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Michael Porters Competitive Advantage 6110
Michael Porters Competitive Advantage 6110
How a firm can actually create and sustain a competitive advantage in its industry
Value Chain
Identify which activities contributing to cost leadership and differentiation Analyze the source of competitive advantage
Value Chain
Firm Infrastructure Supporting Activities Human Resource Management Technology Development
Operations
Outbound Logistics
Inbound Logistics
Primary Activities
Service
Margin
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Procurement
Primary Activities
Inbound Logistics
Receiving, storing, and disseminating inputs. E.g., warehousing, inventory control
Operations
Transforming inputs into the final product form
Primary Activities
Outbound Logistics
Collecting, storing and distributing the product to buyers
Service
Providing service to enhance or maintain the value of the product
Corporate Lending
Xerox
X
X
Support Activities
Procurement
Function of purchasing inputs used in the value chain
Technology Development
Support Activities
Human Resource Management Firm Infrastructure planning, finance, accounting, legal, etc.
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Competitive Scope
Four scopes may affect value chain Ex. The value chain serves minicomputer requires extensive sales assistance, less hardware performance different from what serves small business
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Competitive Scope
Segment Scope
Differences required to serve different product or buyer segment
Vertical Scope
Division of activities between a firm and its suppliers, channels, and buyers
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Competitive Scope
Geographic Scope
Different geographic areas
Industry Scope
Interrelationships among business units
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Competitive Strategies
Competitive Advantage Lower Cost Differentiation Broad Cost Differentiation Target Leadership Narrow Cost Focus Differentiation Focus Target
Competitive Scope
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(40%)
(27%)
Operations (67%)
Service (1%)
Margin (5%)
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Asset Assignment
Human Resources Management (1%) Firm Infrastructure (16%) Technology Development(2%) Procurement (2%)
(8%)
Liquid Assets
(6%)
(15%)
Fixed Assets
(38%)
(2%)
(5%)
Inbound Logistics
Operations (67%)
Service (2%)
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Linkages
How other activities are performed Linkages within the Value Chain Vertical Linkages
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Integration
Vertical integration in a value activity
Timing
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Cost Dynamics
What cause the change of cost drivers
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Cost Dynamics
Industry real growth Differential scale sensitivity Different learning rates Differential technological change Relative inflation of costs Aging Market adjustment
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Cost Advantage
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Inbound Logistics
Operations
Outbound Logistics
Service
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Margin
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Cost Focus
A firm dedicates its efforts to a wellchosen segment of an industry can often lower its costs significantly.
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Differentiation
Emphasize on a unique source of differentiation in the Value Chain, rather than on products or markets only Differentiation base on buyers value, not only difference that buyers do not value Should consider the cost of differentiation
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Uniqueness
Differentiation
Buyers Value
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Your strength which can lead to differentiation and then improve buyers value
Margin
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Drivers of Uniqueness
Policy Choices Linkages
Linkages within the value chain Supplier linkages Channel linkages
Timing
Be the first
Location
All Right Reserved by Wesley Shu 36
Drivers of Uniqueness
Interrelationship
Sharing a value activity with sister business units. E.g., sharing a sales force for both insurance and other financial products
Proprietary learning Integration e.g., integrating online systems to current ordering systems Scale Institutional factors e.g., Madames route
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Through
Linking the firms value chain to the buyers value chain
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Steps in Differentiation
1. Determine who the real buyer is 2. Identify the buyers value chain and the firms impact on it 3. Determine ranked buyer purchasing criteria 4. Assess the existing and potential sources of uniqueness in a firms value chain
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Steps in Differentiation
5. Identify the cost of existing and potential sources of differentiation 6. Choose the configuration of value activities that creates the most valuable differentiation for the buyer relative to cost of differentiating 7. Test the chosen differentiation strategy for sustainability 8. Reduce cost in activities that do not affect the chosen forms of differentiation
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Porters Strategy
BOS
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Other Discussion
Creative Industries Supply Chain Management What is Buyers Value Chain?
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