COMPETITIVE ADVANTAGE

AUTHOR- MICHAEL PORTER

GROUP NO - 3
PRESENTED BY

• JATIN ACHARYA 01
• PRANALI BANDEKAR 13
• ROHAN BHUJBAL 24
• ANKUSH DESAI 36
• DIVYA KARUN 42
• SHWETA BELCHADA 58
• SAYLI GAIKWAD 60
• DEVIKA KUDUPUDI 91
• KRUSHALI MAHAPADI 97
• KARUNA MIRANI 104
HOW A FIRM CAN ACTUALLY CREATE
AND SUSTAIN A COMPETITIVE
ADVANTAGE IN ITS INDUSTRY?
TYPES OF COMPETITIVE ADVANTAGE
GENERIC STRATEGIES

COST LEADERSHIP

DIFFERENTIATION

FOCUS
PORTER’S STRATEGY
Target Scope ADVANTAGE ADVANTAGE

LOWER COST PRODUCT

UNIQUENESS
Broad COST LEADARSHIP DIFFERENTIATION
(Industry Wide)

Narrow COST FOCUS DIFFERENTIATION

(Market Wide) FOCUS
VALUE CHAIN ANALYSIS

• Defines a firm’s Value Chain

• Identifies activities contributing to cost leadership
and differentiation
• Systematic tool for examining the activities of the
firm
ADVANTAGE
THE VALUE CHAIN & COST ANALYSIS

• Defining the Value Chain for Cost Analysis

• Assigning Costs & Assets
COST BEHAVIOR

• Cost Drivers
• Learning & Spillovers
• Linkages
• Location
PITFALLS IN COST LEADERSHIP
STRATEGIES

• Exclusive focus on the cost of manufacturing activities

• Overlooking indirect or small activities
• False perception of cost drivers
• Thinking incrementally
STEPS IN STRATEGIC COST ANALYSIS

• Identify the appropriate value chain & assign assets

• Diagnose the cost drivers
• Identify competitor value chains
• Develop a strategy to lower relative cost position
• Test the cost reduction strategy for sustainability
 REPRESENTATIVE SOURCES OF
DIFFERENTIATION IN THE VALUE CHAIN
 STEPS IN DIFFERENTIATION

Determine who the real buyer is

Identify the buyer’s value chain and the firm’s impact

Determine ranked buyer purchasing criteria

Assess the existing and potential sources of uniqueness in a firm’s value

chain
Identify the cost of existing and potential sources of differentiation

Choose the configuration of value activities

Test the chosen differentiation strategy

Reduce cost in activities that do not affect the forms of Differentiation

 PITFALLS IN DIFFERENTIATION

1 • Uniqueness that is not Valuable

2 • Too much Differentiation

3 • Too Big a Price Premium

4 • Ignoring the need to Signal Value

5 • Not knowing the Cost of Differentiation

• Focus on product instead of the Whole
6
Value Chain
7 • Failure to recognize Buyer Segments
 TECHNOLOGY AND COMPETITIVE ADVANTAGE:

• Relationship between technology and competitive advantage.

• Identify which activities contributing to cost leadership and
differentiation
• Analyze the source of competitive advantage
• It also describes the variables that shape the path of
technological change in an industry
Firms value chain
 SUPPLIER POWER
TECHNOLOGY  Supplier concentration
 Importance of volume to supplier
AND INDUSTRY  Differentiation of inputs
 Impact of inputs on cost of
STRUCTURE differentiation
 Switching cost of firms in the
industries
 Presence of substitute input
 Threat of forward integration
 Cost relative to total purchases in
BARRIERS TO ENTRY
 Absolute cost advantages industry
 Proprietary learning curve
 Access to inputs
 Government policy
 Economies of scale
THREAT OF
 Capital requirements
RIVAL SUBSTITUTES
 Brand identity RY
 Switching costs • Switching costs
 Access to distribution • Buyer inclination to substitute
 Expected retaliation • Price performance
 Proprietary products • Tread-off of substitutes

BUYER POWER
• Bargaining leverage DEGREE OF RIVALRY
• Buyer volume • Exit barriers
• Buyer information • Industry concentration
• Brand identity • Fixed costs/ value added
• Price sensitivity • Industry growth
• Threat of backward • Intermittent overcapacity
integration • Product differences
• Product differentiation • Switching costs
• Buyer concentration vs. • Brand identity
industry • Diversity of rivals
• Substitutes suitable • Corporate stakes
• Buyer’s incentives
PRIMARY ACTIVITIES
• Inbound Logistics :
Receiving, storing, and disseminating inputs. E.g., warehousing,
inventory control
• Operations :
Transforming inputs into the final product form
• Outbound Logistics:
Collecting, storing and distributing the product to buyers
• Marketing and Sales:
Providing a means and incentive which allow buyers to purchase the
product
• Service :
Providing service to enhance or maintain the value of the product
SUPPORT ACTIVITIES

• Procurement
Function of purchasing inputs used in the value chain
• Technology Development
• Human Resource Management
• Firm Infrastructure
Planning, finance, accounting, legal, etc.
TECHNOLOGY STRATEGY
• Technology strategy address three main issues:
1. What technology to develop
2. Whether to seek technological leadership
3. The role of technology licensing

SUSTAINABILITY OF THE TECHNOLOGICAL LEAD

• Technological lead can be sustained because :

1. Competitors can not duplicate the technology, or
2. The firms innovates as fast or faster than competitors can catch up
Ex: kodak camera
COMPETITOR
SELECTION
STRETEGIC BENEFITS OF COMPETITORS

Improving
Increasing Improve Aiding
Increase current
competitive bargaining market
motivation industry
advantage position development
structure
WHAT MAKES A “GOOD” COMPETITOR ?
Credible and viable

Clear , self perceived

weaknesses

Understands the rules

Realistic assumptions

Knowledge of cost

A strategy that improves

industry structure

Reconcilable goals
 COMPETITORS IN INDUSTRY

• Coke Vs Pepsi

• Nike Vs Adidas
• McDonald's Vs Burger king

• Amazon prime Vs Netflix

PITFALLS IN COMPETITOR SELECTION
Failure to distinguish good
and bad competitors

Having too big share

Attacking a good leader

Entering an industry with

too many bad competitors
 INDUSTRY
SEGMENTATION AND
COMPETITIVE
ADVANTAGE
INDUSTRY SEGMENTATION

• Industry is an array of Products and Buyers.

• Products and Buyers within an industry are dissimilar in ways that affect
their intrinsic attractiveness.

• Differences in products or buyers create industry segments.

DIFFERENCES IN FIVE FORCES AMONG
SEGMENTS

Threat of Mobility

Supplier Segment Buyer

Power Rivalry Power

Threat of Substitution
SEGMENTATION VARIABLES

• Product Variety - The discrete product varieties that are, or could be produced

• Buyer Type - The types of end buyers that purchase or could purchase the
industry’s products

• Channel – The alternative distribution channels employed or potentially employed

to reach end buyers.

• Geographic Buyer Location – The geographic location of the buyers.

INDUSTRY SEGMENTATION MATRIX
Buyer Type

Major Oil Large Small

Companies Independents Independents
Geographic Location

Developed
Countries

Developing
Null Null
Countries
ATTRACTIVENESS OF THE SEGMENT

• Structural Attractiveness

• Segment Size and Growth

• Firm position vis-à-vis a Segment

SUBSTITUTION
STEPS IN SUBSTITUTION

• Identifying substitutes
• The economics of substitution
THREATS OF SUBSTITUTION

• Relative value/price
• Switching costs
• Buyer’s propensity to switch
 FORECASTING MODEL

10.0 100%

F/1-F 1.0 50% Inflection

point
0.1

1 2 3 4 5 1 2 3 4 5
Time(Years) Time(Years)
PITFALLS IN STRATEGY AGAINST
SUBSTITUTES

• Failing to Perceive a substitute

• Not understanding RVP
• Misreading of slow early penetration
• Accepting maturity
INTERRELATIONSHIP OF BUSINESS UNITS

• Tangible Interrelationship, Example – Procter and Gamble

• Intangible Interrelationship, Example – Philip Morris

• Competitor Interrelationship
COST OF INTERRELATIONSHIP

• Cost of Co-ordination

• Cost of Compromise – General Foods

Pudding Pops

• Cost of Inflexibility
EXAMPLES OF INTERRELATIONSHIPS

• Common location of Raw Materials – Shared Inbound Logistics

• Common Purchase Inputs – Joint Procurement

• Common Product Technology – Joint Technology Development

• Common Buyer – Shared Brand Name

IMPORTANCE OF HORIZONTAL STRATEGY

• Diversification Philosophy is Changing

• Emphasis is Shifting From Growth to Performance

• Technological Change is Enabling Better Achievement of Interrelationships

• Multipoint Competition is Increasing

PITFALLS OF HORIZONTAL STRATEGY
• Pitfalls in Ignoring Interrelationships
• Misreading the Strategic Contributions of Business Units
• Misreading Position Vis-a-vis Key Competitors

• Pitfalls in Pursuing Interrelationships

• Negative Leverage from Sharing or Transfering Know-how
• Pursuing Interrelationships Involving Activities that are Small, or have little Effect
on Differentiation
• Illusory Interrelatedness
COMPLEMENTARY PRODUCT
AND COMPETITIVE
ADVANTAGE
TYPES OF
STRATEGIES
USEDED
•Control over the complementary product

•Bundling

•Cross Subsidization
CONTROL OVER A
COMPLEMENTARY
PRODUCT ● Improve buyers
performance.
● Reduce marketing and
selling cost.
● Improve perception of
Advantages value.
BUNDLING

● High performing interface.

● Increased differentiation.
● Optimized packaging
Advantages
performance.
CROSS
SUBSIDIZATION

● Barrier to entry into the profitable good.

● Strong connection between profitable
and base good.
● Sufficient price sensitivity in base good.
Advantages