This course consists of five lessons:
• Lesson 1: Strategic Planning Recap
• Lesson 2: What Is Competitive Advantage?
• Lesson 3: Business-Level Strategies
• Lesson 4: Functional-Level Strategies
• Lesson 5: Summary and Final Assessment
Course Learning Objectives
You will be able to:
• Demonstrate an understanding of competitive advantage.
• Identify the cost leadership and product/service differentiation strategies of achieving competitive advantage.
• Explain the importance of core and differentiated competencies and how they can lead to a sustained competitive advantage.
• Describe key business-level strategies and how they improve a company’s competitive position.
• Recognize how operational excellence, quality optimization, technology, and innovation can be used to develop an effective functional-level strategy.
What is Competitive Advantage?- CSCA
Welcome to Lesson 2: What Is Competitive Advantage? In this lesson, you will learn how to:
• Define competitive advantage.
• Recognize two main approaches a company can take to achieve competitive advantage: low cost and differentiation.
• Describe different approaches to achieving competitive advantage.
• Identify ways to assess activities leading to competitive advantage using value chain analysis.
What Is Competitive Advantage?- CSCA
What is a competitive advantage? IMA’s Statement on Management Accounting Value Chain Analysis for Assessing Competitive Advantage states, “A firm’s overall competitive advantage derives from the difference between the value it offers to customers and its cost of creating that customer value.”
An organization’s competitive advantage is a form of a competitive edge when it can provide the same value as its competitors but at lower prices or charge higher prices by delivering more significant benefits. Achieving this kind of momentum in business will require firms to identify opportunities and match their core competencies with those from other companies while staying ahead on innovation efforts, so they don’t get left behind.
Highly skilled and trained personnel, superior technology, natural resources (such as high-grade ores or inexpensive power), optimal geographic location are all advantages an organization could have over its competition.
Cost Leadership vs. Differentiation- CSCA
The question of how to decide which strategy a company will pursue is an important one. Two fundamental strategies must be made choices between cost leadership and differentiation, each with its advantages and disadvantages depending on the industry in question. A business can only achieve a competitive advantage if they find themselves at the end of this spectrum – I e through increased costs or innovative ideas/services for customers. Then again, does it mean sacrificing something else like market share because there needs not always be a balance struck across everything.
How can a company decide which position to pursue?
Generic Strategies- CSCA
Cost Leadership- CSCA
A cost leadership strategy aims to have the lowest price for goods and services. This allows you to get ahead in the competition by selling your products below competitors. This will lead them away from buying yours instead opting for someone else’s product because it may be cheaper than what they would’ve paid had there been no discount offered or even just given up entirely on purchasing anything at all if prices were too high overall due solely off one company having an advantage over another when providing these necessities.
Differentiation is the key to success. It occurs when a company offers customers something they can’t find anywhere else, like high-quality products or unique features that make life easier for them in their everyday lives. To Differentiate your business successfully, you need robust marketing strategies, so people will want what only YOU have on offer.
The difference between a company’s products can be their competitive advantage. A narrow scope means focusing on one specific area, like low cost or differentiation. While broadening the industry will give them more opportunities for growth in different markets with less competition. It reduces costs when creating new goods and services across areas where nobody has been before- giving you total market share control.
Stuck in the Middle- CSCA
The “stuck in the middle” phenomenon is a well-known and often studied aspect of industry dynamics. The idea was first introduced by French industrial designer Denise Scott Brown who, concerned about how companies could not be successful unless they did something new or different from their competitors, created what’s now known as “the design dodge.” This term describes an organizational strategy where firms fail to gain market advantage through low-cost production because it also means higher prices for consumers, which would make them less competitive against other industries making similar products without any innovations added onto them – like grocery stores chains doing only good quality food at affordable prices rather than discounts on everything you buy all together plus high-profit margins due too
For example, Cannondale Bicycles was one of the few bicycle makers to successfully enter a new market with no advantages. By contrast, other companies failed because their lack of differentiation strategy led them astray from an opportunity for success with this emerging trend towards larger diameter bikes on mountain trails
These U.S.-based firms include Schwinn Fitness Exercise bicycles, Huffy Women’s Roadster Bike, etc., but none could compete against Cannondingle’s unique large frame design, which became known as “the Gold Standard” among riders all over America
Home Depot, Walmart, and Redbox can offer highly standardized products using technology that increases efficiency across the value chain.
The Redbox company, which specializes in the rental of DVDs for only $1 per night (or less), is a shining example of how to implement cost leadership into your business model.
These three companies have found success by differentiating themselves from the competition and distinguishing their products. This can be done in two ways: through innovation or quality service for customers’ needs, which Netflix does with its streaming services. At the same time, Ralph Lauren strives towards authenticity by creating tailored clothing just like you would want them to look on your body type. Lastly, Cinnabon makes delicious treats that will remind every taste bud why they love cinnamon rolls so much.
Netflix’s strategy is to use technology and differentiate itself from its competition by selling online streaming or DVD rentals without a return date. Ralph Lauren uses high-end fashion strategies to fill customers’ minds with classic American style. At the same time, Cinnabon sells only indulgent pastries that taste like they were made at home – all through focusing on just one thing: flavor.
Expanded Version- CSCA
Though the Generic Strategies model was first published in 1982, many expanded versions have changed this “stuck in between” scenario into more positive outcomes. For example, one version has changed it from being an average company with reasonable prices to having differentiating features and pricing power while remaining competitively priced against its peers (Porter’s article).
In this model:
• A broad low-cost provider strategy strives to produce lower overall costs than the competition on similar products that attract a broad spectrum of buyers, usually by underpricing rivals.
• A broad differentiation strategy strives to differentiate product offerings from rivals through unique attributes that appeal to a large cross-section of buyers.
• A focused low-cost strategy concentrates on a narrow buyer segment outcompeting rivals on costs.
• A focused differentiation strategy concentrates on a narrow buyer segment outperforming rivals on customized attributes.
This strategy is a best-value provider that offers customers low costs and unique benefits.
Creating a Differentiated Strategy- CSCA
The article “Find Your Differentiator: 21 Ways to Gain a Competitive Advantage for Your Firm” by Lee Frederiksen lists the following ways an organization can differentiate itself from its competitors.
With so many different methods at your disposal, there is no limit on what you could accomplish with this information.
Value Chain: Low-Cost Strategies
Porter’s Value Chain model is one of many ways to represent a firm’s value chain. Firms can leverage their value chain process to achieve a competitive advantage.
A low-cost strategy in each of the primary and support activities of the value chain.
Primary activities involve the following low-cost strategies:
Inbound Logistics, Operations, and Outbound logistics. These three strategies help reduce manufacturing costs by minimizing the scale of production and schedule purchases for delivery, which reduces both cost per item or service call with minimal maintenance requirements involved in each process; all this is done efficiently using local suppliers whenever possible.
The low-cost strategies for support activities include the following and a few others. First, there’s procurement systemically done at discount rates or below market prices to get what you need to optimize technology to be used efficiently and reduce overhead costs. As much as possible by employing human resource management practices like training programs which help improve performance levels within your company without increasing turnover rate too high because this affects productivity.
Cascading low-cost strategy from the top down makes it possible to apply company-wide goals effectively. This can result in a competitive advantage for your business because you can take full advantage over other companies who may have missed out on some opportunities along their journey up until now due to lack of concentration or visionless management styles.
The Value Chain: Low-Cost Example (IKEA)- CSCA
Many of IKEA’s strategies are in a low-cost context:
IKEA’s inbound logistics team handles inventory management, reducing cost by efficiently designing packages sizes and product configurations to maximize container usage. The outbound team ensures customers deliver their products quickly with no hassle from employees. They select what furniture goes into an order themselves before having it taken away by someone else – this means lower prices because there is less workforce needed during transport. Finally, IKEAs marketing strategy focuses on families who earn less than $30k per year or students that are still studying full time at 18 years old- both groups can be expected to have tighter budgets, so going after
Value Chain: Differentiation- CSCA
Competitive advantage, which relies on differentiation, demands specific interventions in the value chain.
There are many ways to differentiate your company. One way is by focusing on quality improvement and minimizing inbound logistics damage. Another could be offering superior products or services through marketing campaigns that connect research with development and deliver premium pricing for customers who deserve it most (such service). And one more strategy would involve having the best staff imaginable- trained experts ready at all times so they can give their absolute utmost consideration towards each client’s request without fail.
These are some of the many ways an organization can support its customers. They might provide them with firm infrastructure, human resource management policies to encourage creativity and innovation, and technology development research & design oriented towards unique products or features, allowing for you to procure goods explicitly tailored by you.
The Value Chain: Differentiation Example (Apple)- CSCA
Apple’s value chain differentiation, starting with primary activities:
Apple has sophisticated supply chain management. Operations are outsourced and manufactured by partners around the world. At the same time, their hardware products receive special attention to detail for them to be top-notch across all areas such as design, functionality, efficiency with enhanced logistics capabilities that set it apart from other companies’ merchandise lines through streamlined packaging strategies. These give customers what they want when they need it most—a simple yet elegant product selection experience at any given time. Thanks for including online sales channels where the emphasis is placed on having helpful employees rather than “salespeople” trying desperately to hit a quota.
Apple has a long history of providing world-class customer service. They maintain experience centers in major cities around the globe where their products and services can be seen up close, tested by experts who know what they’re doing best.
Moving on to support activities:
The infrastructure at Apple is designed to support high-quality customers and their preferences. Human resource management policies aim to recruit the most qualified programmers, designers, or other professionals to provide innovative products that satisfy end users’ needs with excellence every time. Technology development efforts focus on exceptional design projects while also investing heavily into research & development so as not limit future opportunities by staying within any particular siloing system but rather taking full advantage of what’s out there now when it comes down solely containing
Core Competencies Revisited- CSCA
Choosing the best strategy to achieve a competitive advantage, an organization must first identify its core and differentiated competencies. The following tests can identify a core competency:
• Can it be leveraged? Does it provide potential access to a wide variety of markets?
• Does it enhance customer value? Does it significantly contribute to the perceived customer benefits of the end product?
• Can it be imitated? Does it reduce the threat of imitation by competitors?
Identifying and nurturing your company’s unique edge is the crucial difference between success and failure.
Differentiated (Distinctive) Competencies
Differentiated competencies are competitively valuable activities that help companies differentiate themselves from rivals.
Differentiated Competencies: Examples- CSCA
Companies must deliver high-quality products with unique features that set them apart to stand out from the competition. They also have an obligation for rapid product innovation and advanced technological advancements not to be left behind by their consumers’ needs or expectations.
Absolute Cost Advantage- CSCA
Walmart has maintained an advantage over its competitors through strong logistics capabilities. This is partly due to the company’s emphasis on efficiency and cost, which makes them better equipped for short-term requirements and long-term goals than other retailers who may not put up such obstacles between themselves and success.
Differentiated Competencies: Barriers to Imitation- CSCA
it is essential to protect your company’s advantages To stay competitive. There are many ways businesses can do this and gain a strategic advantage over their competitors in the market. One way is through qualified differentiators or qualities that make them unique from others who might try imitating these products/services offered by another business first.
Barriers can come in many different forms. For example, resource-based barriers such as natural monopolies and patents protect specific industries from competition. In contrast, capability-based ones include high-volume value innovation, allowing companies like Apple. With cheaper costs due to their large customer base or network externalities. One person may buy more than they need because of all his connections through social media sites like Facebook, allowing them to access products at lower prices.
Lesson 2: Concluding Thoughts- CSCA
Firms should pursue a competitive advantage that differentiates them from other companies. According to Michael Porter’s Generic Strategies model, the two main approaches for establishing this type of uniqueness are cost savings and providing unique products or services to create an edge over competitors. Assessing what strategy will work best depending on the industry you’re looking at it from. Whether it’s drugs against Europe, where they have government regulations protecting their market position while also being sensitive about pricing, there could be situations when trying cheaper and better than anyone else (think toilet paper.)
Strategic planning is an integral part of achieving sustained competitive advantage. Strategic plans should be created with the long-term in mind. They will help your company to remain innovative, creative, efficient while maintaining its position over time so it can continue growing without fear of competitors catching up or surpassing you.
Business-Level Strategies- CSCA
You will learn to:
• Define and understand the importance of business-level strategies.
• Identify how they are directly linked to mission and vision.
• Define the two main categories: competitive and cooperative.
Strategic Aim of Business
Strategy is a vital component for achieving success in any industry. Business-level strategies focus on improving your company’s competitive position, which can be translated into increased revenue or lower costs than competitors who have not implemented such an approach firsthand. It depends on the short term (one year) versus the long terms(five years).
In the book Strategic Management: An Integrated Approach, authors Charles W. L. Hill and Gareth R. Jones define business-level strategies as those “which [encompass] the business’s overall competitive theme, the way it positions itself in the marketplace to gain a competitive advantage, and the different positioning strategies that can be used in different industry settings. for example, cost leadership, differentiation, focusing on a particular niche or industry segment, or some combination of these.”
When a firm’s resources and capabilities are put into perspective, they can help establish their differentiation through business strategy. Differentiation includes the various competitive or cooperative strategies that feed into your operations model for success in this industry/market space.”
Hierarchy of Strategies- CSCA
The hierarchy of strategies in an organization typically flows from the top-down, with corporate strategy defining overall direction and management for all businesses. Next comes business-level planning that looks at competitive or cooperative activities depending on size, followed by functional-level decisions about maximizing resource productivity based on what each function needs specifically to do well (for example, production).
Business-Level Strategy Approaches- CSCA
Business strategies may fit within two overall categories: competitive and cooperative strategies.
A competitive strategy is an act of differentiation by one’s business. This means they compete with other companies to stand out and be better than anyone else. At the same time, cooperative strategies are used when there isn’t any real need or desire for competition because cooperation seems more logical between two parties who want similar goals (for example, competitors).
A firm may use both approaches simultaneously through ” competitive+cooperative” engagements. An excellent recent example would be Intel’s partnership agreement encountered last year alongside Microsoft – this move helped them avoid AMD’s threat
Coopetition is when two companies work together to improve their efficiency while competing. For example, the partnership of Nolan Group and Sony was successful because they both had expertise that could help produce augmented reality motorcycle helmets and compete against each other elsewhere, such as car manufacturing or engineering software systems. This type of co-opships is becoming more common due to its benefits like cost-sharing.
Competitive Advantage Frameworks- CSCA
Various approaches are used to determine strategies for competing in the marketplace.
Some key competitive strategies include:
• Market segmentation
• Pricing as a strategic lever
• New product and new market development
• Blue Ocean Strategy
Some key cooperative strategies include:
• Value chain partnerships
• Strategic alliance
• Joint venture
Competitive Strategies: Market Segmentation- CSCA
Market segmentation can be a business strategy for dividing the market into groups or segments. These consumers might share similar interests and needs, making them worth targeting your products specifically. Market Segmentation methods include geographic locations as well, so you’ll have no trouble finding out where to focus marketing efforts when using this approach in particular towards customers who live near an area where it would make sense based on what they need from us most at any given time
Geographic Segmentation- CSCA
When businesses divide their markets based on geographic areas, they engage in geographic segmentation. This can be done with variables such as climate and population density or state boundaries for guidance – but it’s not limited to these three factors alone.
Demographic Segmentation- CSCA
Demographic segmentation is a way to target the right audience for your business. By identifying different groups in society with specific characteristics, you can provide goods or services explicitly tailored towards them and make more informed decisions on what kind of marketing campaign would benefit most from these potential customers.
A good example might be breaking down gender roles. Men may buy stereotypically “masculine” gadgets because they want strength-related items, such as tools or sports equipment. Women often purchase cooking utensils that are seen as feminine even if this isn’t their primary concern when buying other things like clothes (stage 1: transition).
Psychographic Segmentation- CSCA
Psychographic Segmentation aims to identify groups or categories according to their personality traits. This can be done by analyzing consumers’ preferences for leisure activities, what values motivate them most deeply in life, and so on
This process makes it possible to segment an entire market into smaller segments and tailor marketing campaigns specifically toward certain types, thus increasing targeting accuracy, which helps increase conversion rates.
Behavioral Segmentation- CSCA
Behavioral segmentation is a type of market separation based on differences in consumption behavior. Behavioral Segmentations include variables like knowledge, preconceptions, and attitudes toward products and how they use them or respond when surveyed about their preferences for these items. Behavioral segments can be broken down into several subgroups such as retail customers versus non-retail consumers; female chemists compared to male ones; residential vs. commercial construction workers
Pricing as a Strategic Lever- CSCA
Another competitive strategy is using pricing as a strategic lever. Strategies that help companies manage price competition are:
• Price signaling,
• Price leadership,
• Non-price competition, and
• Capacity control.
Price Signaling- CSCA
Companies use price signaling to convey their intentions and influence competitors’ prices. For example, suppose an aggressive move from another firm threatens a company. In that case, it might signal that this will be met with equal aggression in response – cutting prices, increasing production, etc.
Price leadership- CSCA
Price leadership is daily in industries dominated by few sellers (oligopolies), such as the airline industry.
As cited in the Strategic Management textbook by Hill and Jones, “Price leadership is when one company assumes the responsibility for setting the pricing option that maximizes industry profitability, that company assumes the position as a price leader. Formal price leadership, or when companies jointly set prices, is illegal in the U.S. under antitrust laws; therefore, the process of price leadership is often very subtle.”
Non-price Competition- CSCA
In mature industries where fierce competition prevails, a company uses its product or service differentiation to distinguish itself from competitors. This can be done through attributes like design and quality, also called “non-price” tactics, such as free products for customers, emphasizing the word ‘free.’
Capacity Control- CSCA
Capacity control is essential for mature industries to avoid aggressive price competition. One way that capacity can be controlled and utilized more efficiently would be by increasing or decreasing the number of seats available on flights according to demand so as not to leave anyone wanting when it comes time to book their next trip.
New Product and New Market Development- CSCA
New products and new market development can create significant differentiation for organizations. Approaches to achieving differentiation and growing market share include:
• Leveraging brand
• Understanding the impact of fragmented vs. consolidated industries
• Understanding the impact of industry life cycle stage
Leveraging Brand- CSCA
The Leverage strategy is an excellent way for companies to use their established brand power and influence new markets. By taking advantage of consumer’s pre-existing knowledge about the quality levels within certain products, you can help them have familiarity with your company’s offerings which will increase sales immensely because they’ll feel more trusted than others who don’t utilize this marketing tactic
Fragmented vs. Consolidated Industries- CSCA
Fragmented vs. Consolidated
Fragmented markets are great for consumers because there’s always something new and different. It can be the tough competition that helps keep prices lower than they might have been if one company dominated an entire industry with its output volume or pricing strategy alone.
The internet has comprehensively replaced brick-and-mortar stores as consumers’ primary source of information about products. This change is mainly due to online stores’ significant advantage over their physical counterparts. They can collect data on customer behavior and use it for product strategy development, something only possible with an advanced level in eCommerce software technology like Amazon Web Services (AWS). With such powerful analytical tools available at your fingertips, you’re able to know what people want and how much each individual will pay before even considering purchasing anything.
Impact of Industry Life Cycle- CSCA
Impact of Industry Life Cycle
Understanding the impact of an industry’s life cycle on your business is essential. The sales rates are different at each stage, and understanding which one you’re currently in can be key for success going forward with any strategy.
Innovation Strategy- CSCA
Innovation is the engine of growth for any company. As markets grow increasingly unpredictable, value propositions need to evolve; but innovation isn’t just a buzzword with a hashtag – it’s what keeps your business afloat in this dynamic environment.
Let’s examine the differences between an idea, an invention, and an innovation.
An idea is defined as a formed thought or opinion.
An invention is a unique or novel method, composition, or process. It may also be an improvement. Ideas aren’t patentable, but inventions are.
Innovation is a process by which something new and different may be created. Innovation has been seen throughout history, from the first telephone in 1876 to today’s innovations such as email or social media sites. These technologies have improved our world; they allow us access wherever we are and let people communicate more efficiently than ever before. Even if one person doesn’t speak another language, there will still likely always be some form of communication between them by reading body gestures so long as both parties understand natural languages (such words).
A value innovation, however lofty its level seems at first glance, can often create far more significant disruptions within an industry
Patrick Stroh, the author of Advancing Innovation, suggests that “innovation can be defined and measured by the value we create along the way for our customers and stakeholders.”
Innovation Funnel- CSCA
Innovation funnels are a common way for companies to manage and innovate. Funnel models can vary depending on the company’s needs, but this basic model involves exploring many different ideas until we find what works best with our target audience or market niche in order to lower risk by narrowing down from hundreds of possibilities at once into just one final choice that will meet all requirements
Key Factors That Shape the Innovation Process- CSCA
Innovation is a process of creating new things, and it can be broken down into two categories: product innovation or service processes. Product innovations refer to improving an organization’s goods/services for customers, whereas Process Innovations change how they are made internally within the company itself.
Key factors that shape the innovation process include:
• Support and climate for innovation
• Financial resources allocated for innovation
• An innovation-learning mind-set
• Management patience for innovation
• Implementation policies and practices
Alternative Processes- CSCA
Alternative processes for innovation include:
Co-creation is an approach to product development in which the organization works with its customers rather than solely designing for them. Co-creations are active and creative processes emphasizing collaboration between producers (producers being companies)and end-users – usually consumers or clients–to generate value through personalized experiences using their resources. This can be seen as one way of ensuring customer competence by engaging those who will ultimately use your offerings; it’s also believed this helps create better products because there’ll always be someone looking out for what matters most: you.
• Open innovation:
Innovating with external stakeholders such as customers, suppliers, and partners creates a better experience for everyone involved.
When an organization outsources projects to the public, it can tap into a broader group of people with knowledge and creativity. This process is called Crowdsourcing
Innovation Types- CSCA
Innovation can include architectural, incremental, radical, and disruptive.
Innovations come in all shapes and sizes, but they can be broken down into three general categories:
· architectural innovations, which include creating new products using or reconfiguring existing technology;
· incremental changes that usually help maintain a company’s competitive position over time and finally,
· radical disruptions where innovators create markets from scratch by disrupting pre-existing ones.
Implementing Blue and Red Ocean Strategies- CSCA
The article “Blue Ocean Strategy” in HBR’s 10 Must-Read on Strategy highlighted a creative positioning approach to stretching and leveraging core competencies to gain an advantage in competing for the future. They state that “tomorrow’ s leading companies will succeed by creating ‘blue oceans’ of uncontested market space ripe for growth.” The authors call these strategic moves to value innovations that render foes obsolete while generating new demand
Blue oceans are the untapped, unexplored markets that companies can always explore to create new growth opportunities. Nothing stops you from taking on an entire industry and changing it in ways we never thought possible.
A red ocean represents all of today’s industries- where fierce competition against one another reduces profits even more so than usual while also reducing opportunity within these already mature spaces. In contrast, there’s blue water – referring to not just individual firms but entire fields lacking competition because they’re too newly created.
Blue Ocean vs. Red Ocean sTrategy- CSCA
Blue Ocean vs. Red Ocean
Blue Ocean Strategies have the following attributes:
• Create uncontested market space
• Make the competition irrelevant
• Create and capture new demand
• Break the value/cost trade-off
• Align the whole system of activities in pursuit of differentiation or cost
Red ocean strategies have the following attributes:
• Compete in the existing marketplace
• Beat the competition
• Exploit existing demand
• Make the value/cost trade-off
• Align with differentiation or low cost
Value Strategy- CSCA
Value strategy is the cornerstone of Blue Ocean Strategy and hinges on three main principles:
1. Assume you can shape your industry’s conditions.
2. Focus on what the majority of your customers value.
3. Consider how you might change your offerings to capture the market you’ve identified by:
• Eliminating features that offer no value to customers.
• Simplifying products.
• Improving high-value features of products.
• Creating new features that your industry has never offered.
Value Innovation- CSCA
To be successful, companies must place equal emphasis on value and innovation. Seek to create both buyer-centric benefits and technological advances simultaneously for your organization’s offerings to stand out from competitors’ products or services that only offer one perspective. High cost without added features or low-riced items with poor quality materials used throughout the construction process. Successful innovation occurs at the intersection of buyer value and cost.
Cooperative Strategies- CSCA
A famous philosopher says, “Cooperation can be at the business or corporate level.” This means that cooperation between two companies may lead to a competitive advantage depending on how big and structured an organization is.
In 1887 Russell wrote in his book In Praise Of Intellect That Is And Growth: “The only thing which will redeem mankind from selfishness…peaceful intercourse among its members based upon mutuality instead of aggression.”
Explore Cooperative Strategies- CSCA
We can see a great deal of variety in how companies form relationships. Some examples include Value Chain Partnerships, Licensing Agreements, and Franchising. Still, each type has its own risks, so you should carefully consider what business model will work best for your organization before committing yourself fully.
The positions of the various companies on this chart are fluid, depending upon how you look at it. The industry dynamics and your perspective can also change what is expected or considered “lower” within each sector’s hierarchy.
Value Chain Partnerships- CSCA
In a value chain partnership, one company or unit becomes an integral part of another’s supply chain to share mutual advantages.
Licensing Arrangements- CSCA
Licensing Arrangements are a strategy that can be used by companies who have solid trademarks but lack the funds needed for direct entry into an industry or country. The licensing firm grants rights to another company in another market, giving them permission and license so they may produce/sell your products without competing with you firsthand. This allows both parties some degree of control over how much exposure each gets because it’s up to them whether consumers see their branding on these items at all.
Imagine what it would be like to have your own business with all the tools and resources. You could create anything that you can imagine from scratch. The only limit is yourself–and if things go well, then maybe some other company might want in on this action too because there’s always room for more competition; but even still – as long as they pay their share of taxes (which most do) than we should allow them access anyway right?
Strategic Alliance- CSCA
Strategic Alliances are a great way to grow your business by working with other companies. The benefits of strategic alliances include access and knowledge of new markets and the opportunity for cost savings through sharing resources such as marketing or distribution networks; they also offer protection against competition. If one member decides not to stay in operation, others will fill that slot instead.
Companies or business units may form a strategic alliance for several reasons, including:
• To obtain new capabilities.
• To obtain access to specific markets.
• To reduce financial risk.
• To reduce political risk.
A study by Coopers & Lybrand (now PricewaterhouseCoopers) found that firms involved in strategic alliances had 11% higher revenue and a 20% faster growth rate than companies not belonging to any alliance.
Joint Venture- CSCA
A Joint Venture is often the best way for separate organizations to work together to achieve shared goals. This creates an independent business entity that takes on operational responsibilities and financial risks while preserving their identities, all with just one agreement between members.
Business Level Strategies- CSCA
The monetization of a business model is essential in understanding how these strategies make money.
Business Models- CSCA
The business model is a strategic analysis that shows how the company plans to generate revenue and profit from operations. There are many methods of generating this kind of document, but they all have one thing in common: an emphasis on providing value for their customers as well as themselves – often through cost-cutting measures like reducing employee costs or increasing productivity levels by implementing new technologies where appropriate
Companies may use The Business Model Canvas, which helps entrepreneurs develop improved marketing strategies when developing innovative products/services. It allows them insight into who will buy what type of product at any given time based on trends.
The concept of customer value proposition is often overlooked. It should not be, though, because this may lead you down the path to success. A good Customer Value Proposition will help your company grow and thrive by ensuring customers are content with their purchase from yours. Become more profitable through increased sales revenue or lower costs per unit than competitors who don’t have such policies in place. And even better yet: if there was ever an issue about what consumers wanted, we found it here first-hand when designing our model
In today’s world, everyone wants everything now—without any delay.
It answers the questions:
• Who is your target customer?
• What problem are you solving, or what need are you fulfilling?
• What is your offering?
• What satisfies the problem or fulfills the need?
Lesson 3: Concluding Thoughts- CSCA
Business-level strategies improve a company’s competitive position and sustain its differentiated competencies. A firm’s resources help establish it as an industry leader. At the same time, capabilities provide the edge needed for success in today’s marketplace, where brands are constantly coming up with new ideas on how they will offer customers what those need most – before anyone else does.
strategy is directly linked to mission and vision and answers “How will we achieve our vision?”
The differences in business relationships are often a result of how each competitor approaches the market. Some companies see themselves primarily as competitors. In contrast, others may prefer to collaborate with their counterparts instead of competing against them for customers or capital investments from investors. Investors demand performance metrics such as profitability and growth potential before funding risky projects that might not pay off until years later (as opposed to today).
Functional-Level Strategies- CSCA
You will learn to:
• Recognize the importance of functional areas’ fit, or strategic alignment, to an organization’s overall strategy.
• Explain how operational excellence initiatives can add value to an organization.
• Identify critical theories of quality optimization and define quality management models including TQM, Kaizen, Six Sigma, Lean, Baldrige Performance Excellence Program, and ISO 9000.
By leveraging the efficiency, operational excellence, and quality best practices in the organization’s core competencies, we can achieve productivity improvements tailored to meet business needs.
Functional-Level Strategies- CSCA
Functional-level strategies are just like their business-level counterparts, but they focus on specific functions of an organization. For example, marketing or human resources could have a set strategy tailored to the needs at hand to function optimally and efficiently while meeting goals determined by the overall mission statement/vision document within company guidelines.
Hierarchy of Strategies- CSCA
The farther down the strategic planning diagram you go, the more tactical and operational your approach becomes. Functional strategy is a way for business units within multidivisional corporations or separate companies with numerous objectives to achieve those goals by optimizing their activities while maximizing resource productivity–and ensuring high-quality results across all channels
The functional area is responsible for achieving particular targets through its set methods, which may include different tactics as necessary depending upon what’s needed at any given time.
Leadership teams must translate their organizational strategy into a balanced set of objectives that can be carried out at the functional level. This ensures alignment with broader business goals and improves performance by focusing on key drivers for success and significant milestones in both near-term plans and long-term ones – providing consistency throughout all planning processes, leading
Functional strategies are crucial in the optimization process, as they help align business units with overall company goals. For example, suppose one unit follows a competitive differentiation strategy, and another isn’t following suit but rather focusing on quality assurance processes instead. In that case, there will likely be a conflict between them. This could lead to less than optimal performance from both perspectives-with differing expectations by each side about what should happen next (i..e: employee vs. customer).
Functional Categories- CSCA
functional strategy relates to Porter’s Generic Value Chain. Firms may have different functional categories broken into primary and support activities.
Inbound Logistics- CSCA
• Centralization (all logistics out of a central location)
• Outsourcing (use of third-party vendors for receiving)
• Inventory control strategies (e.g., Just In Time)
• Vertical/horizontal integration*
• Geographic location*
• Arbitrage, adaptation, aggregation strategies*
Outbound Logistics- CSCA
• Different transportation modes, such as rail or trucking
• Aggregation of shipping volumes
Marketing and Sales- CSCA
Marketing and Sales:
• Push strategies
• Pull strategies
• Skim strategies, and
• Penetration pricing
• Identify and resolve issues before they become problems
• Define and track customer responsiveness
• Solve problems before customers even realize they exist
Firm Infrastructure- CSCA
• Adjusting the mixture of debt vs. equity
• Minimizing the impact of taxes
• Firm-wide quality control systems
• Implementation of an ERP system
Human Resource Management- CSCA
• Performance incentives
• Diversity as a core strength
• Self-managing work teams
• Work-life balance
• Creative workspaces
Technology Development- CSCA
• Enhance website capabilities to create efficiency in processing sales and improve customer buying experience.
• Decision-making takes advantage of recent advances in technology.
• Use of procurement card
• Centralized purchasing
• Global sourcing
• Supplier optimization (mix of vendors that provide best prices and terms)
Operational Fit Leads to Efficiency- CSCA
The article “What Is Strategy?” by Michael Porter on pages 20-28 discusses the importance of fit how companies’ activities interact and reinforce one another. This is also known as strategic alignment – for example, a sophisticated sales force confers an advantage when their product embodies superior technology and marketing emphasizes customer assistance/support.
Based on the article, there are three types of fit in a hierarchy:
• First-order is Consistency; all parts should be considered when determining an action or decision.
• Second-order reinforcer variables affect how often something happens and can lead to greater efficiency if they’re optimized for second-order rewards such as grades rather than third-order ones (e g., promotion).
• Thirdly optimization occurs at every level throughout your organization, so you’ll want more data points from different sources like career opportunities within companies versus outside interests, which may show differences between departments. Competitive advantage comes out through operational excellence – achieving high performance.
The first-order fit refers to the consistency between functions and overall strategy. This can be seen in a common cost-driven approach that is present throughout all areas of your business’s value chain, for example.
Second-order fit is the idea that activities that create more differentiation lead to success. This can be seen in a strategy where you have your niche product reinforced by an effective marketing and sales approach, leading it towards greater profitability than if there were no such effort put into differentiating things around them or selling what they offer at all costs just because people might want it so much.
Third-order fit is a type of optimization that looks at the cost and quality aspects when designing an activity. This can be done with total quality management operational plans, which are used to make sure there isn’t any wasted time or money on things like repairs because they were missed during the design stages
Achieving Efficiency through Technology- CSCA
The role of technological breakthroughs, innovation, and wise investments in research is to jumpstart operational excellence at the functional level.
The evolution from paper ledger accounting to full-scale integrated systems exemplifies how superior technology and information can lead businesses towards greater efficiency. Enterprise resource planning (ERP) applications are typically a suite of tools that organizations use to collect, store, and manage data concerning aspects or activities throughout their value chain, including product planning purchasing
ERP systems and technological breakthroughs such as artificial intelligence and robotic process automation can lead to higher efficiency by aligning and monitoring strategy from global levels all way down into individual businesses.
Operational ExcellencE- CSCA
Operational excellence is the careful and considerate way in which an organization functions. It can be achieved through efficiency, quality, innovation, or customer responsiveness enhancements. An improvement made within one area may also contribute to improving other aspects of functionality
Achieving this high standard takes time, but it’s worth every second spent on achieving better outcomes for your company – because when you do so; not only will these improvements lead directly toward greater profits (and reduced losses),
Some goals at the functional level are:
• Improving economies of scale by increasing production volumes can create efficiency in an organization.
• Optimizing supply chain management can improve operations’ effectiveness and efficiency.
• Creating activities that add value to the organization and reducing or eliminating nonvalue-added activities can improve performance and lead to efficiency and innovation.
• Focusing on hiring, mentoring, and training staff can lead to a higher-quality output of products and services, increased efficiency, and better customer responsiveness.
• Implementing well-constructed performance compensation systems can improve efficiency, quality, innovation, and customer responsiveness when performance goals are tied to these areas.
• Being able to adapt to customers’ changing needs quickly can enable a company to achieve the goals of innovation and customer responsiveness
• Striving for customer loyalty can lead to a higher profit per customer, increased quality, and customer responsiveness
Quality Optimization- CSCA
Quality management aims to produce the highest level possible at an acceptable cost. This can be done by focusing on reliability and excellence, leading you towards a competitive advantage in differentiation through customer loyalty and increased cash flow with satisfied employees with healthy work environments.
The most popular models of quality management:
• Total Quality Management (TQM)
• Six Sigma
• Malcolm Baldrige Performance Excellence Program
• ISO 9000
Costs of Quality- CSCA
The pursuit of quality has a cost. This cost can be broken into four components:
• Prevention costs are necessary to avoid the adverse effects of not having a quality management system. These can include design problems, implementation issues, and maintenance work required over time. For instance, TQM (the Unified Quality Management), ISO 9000, or any other program designed specifically for this purpose will help you maintain your company’s standard when it comes down to producing goods without sacrificing performance in any way.
• Appraisal Costs are necessary to maintain quality in measuring and monitoring what’s being purchased. These costs include those associated with suppliers’ evaluations and customers so that they can assure conformance specifications by purchasing materials or products that meet these requirements before providing them for use at your company. The following passage provides information about appraisal cost: “Appraising means determining value.” It also states how this concept applies specifically when discussing business transactions between two parties who engage
• There are many different types of internal failure costs, but they all have one thing in common: the result is wasted money and time. For example, when work fails to meet design standards before being transferred over onto customers’ end products (such as rework or replacement), this would be considered an instance where resources were devoted towards correcting something that didn’t need fixing in the first place.
• External failure costs can be costly to remedy. When products or services do not reach design quality standards, they may go unnoticed until after transfer of ownership (e., warranty claims, for example).
Investing in quality from the start will have a lasting impact on your company’s bottom line. By investing early, you can avoid or minimize costly repairs down the road because of poor-quality products and services that weren’t adequately crafted, to begin with.
Core Competencies at the Functional Level- CSCA
Companies should leverage their core competencies to improve product and process innovation across the functional, business level. For example, Goldman Sachs uses its strengths in technology for competitive advantage while Toyota focuses on cost reduction through automation of production processes
The key is finding what you are best at so that your company can have sustainable success with it.
Leveraging Core Competencies
Innovation and Operational Excellence- CSCA
• Innovation is the act of creating new products and processes. Product innovations are more likely than process ones to lead directly towards increased profitability, but both kinds have been known for their ability in this area.
• Product innovation is complex, but it can be done. It often requires new insights into how people want to use their products or services, and then designing them so that they’re superior in some way – may be more effective at what you need them to do (or just better looking).
• Process innovation is a necessary part of any company’s survival. It allows you to change the way that products are made, which in turn creates new possibilities for production and delivery methods while retaining customer loyalty with improved quality assurance procedures
The Role of the Management Accountant- CSCA
The “cost leadership” era is over, but many companies still use it as their primary strategy. These organizations believe they can outspend competitors on pricing and stay competitive by economies of scale alone. However, this may not always work because new technology has made production more efficient, which means lower costs per unit for smartphones or tablets ( leased phones). Another problem with economic strategies based around cheaper product prices comes when consumer tastes change – what was once adequate quality 15 years ago might no longer meet today’s standard. To succeed in the modern marketplace, you need adaptive solutions.
From Profit from the Core: A Return to Turbulent Times, by authors Chris Zook and James Allen
“Most companies fail to achieve the target growth numbers they plan for in their strategic planning sessions. There is often a gap between ambition and performance and a disconnect between strategy formulation and execution. Suppose the employees closest to customers at the functional level and operate processes that most intimately create value are unaware of the strategy. In that case, they cannot help the organization implement it effectively. Financial professionals must take a leadership role in making sure that strategic intent at the top of the organization is wholeheartedly embraced and executed at the business and functional levels of an organization.”
Lesson 4: Concluding Thoughts- CSCA
Competitive advantage can be defined as the unique value you provide to your customers, resulting in them choosing your product over another company. There are many strategies for achieving this, including low cost and differentiation; however, analyzing these from an external perspective and how they fit into each business’ needs within their framework is crucial. Whether global or functional level (depending on what type of industry/activity we’re talking about).
The triad of competitive advantage is a delicate balance between market development, pricing, and innovation. At every level in an organization, you need synergy to ensure successful strategies are being implemented from the top-down as well functional levels, with operational excellence, quality optimization & new product creation being critical factors for success
The business-level strategy should implement these three techniques: New Product Development (NPD) Pricing Strategies/Innovation; whereas at the lowest tier or “functional” part, there are some sort operations such as production efficiency improvement through recycling.
Strategy- Recommended Reading- CSCA