Value Chain

Porter

Focus of Strategic Attention: Industry/Business

Porter (1980) argues that it is the industry structure within which the organizations compete and how they position themselves against that structure which determines how profitable individual firms will be….It is an Outside In theory

Types of Competitive Advantage:

Low cost or Differentiation

Being a low cost producer in an industry provide some attractive defenses against the 5 competitive forces:

1. As concerns to rivals competitors, the low cost company is in the best position to compete offensively on the basis of price, to defend against price conditions, to use the appeal of lower price to win sales and market shares from rivals.
2. As concerns buyers, the low cost company has partial profit margin protection from powerful customers, since such customers are rarely able to bargain price down past the survival level of the next most cost efficient seller.
3. As concerns, suppliers, the low cost producer is more insulated than competitors from powerful suppliers if greater internal efficiency is the primary source of cost advantage.
4. As concerns potential entrants, the low cost producer can use price cutting to make it harder for new rivals to win customers, the pricing power of the producer acts as a barrier for a new entrant.

Differentiation strategy comes into play whenever buyers’ needs and preferences are too diverse to be satisfied by a standardized product. A successful differentiator studies buyers’ needs and behavior carefully and learn what they consider important and valuable. Then the differentiator incorporates one or several of those features into its product offerings to encourage buyers for its brand over the brands of its rivals.

Basic Unit of Competitive Advantage:

Activities

Porter describes two major categories of business activities:

1. Primary activities (Inbound logistics, Operations, Outbound Logistics, Marketing and sales and service)
2. Supporting activities (Firm infrastructure, Human Resource Management, Technology Development, Procurement)

Resource Based View

Focus of Strategic Attention:

Corporation

The resource based view of competition draws upon the resources and capabilities that reside within an organization or that an organization might want to develop in order to achieve a sustainable competitive advantage…It is an Inside Out strategy.

Types of Competitive Advantage:

Resource Capabilities / Core Competencies

A core competency or strategic capability can be thought of as a cluster of attributes that an organization possesses which in turn allows it to achieve competitive advantage.

It may simply be that the organization has configured its collection of resources in such a way that allows it to compete more successfully.

Dell and Benetton clothing are classic examples of firms that have achieved core competence in the way they configure their respective value chain.

Basic Unit of Competitive Advantage:

Core Products/ Strategic Architecture

Factors that help in attaining competitive advantage in the resource based view model are listed as follows:

(definition of Tangibles, Intangibles and Organizational Capabilities)

1. Need for unique competencies (resources and capabilities owned by the firm)
2. Sustainability Issues (whether the firm will continue to operate….going concern approach)
3. Appropriable (Anything created remains within the firm only)