STRATEGY AND

STRATEGIC ADVANTAGE
Objectives
Explain what business strategy and strategic
advantage are
Illustrate how information systems can give
businesses a competitive advantage
Identify basic initiatives for gaining a
competitive advantage
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Introduction
Strategy: plan to gain advantage over enemy
Business strategy is plan to outperform
competitors
Done by creating new opportunities, not beating
rivals
It is a broad based formula for how a business
is going to compete, what its goal should be,
and what plans and polices will be required to
carry out those goals
Strategic Advantage: Using strategy to
maximize company strengths
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Competitive Advantage
Significant and (ideally) long-term benefit to a
company over its competition
An advantage in some measures such as cost,
quality or speed
Ability to establish and maintain competitive
advantage is vital to the companys success

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Factors That Lead Firms to Seek
Competitive Advantage
Five forces Model:
Rivalry among existing competitors
Threat of new entrants
Threat of substitute products and services
Bargaining power of customers and
Bargaining power of suppliers
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Factors That Lead Firms to Seek
Competitive Advantage
Rivalry among existing competitors
High fixed cost of entering or leaving
Low degree of product differentiation
Many competitors
Industries with strong rivalries tend to have
more firms seeking competitive advantage.
Constantly analyze how they use their
resources
Resource based approach: to acquire and
control assets or resources that can help them
achieve a competitive adv.
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Factors That Lead Firms to Seek
Competitive Advantage
Threat of new entrants
The entry and exit costs to an industry are low
Technology needed to start and maintain is
commonly available
Desire to seek and maintain competitive
advantage is usually high
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Factors That Lead Firms to Seek
Competitive Advantage
Threat of substitute products and services
Consumers can obtain similar product and
services
Bargaining power of customers and suppliers
Customer can threaten to switch to rival
companies


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Achieving a Competitive
Advantage
Managers develop a strategy
Aimed at establishing a profitable and sustainable
position against these five forces
Many initiatives are used to gain competitive
advantage
Strategic moves often consist of combination of
two or more initiatives

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Achieving a Competitive
Advantage



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Eight basic ways to gain competitive advantage
Achieving a Competitive
Advantage
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Many strategic moves can work together to achieve a competitive advantage
Reduce Costs or Cost
Leadership
Deliver the products and services at lowest
possible price
Achieved by
Cost of raw materials
Efficient production and manufacturing process
Warehousing and shipping cost
Outsourcing
Automation greatly reduces costs
Web can automate customer service
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Raise Barriers to Market
Entrants
Less competition is better for company
Raise barriers to entrants to lower competition
Techniques include obtaining copyrights and
patents on inventions, techniques, and services
Building unmatchable information systems
blocks entrants
Use IT to provide exceptional service e.g Cisco
Introduce innovative product

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Establish High Switching Costs
Discourage customer or suppliers from going
to competitors for economic reasons
Switching costs: incurred when customer
stops buying from company and starts buying
from another company
Explicit: charge customer for switching
Implicit: indirect costs over period of time
High switching costs locks in customers
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Differentiate Products or
Services
Deliver different products and services
Involve producing a variety of products, giving customers
more choices or delivering higher quality products and
services.
Product differentiation: persuading customers that
product is better than competitors
Achieved through advertising
Exemplified by brand name success
Promotes brand name
Higher prices can be charged
Can sell more products
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Differentiate Products or
Services
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Google did not offer an original service, but the service has grown superior to other
Web search services
Enhance existing Product lines or
Services
Make real or perceived improvements to
existing product lines and/or services to
increase value to consumer
Many products and services have been
enhanced by the Web
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Enhance Products or Services
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Dell continues to enhance its service to maintain the competitive advantage of its
online order site
Create New Products or
Services
Introducing new unique product or service periodically
or frequently
First mover: organization that is first to offer a new
product or service
Create Assets: Superior brand name, better technology or
method of delivery, or Critical mass: body of clients that is
large enough to attract other clients
Enjoy longer experience
Being a first mover is not always a guarantee of long
term success
Some First movers have lost market share
Neglected to improve the service they pioneered
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Create New Products or
Services
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EBay created a new service that established it as an industry leader
Altering the Industry structure
Change the industry to become more favorable to the
company or organization
Creating strategic alliances
Alliance: agreement between two or more companies
that involves joint production and distribution of goods
and services
Makes product more attractive
Reduces costs
Provides one-stop shopping (convenience)
Affiliate program: linking to other companies and
rewarding the linker for click-throughs
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Establish Alliances
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Strategic alliances combine services to create synergies
Lock in Suppliers or Buyers
Encourage customers or suppliers to stay with
you rather than going to competitors
Accomplished by achieving bargaining power
Bargaining power: leverage to influence
buyers and suppliers
Achieved by being major competitor or
eliminating competitors
Uses purchase volume as leverage
Lock in clients by creating high standards
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Other Initiatives
Customer-orientation
Time as resource
Operational effectiveness
Growth strategy
Niche strategy

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Summary
Various initiatives to establishing advantage
Cost reduction, raising barriers to competitors,
establishing high switching costs, new products,
differentiating products, enhancing products,
alliances, and locking suppliers


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