The core concept are :

A resource is a competitive asset that is owned or controlled by a firm.

A capability or competence is the capacity of a firm to perform and internal activity competently through deployment of a firm's resources.

A firm's resources and capabilities represent its competitive assets and are big determinants of its competitiveness and ability to succeed in the marketplace.

Identifying Capabilities : An Organizational Capability

• Is the intangible but observable capacity of a firm to perform a critical activity proficiently using a related combination ( cross-functional bundle ) of its resources.
• Is knowledge-based, residing in people and in a firm's intellectual capital or in its organizational processes and functional systems, which embody tacit knowledge.

- Competitive advantage means that, there is a something that people can't imitate.

- Tacit knowledge means that, people indirectly learned something.

A resource bundle is a linked and closely integrated set of competitive assets centered around one or more cross-functional capabilities.

The VRIN tests for sustainable is Valuable, Rare, Inimitable, and Non-substitutable.

Casual ambiguity means that very hard to figure out how a complex resource contributes to competitive advantage.

Dynamic capability is the ongoing capacity of a firm to modify its existing resources and capabilities or create new one.

SWOT Analysis is a powerful tool for sizing up a firm's :

• Internal strength 
• Internal weaknesses
• Market opportunities
• External threats

SWOT Analysis involves :

• Drawing conclusions from the SWOT listing about the firm's overall situations.
• Translating these conclusions into strategic actions by the firm that :

1. Match its strategy to its internal strengths and to market opportunities.
2. Correct important weaknesses and defend it against external threats.

Figure 4.2 The steps involved in SWOT Analysis : Identify the four components of SWOT, draw conclusions, translate implications into strategic actions.

We move to the concept of a company value chain.

1. Identifies the primary internal activities that create and deliver customer value and the requisite related support activities.
2. Permits a deep look at the firm's cost structure and ability to offer low prices.
3. Reveals the emphasis that a firm places on activities that enhance differentiation and support higher prices.

A company's value chain identifies the primary activities and related support activities that create customer value.

Figure 4.3  A Representative Company Value Chain

Figure 4.4  A Representative Value Chain System

Benchmarking is a potent tool for improving a company's own internal activities that is based on learning how other companies perform them and borrowing their '' best practices ''

As a conclusion, I think that all I have learned from this topic. Basically its not hard to understand if I keep focus on the lecture and always do a revision. Thank you.

~ EVALUATING A COMPANY'S EXTERNAL ENVIRONMENTAL ~

Now, we continue to the Competitive Pressures Associated With The Threat Of New Entrants. The entry threat considerations are expected defensive reactions of incumbent firms, strength of barriers to entry, attractiveness of a particular market's growth in demand and profit potential, capabilities and resources of potential entrants, and entry of existing competitors into market segments in which they have no current presence.

Basically, company also have their problem in Market Entry Barriers Facing New Entrants. 

• Incumbent cost advantages related to learning and experience, proprietary patents and technology, favorable locations, and lower fixed costs.
• Strong brand preferences and customer loyalty.
• Strong ''network effects'' in customer demand.
• High capital requirements.
• Building a network of distributors or dealers and securing adequate space on retailer's shelves.
• Restrictive government policies.

Figure 3.5 Factors Affecting The Threat of Entry

Competitive Pressures From The Sellers of Substitute Products.

1. Substitute Product Considerations :

• Readily available and attractively priced ?
• Comparable or better in terms of quality, performance, and other relevant attributes ?
• Offer lower switching costs to buyers ? ( variable costs between the two goods. )

2. Indicators of Substitutes' Competitive Strength :

• Increasing rate of growth in sales of substitutes.
• Substitute producers adding new output capacity.
• Increasing profitability of substitute producers.

Figure 3.6 Factors Affecting Competition from Substitute Products

Competitive Pressures Stemming from Supplier Bargaining Power. It's depends on :

1. Strength of demand for and availability of suppliers' products.
2. Whether the suppliers provide a differentiated input that enhances the performance of the industry's product.
3. Industry member's costs for switching among suppliers.
4. Size of suppliers relative to size of industry members.
5. Fraction of the cost of the supplier's product relative to the total cost of the industry's product.
6. Number of suppliers relative to the number of industry members.
7. Possibility of backward integration into suppliers' industry.
8. Availability of good substitutes for suppliers' products.
9. Whether industry members are major customers of suppliers.

Figure 3.7 Factors Affecting the Bargaining Power of Suppliers.

Competitive Pressures Stemming from Buyer Bargaining Power and Price Sensitivity.

• Strength of buyers' demand for sellers' products.
• Degree to which industry goods are differentiated.
• Buyers' costs for switching to competing sellers or substitutes.
• Number and size of buyers relative to the number of sellers.
• Buyers' knowledge of products', costs and pricing.
• Threat of buyers' integration into sellers' industry.
• Buyers' discretion in delaying purchases.
• Buyers' price sensitivity due to low profits, size of purchase, and consequences of purchase.

Figure 3.8 Factors Affecting the Bargaining Power of Buyers.

Factors that driving industry change, and the impact will they have.

• Driving forces analysis has three steps :

1. We must identify what the driving forces are.
2. After that, assessing whether the driving forces are, on the whole, acting to make the industry more or less attractive.
3. Lastly, determine what strategy changes are needed to prepare for the impact of the driving forces. 

The industry rivals can be position in the market with a Strategic Group. That consists of those industry members with similar competitive approaches and positions in the market such as :

• Having comparable product-line breadth.
• Emphasizing the same distribution channels.
• Depending on identical technological approaches.
• Offering the same product attributes to buyers.
• Offering similar services and technical assistance.

The Core Concepts are a Strategic Group is a cluster of industry rivals that have similar competitive approaches and market positions. Besides that, the Strategic Group Mapping is a technique for displaying the different market or competitive positions that rival firms occupy in the industry. The strategic group maps reveal which companies are close competitors and which are distant competitors.

Comparative Market Positions of Producers in the U.S Beer Industry : A Strategic Group Map Example.

Footnote : Circles are drawn roughly proportional to the sizes of the firms, based on revenues.

Some strategic groups are more favorable positioned than others because they confront weaker competitive forces and or because they are more favorable impacted by industry driving forces.

The next strategic moves that rivals likely to make is Competitive Intelligence, which is collect information about rivals that is useful in anticipating their next strategic moves and Signals of the likelihood of strategic moves such as rivals under pressure to improve financial performance, rivals seeking to increase market standing, public statements of rivals' intentions, and profiles developed by competitive intelligence units.

Figure 3.9  A Framework for Competitor Analysis

The Industry's Key Success Factors ( KSFs) are the strategy elements, product and services attributes, operational approaches, resources, and competitive capabilities that are necessary for competitive success by any and all firms in an industry. Second, the vary from industry to industry, and over time within the same industry, and in importance as drivers of change and competitive conditions change.

~EVALUATING A COMPANY'S EXTERNAL ENVIRONMENT~

NUR FILZAH BT SULAIMAN

TMA 2 

1110820

MGB4013 STRATEGIC MANAGEMENT

Dr. Syadiyah was talking about communism before we start our lecture. what is a communism? It is actually about an ideological thinking, that actually they want to liberate Malaysia from be accused of being a colonial.  After that, we learned chapter 3, which is about Strategy External Environment.

What we must do ?

Firstly, we have to thinking strategically about a firm's external environment. 

Second, form a strategic vision of where the firm needs to head.

Third, identify promising strategic options for the firm.

Lastly, select the best strategy and business model for the firm.

CORE CONCEPT:

- Macro-environment -) encompasses the broad environmental context in which a company's industry is situated that includes strategically relevant components over which the firm has no direct control. 

- Pestel analysis -) actually pestel analysis focuses on SIX (6) principal components of strategic significance in the macro-environment. ( What are the strategically relevant factors in the macro-environment ? )

• political : tax policy, fiscal policy, tariffs, political climate, and the strength of institutions such as federal banking system. 
• economic : interest rates, exchange rates, unemployment rates, also include conditions in the markets for stocks and bonds. 
• social : societal values, attitudes, cultural factors and lifestyle, demographic factors such as population size, growth rate and age distribution.
• technological : such as genetic engineering and nanotechnology, patent and copyright laws, and the government control over the internet.
• environmental : such as weather, climate, climate change, and associated factors like water shortage. 
• legal : consumer laws, labor laws, antitrust laws, and occupational health and safety regulation.

The Five (5) competitive forces ( How strong are the industry's competitive forces ? ) :

1. Rival sellers.
2. New entrants.
3. Substitute products.
4. Supplier bargaining power.
5. Customer bargaining power.

How to use the Five-Forces ?

Step 1 : Identify the different parties involved, and the specific factors that bring about competitive pressures.

Step 2 : Evaluate how strong the pressures stemming from each of the five forces.

Step 3 : Determine whether the collective strength of all five competitive forces is conducive to earning attractive profits in the industry.

Step 4 : Lastly, we do a conclusion. 

Competitive Pressures that Increase Rivalry among Competing Sellers.

Figure 3.4 Factors Affecting the Strength of Rivalry