Business strategy for competitive advantage
Criticisms of Generic Strategies:
Can be dangerous to specialise - too inflexible? Could leave gaps in product offerings, for rivals to fill,
could ignore changing customer needs
Can facilitate imitation by rivals (compared to a more complex, mixed strategy – long-term
competitive advantage tends to be based on complex balance of differentiation and cost focus, which
is more difficult for rivals to duplicate)
Can weaken innovation capabilities – focus on one approach, difficult to adapt?
Can lead to a psychological reliance on ‘successful formula’
Can it be OK to be stuck in the middle?
What Is competitive advantage?
When two or more firms compete within the same market and one firm earns (or has the potential to
earn) a persistently higher rate of profit (Gant).
A state whereby a business unit’s successful strategies cannot be easily duplicated by its competitors
(Parnell, 2014)
When an organisation is implementing a value creating strategy that is not being implemented by
competitors (Henry, 2018)
How a company, business unit or organisation creates value for its users both greater than the costs
of supplying them and superior to that of rivals (Johnson et al., 2017,p. 210).
Overall, we can conclude that competitive advantage is creating value (e.g via price, quality, service)
that stands out among rivals
External Sources of change (emergence of competitive advantage):
• For an external change to create competitive advantage, the change must have differential effects on
companies because of their different resources and capabilities or strategic positioning.
• In 2014 crude oil price dropped from $108 to $58 per barrel, thus giving conventional automobile
manufacturers a competitive advantage over electric car producers like Tesla
The greater the magnitude of external change, the greater the propensity for external change to
generate competitive advantage.
internal Sources of change:
In most cases, this occurs as a result of innovation
• This can be in form of new products or new processes using latest technologies and
• Strategic innovation which involves creating value for customers from novel products, experiences or
modes of product delivery.
,Blue Ocean Strategy:
Internal Sources of change
In most cases, this occurs as a result of innovation
• This can be in form of new products or new processes using latest technologies and
• Strategic innovation which involves creating value for customers from novel products, experiences or
modes of product delivery.
• ‘Blue Oceans’ are new market spaces where competition is minimised.
• Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating
market spaces that are not currently being served.
• The figure shows a strategy canvas for three electrical components companies.
• companies A and B perform well on cost, service, reliability and quality, but less well on testing. They
do not offer any design advice.
They are poorly differentiated and occupy a space in the market where profits may be hard to get
because of excessive rivalry between the two
• Company C, has a radically different value curve, characteristic of a ‘value innovator’
• Value innovation is the creation of new market space by excelling on established critical success
factors on which competitors are performing badly.
• A value innovator is a company that competes in ‘Blue Oceans’
, Porters Generic Forces – low Cost, Differentiation and Focus:
Cost-leadership:
Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity.
Four key cost drivers that can help deliver cost leadership:
Lower input costs:
For example lower cost of labour and raw materials.
Proximity to inputs and raw materials.
e.g.Primark produces in India where labour cost is low.
Economies of scale:
Increasing scale usually reduces the average costs of operation over a particular time period, perhaps a
month or a year.
Experience:
The cumulative experience gained by an organisation with each unit of output leads to reduction in unit
costs. E.g production of electronics and cars
Economies of scale and the experience curve
Criticisms of Generic Strategies:
Can be dangerous to specialise - too inflexible? Could leave gaps in product offerings, for rivals to fill,
could ignore changing customer needs
Can facilitate imitation by rivals (compared to a more complex, mixed strategy – long-term
competitive advantage tends to be based on complex balance of differentiation and cost focus, which
is more difficult for rivals to duplicate)
Can weaken innovation capabilities – focus on one approach, difficult to adapt?
Can lead to a psychological reliance on ‘successful formula’
Can it be OK to be stuck in the middle?
What Is competitive advantage?
When two or more firms compete within the same market and one firm earns (or has the potential to
earn) a persistently higher rate of profit (Gant).
A state whereby a business unit’s successful strategies cannot be easily duplicated by its competitors
(Parnell, 2014)
When an organisation is implementing a value creating strategy that is not being implemented by
competitors (Henry, 2018)
How a company, business unit or organisation creates value for its users both greater than the costs
of supplying them and superior to that of rivals (Johnson et al., 2017,p. 210).
Overall, we can conclude that competitive advantage is creating value (e.g via price, quality, service)
that stands out among rivals
External Sources of change (emergence of competitive advantage):
• For an external change to create competitive advantage, the change must have differential effects on
companies because of their different resources and capabilities or strategic positioning.
• In 2014 crude oil price dropped from $108 to $58 per barrel, thus giving conventional automobile
manufacturers a competitive advantage over electric car producers like Tesla
The greater the magnitude of external change, the greater the propensity for external change to
generate competitive advantage.
internal Sources of change:
In most cases, this occurs as a result of innovation
• This can be in form of new products or new processes using latest technologies and
• Strategic innovation which involves creating value for customers from novel products, experiences or
modes of product delivery.
,Blue Ocean Strategy:
Internal Sources of change
In most cases, this occurs as a result of innovation
• This can be in form of new products or new processes using latest technologies and
• Strategic innovation which involves creating value for customers from novel products, experiences or
modes of product delivery.
• ‘Blue Oceans’ are new market spaces where competition is minimised.
• Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating
market spaces that are not currently being served.
• The figure shows a strategy canvas for three electrical components companies.
• companies A and B perform well on cost, service, reliability and quality, but less well on testing. They
do not offer any design advice.
They are poorly differentiated and occupy a space in the market where profits may be hard to get
because of excessive rivalry between the two
• Company C, has a radically different value curve, characteristic of a ‘value innovator’
• Value innovation is the creation of new market space by excelling on established critical success
factors on which competitors are performing badly.
• A value innovator is a company that competes in ‘Blue Oceans’
, Porters Generic Forces – low Cost, Differentiation and Focus:
Cost-leadership:
Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity.
Four key cost drivers that can help deliver cost leadership:
Lower input costs:
For example lower cost of labour and raw materials.
Proximity to inputs and raw materials.
e.g.Primark produces in India where labour cost is low.
Economies of scale:
Increasing scale usually reduces the average costs of operation over a particular time period, perhaps a
month or a year.
Experience:
The cumulative experience gained by an organisation with each unit of output leads to reduction in unit
costs. E.g production of electronics and cars
Economies of scale and the experience curve
