BUS 189 – Jan 7, 2011

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CH 04

COMPETITIVE ADVANTAGE

customer captures value in consumer surplus

: co.'s competing w/each other for customers' biz, so co. has to chg lower price than it
would if it were a monopoly

RESOURCE-BASED VIEW OF COMPETITIVE ADV

e.g. firms w/valuable resources
DeBiers (Diamonds)
wrt to their strategy not actual value of resource
: any firm that possesses barriers to entry (like a patent); prevents other co.'s to compete
: e.g. drug co.
: valuable resource: rare and not easy to be imitated (e.g. lipitor)
SW Airlines

Value Charts Toyota v GM (Figure 4.2)

: higher value allows you to charge more
: e.g. Vegas has rep of bldg value; patrons and clients expect to pay more (all value-based)
: costs may be higher (just b/c costs are higher, doesn't mean you can charge your
customers more if they don't see the value)
: GM's costs were higher, but value

4 bldg blocks of comp adv

: efficiency, qlty, innovation, customer responsiveness
: pretty basic
: Which is SW Airlines? Customer responsiveness
: WalMart supply chain = efficiency comp adv
: Toyota = qlty comp adv
: Apple = innovation comp adv
: good for innovation and Customer responsiveness
Figure 4.3

Superior quality leads to superior efficiency

Toyota is more efficient and has more a comp adv than GM does
: b/c GM pays its workers more
NUMMI was never profitable
: GM plant; GM union; GM wage scale
: in excess of $28/hr ← avg base pay

QUALITY AS EXCELLENCE
: decrease waste
6 sigma qlty improvement methodology (9-step process)
1) sr members of org; really strong about encouraging quality
2) individuals must be identified to lead
3) ID defects that arise from processes ← trace to source; find cause, make corrections so
doesn't happen again
4) creating metric scale so measure qlty; see how you're doing relative to scale (up or down)
5) set challenging qty goal; set incentives for reaching it
6) get ideas from shop employees; since they're w/the product, they'll know things top
management wouldn't know; listen to employees ← give you good ideas
7) work w/suppliers to obtain better parts; good relationship
8) design product w/less MFG steps ← less steps = less possible errors; more steps = more
things that can go wrong
9) organization and cooperation among fn's

iPad/iPhone has all design, style, aesthetic appeal, features and functions, level of service that
comes with the product

Lamborghini and Porsche have good design (design no one else has)

Figure 4.4
QUALITY IS RELIABILITY
Once reliability goes up, can charge more for it

INNOVATION
Amazon.com = process innovation
: not a new product, but a new way to get the product
Apple = product innovation

Google is both
: info's always been out there, just introduced newer, faster, better way to get it

NetFlix = process innovation

: took out Blockbuster

HD DVD lost out to BluRay

Kurt Lewin

Risk to the 1st mover advantage

risks are high, but rewards are high

Steve Jobs/Steve Wol.. took a big chance

Bill Gates
Jeff Bezos at Amazon

CUSTOMER RESPONSIVENESS

CEO of Domino's delivered pizzas to customers; showed customers that he was willing to sell for
people and really valued/proud of product
: if employees create a good thing w/a customer, gives them more incentive, so work harder
: finding where your mkt is and making sure your product goes to those people

VALUE CHAIN
p84
Value Chain: idea that a co. is a chain of activities for transforming inputs into outputs that
customers value-base
2 diff types of activities that go into Value Chain (primary and support)
Figure 4.5

Primary Activities – bread and butter of co./ bedrock of co.

every single thing is absolutely necessary (numerical order)
1.) R&D
2.) Prod'n
3.) Mktg and Sales
4.) Customer Service

Secondary Activities: Support Activities

Provide inputs for primary activities
– Mat'l management (logistics) (SW)
– human resources (Google and Apple)
– Information Systems
– Company Infrastructure
not too many efficient co.'s that concentrate only on Primary Activities but also on Support
Activities
: context w/which value chain runs in a co.

DISTINCTIVE COMPETENCIES
: allows co.'s to remain profitable and competitive
to achieve differentiation and lower cost

RESOURCES
*Financial, physical, social or human, technological and organizational factors that create value
to customers
: come in all types of forms
*Can be Tangible or Intangible
Tangible = land, building, equipment
: important ones are cash and patents (inventory)
Intangible = brand names, reputations
: anything that's not physical (where patents come in)
: Match.com owner has 5700 domain names (anytime he thinks of new word or creates rhyme,
goes and registers it and sells them for a lot of money)
: tremendous value in that (tangible or intangible?) a little of both ?
: tangible
: can charge a lot for domain name if know the want is there

CAPABILITIES
*A company's skills at coordinating its resources and putting them into productive use
: ability to productively use co.'s resources

DURABILITY
: more in regard to having comp adv over your competition in particular mkt-place and be able
to stay profitable
: whenever co. has certain distinctive adv's, easy for competitors to see where value is coming
from (lower cost, particular process that you have implemented)
: what happens naturally in mkt-place; if barriers to imitation and barriers to entry are low
enough, ppl will come in, copy what you're doing, and take your profits and mkt share
: co.'s ability to maintain their share in the mkt ← durability
: Way that you can do that is
: raise the barriers of imitation
: book puts more emphasis on this
: factors that make it difficult for competitors to come in and imitate what you're
doing
: lot of software co.'s do that
: being able to hide what you're doing so ppl can't copy you so you can maintain
your comp adv over time
: always assume someone's after them ← co. can stay on top of game so don't lose
mkt share (successful co.'s)
: raise barriers of entry into mkt-place

True or False?
1.) A company has a competitive advantage when its profitability is higher than the average
for its industry T
2.) Michael Porter has argued that low cost and differentiation are two basic strategies for
creating value and attaining a competitive advantage in an industry T
3.) Most complicated measure of efficiency is the qty of inputs that it takes to produce a
given output F (maybe not most complicated)
4.)
5.) Product innovation refers to the act of creating new products or processes F
6.) The term value chain refers to the idea that a co. is a chain of activities for transforming
inputs into outputs valued by customers' value T
7.) Mktg strategy refers to the position that a co. takes wrt pricing, promotion, advertising,
prod design and distribution T
8.) Which of the following is a primary activity in a firm's value chain?
d. R & D
9.) Functional level strategies build ___ by focusing on a limited number of important fn'l
lvl strategies
b. competitive advantage
10.) The term ____ has been coined to describe the ability of co.'s to use flexible MFG tech to
reconcile 2 goals that were once thought to be incompatible: low cost and differentiation
c. mass customization
11.) in a ____, members coordinate their own activities, which might include making their
own hiring, training, work and reward decisions
c. self-managing team
12.) the principle tool that most managers now use to increase the reliability of their product
offering is
a. TQM (TQM > 6σ
13.) d. positioning strategy is the specific
14.) ____ are something physical, such as land, buildings, plant,
a. tangible resources
15.) Which of the following is a support activity of the value chain?
c. Information Systems
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Tests may be too long or detailed, but not tricky
read the book (long relative to time)

Have entire 3 hrs to do exam (some finish quickly, some will take 3 hrs)
4 Chapters
about 100 M/C
bring 2 scantrons (25 per chap)
probably just one essay
: essays come from things we have discussed
: about strategic planning process on board very 1 st day (MVV, SWOT, STEEP, BARBS,
etc);
: scan the environment; strategic choices
: something familiar to us
: more points on M/C than on essay (M/C come from CD/test bank ← by pulishers)
: READ THE TEXT
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Preferred means of cx for Prof Doty = email
don't email Sunday (basically)
any day before that (for questions or w/e)