Review CASE 7: Harley-Davidson, Inc. in 2018, p. 442 (from your textbook) and discuss the concept of differentiation advantage.A
: Discussion ForumReview CASE 7: Harley-Davidson, Inc. in 2018, p. 442 (from your textbook) and discuss the concept of differentiation advantage.A case study is a puzzle to be solved, so before reading and answering the specific questions, develop your proposed solution by following these five steps:
- Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course module, which apply to the situation described in the case study.
- Record the facts from the case study which are relevant to the principles and concepts of the module. The case may have extraneous information not relevant to the current module. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
- Describe in some detail the actions that would address or correct the situation.
- Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.
- Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.
Case Study Questions:
- Analyze the use of resources and capabilities to achieve a competitive advantage by Harley Davidson.
- Are their differentiation advantages imitable by other companies? Why or why not?
- How can opportunities for profitable differentiation be identified?
- Can they effectively compete in the industry given the nature of the differentiation advantages that underpin their existing strategy?
Embed course material concepts, principles, and theories (which require supporting citations) in your initial response along with at least one scholarly, peer-reviewed journal article. Keep in mind that these scholarly references can be found in the Saudi Digital Library by conducting an advanced search specific to scholarly references. Use APA style guidelines.You are required to reply to at least two peer discussion question post answers to this weekly discussion question and/or your instructor’s response to your posting. These post replies need to be substantial and constructive in nature. They should add to the content of the post and evaluate/analyze that post’s answer. Normal course dialogue doesn’t fulfill these two peer replies but is expected throughout the course. Answering all course questions is also required.
Required:
- Chapter 7 in Contemporary Strategy Analysis
- Chapter 7 PowerPoint slides Chapter 7 PowerPoint slides – Alternative Formats in Contemporary Strategy Analysis
- Hyungu Kang. (2019). An Application of “Building Blocks of Competitive Advantage” Approach to the U.S. Cereal Market Leaders. Leadership & Organizational Management Journal, 2019(1), 40–60.
- Breunig, K. J., & Skjølsvik, T. (2020). Understanding the Strategy-Innovation Link in an Era of Disruptions. Technology Innovation Management Review, 10(8), 4–13. https://doi.org/10.22215/timreview/1377
- Ramadan, M., Shuqqo, H., Qtaishat, L., Asmar, H., & Salah, B. (2020). Sustainable Competitive Advantage Driven by Big Data Analytics and Innovation. Applied Sciences, 10(19). https://doi.org/10.3390/app10196784
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CONTEMPORARY STRATEGY ANALYSIS
tenth edition
Robert M. Grant
John Wiley & Sons Ltd., 2019
Chapter 7
The Nature and Sources of
Competitive Advantage
- How is competitive advantage established?
- How s competitive advantage sustained?
- Cost analysis
- Differentiation analysis
- Combining cost and differentiation strategies
The Nature and Sources of Competitive Advantage
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
OUTLINE
1
How does competitive
advantage emerge?
External sources of
change e.g.:
- Changing customer demand
- Changing prices
- Technological change
Internal sources
of change
Resource heterogeneity
among firms means
differential impact
Some firms faster
and more effective
in exploiting change
Some firms
have greater creative
and innovative
capability
The Emergence of Competitive Advantage
© 2013 Robert M. Grant, www.contemporarystrategyanalysis.com
HOW IS COMPETITIVE ADVANTAGE ESTABLISHED?
2
Innovatory strategies may involve:
- Creating whole new markets/industries (e.g. Craig McCaw and wireless telephony services; My Space and Facebook in social networking)
- Creating new customer segments (e.g. AirAsia in low-cost air travel in SE Asia; Nintendo’s Wii games console;)
- New sources of competitive advantage
- Reconfiguring the value chain: Zara in fashion clothing; Southwest in airlines; Cemex in cement; IKEA in furniture
- Reconceptualizing the product: Cirque du Soleil in circuses; Starbucks in coffee shops; Apple in computers (iPad)
- New performance combinations : e.g. Low prices with quality (Virgin Atlantic); low prices and style (H&M, Primark, Target)
STRATEGIC INNOVATION: creating customer value from new products, experiences, or modes of product delivery
Competitive Advantage from Internally-Generated Change: Strategic Innovation
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
HOW IS COMPETITIVE ADVANTAGE ESTABLISHED?
3
Historical Origins of Business Model Innovations
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
HOW IS COMPETITIVE ADVANTAGE ESTABLISHED?
Business model innovation | Origin |
Free content supported by paid advertising | US commercial radio, early 1920s |
Platform business models | The first platform businesses were auction houses: Sotheby’s, 1744; Christies, 1766. |
Shared-ownership models | Began with real estate timeshares during 1960s. Currently: Airbnb, Zipcar, Netjets |
Franchising | Singer Sewing Machine Company created global network of franchised dealers in 1880s |
Consumer cooperatives | The Rochdale Society of Equitable Pioneers, 1844 |
Microfinance | Muhammad Yunus’s Grameen Bank, 1970s |
Tied products (razor-and-blades) model | Introduced by Gillette’s competitors in 1910 |
Mail order | Montgomery Ward, 1872 |
Blue Oceans are uncontested market spaces such as: new customer segments for or reconceptualizations of existing products, or novel recombinations of product attributes.
The Strategy Canvas can help identify blue ocean strategies by exploring new combinations of product attributes. E.g. Cirque du Soleil.
Price
Low
High
Performing animals
Humor
Acrobatics
Thrills/danger
Dance
Costumes
Music
Visual experience
Comfort
Attractive venue
Appeal to children
Appeal to adults
Cirque du Soleil
Traditional circus
Blue Ocean Strategy
HOW IS COMPETITIVE ADVANTAGE ESTABLISHED?
Resource acquisition
Isolating Mechanism
- Obscure superior performance
- Deterrence: signal aggressive intentions to imitators
- Pre-emption: exploit all available investments opportunities
- Rely upon multiple sources of competitive advantages to create “causal ambiguity”
- Base competitive advantage upon resources and capabilities that are immobile and difficult to replicate
Sustaining Competitive Advantage Against Imitation
Requirement for Imitation
Identification
Incentives for imitation
Diagnosis
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
HOW IS COMPETITIVE ADVANTAGE SUSTAINED?
Competitive Advantage in Different Industry Settings:
Trading Markets and Production Markets
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
HOW IS COMPETITIVE ADVANTAGE SUSTAINED?
Source of imperfection of competition | Opportunity for competitive advantage | |
TRADING MARKETS | None (efficient markets) Imperfect information Transactions costs Systematic behavioral trends Overshooting | None Insider trading Cost minimization Superior diagnosis (e.g. chart analysis) Contrarianism |
PRODUCTION MARKETS | Barriers to imitation Barriers to innovation | Identify barriers to imitation (e.g. deterrence, preemption, causal ambiguity, resource immobility, etc.) and base strategy upon them. Difficult to influence or exploit. |
5
COST
ADVANTAGE
DIFFERENTIATION
ADVANTAGE
COMPETITIVE
ADVANTAGE
Similar product
at lower cost
Price premium
from unique product
Sources of Competitive Advantage
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
TYPES OF COMPETITIVE ADVANTAGE
6
Porter’s Generic Strategies
Low cost
Differentiation
Industry
-wide
Single
segment
SOURCE OF COMPETITIVE ADVANTAGE
COMPETITIVE
SCOPE
© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com
TYPES OF COMPETITIVE ADVANTAGE
COST LEADERSHIP | DIFFERENTIATION |
F O C U S |
8
Experience Curve for the Ford Model T, 1909-1920
0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 32
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Cumulative units of production (millions)
Unit cost
(1958 $s)
1909
1910
1911
1912
1913
1920
1918
1915
1914
Note: The figure shows an 85% experience curve, i.e. unit costs declined by approximately 15% with each doubling of cumulative volume.
COST ANALYSIS
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
100K 200K 500K 1,000K 5 10 50
Accumulated unit production Accumulated units
(millions) (millions)
1960 Yen
15K 20K 30K
Price Index
50 100 200 300
70% slope
75%
Japanese clocks & watches, 1962-72
UK refrigerators, 1957-71
Examples of Experience Curves
© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com
COST ANALYSIS
11
If all firms in an industry have the same experience curve, then:
Change in relative costs over time = f (relative market share)
PIMS data show that market share is positively related to profitability:
BUT: – Association does not imply causation
– Costs of acquiring market share offset the returns to market
share
ROS (%)
-2 0 5 10
0-10 10-20 20-30 30-40 over 40
Market Share (%)
The Importance of Market Share
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
COST ANALYSIS
12
PRODUCTION TECHNIQUES
PRODUCT DESIGN
INPUT COSTS
CAPACITY UTILIZATION
RESIDUAL EFFICIENCY
ECONOMIES OF LEARNING
ECONOMIES OF SCALE
- Organizational slack; Motivation &
culture; Managerial efficiency
- Ratio of fixed to variable costs
- Speed of capacity adjustment
- Location advantages
- Ownership of low-cost inputs
- Non-union labor
- Bargaining power
- Standardizing designs & components
- Design for manufacture
- Process innovation
- Reengineering business processes
- Increased dexterity
- Improved organizational routines
- Indivisibilities
- Specialization and division of labor
Drivers of Cost Advantage
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
COST ANALYSIS
13
Units of output
per period
Minimum
Efficient Plant Size: the point
where most scale economies are exhausted
Cost per
unit of
output
Sources of scale economies:
– technical input/output relationships
– indivisibilities
– specialization
Economies of Scale:
The Long-Run Cost Curve for a Plant
© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com
COST ANALYSIS
14
Some of the World’s Most Expensive New Product Development Projects
COST ANALYSIS
© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com
Product | Lead company | Estimated development cost | Launch date |
F-35 Lightening II joint strike fighter | Lockheed Martin | $240 billion | 2012 |
B-2 Spirit “stealth bomber” | Northrup Grumman | $23 billion | December 1993 |
A380 “super-jumbo” | Airbus Industrie | $19 billion | October 2007 |
787 Dreamliner | Boeing | $16–18 billion | 3rd Quarter 2010 |
Windows Vista | Microsoft | $7 billion | January 2007 |
PlayStation 3 | Sony | $7 billion | November 2006 |
Iridium satellite communication system | Motorola/Iridium Satellite LLC | $6 billion | July 1999 |
Ford Contour/Mondeo | Ford Motor Company | $6 billion | October 1992 |
10 20 50 100 200 500 1,000
Annual sales volume (millions of cases)
Advertising Expenditure ($ per case)
0.02 0.05 0.10 0.15 0.20
Coke
Pepsi
Seven Up
Dr. Pepper
Sprite
Diet Pepsi
Tab
Fresca
Diet Rite
Diet 7-Up
Schweppes
SF Dr. Pepper
Despite the massive advertising budgets of brand leaders Coke and Pepsi, their main brands incur lower advertising costs per unit of sales than their smaller rivals.
Scale Economies in Advertising: U.S. Soft Drinks
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
COST ANALYSIS
16
Distrib-ution,
Testing, Quality control
Asse-mbly
Component
manufact-
ure
R&D, Design
Engineer-ing
Purch-asing
Using the Value Chain for Cost Analysis:
Automobile Manufacture
Sales,
Market-ing
Dealer support, Customer service
Stages of the analysis:
- Identify the main value chain activities
- Allocate total costs between value chain activities
- Identify the cost drivers at each stage of the value chain
- Identify linkages between activities
- Identify opportunities for cost reduction
COST ANALYSIS
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
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DOES DIFFERENTIATION IMPLY SEGMENTATION?
—Not necessarily, depends upon the differentiation strategy:
BROAD SCOPE DIFFERENTIATION Appealing to what is common between different customers (McDonalds, Honda, Gillette)
FOCUSED DIFFERENTIATION Appealing to what distinguishes different customer groups (MTV, Harley-Davidson, Armani)
DIFFERENTIATION: concerns choices of how a firm distinguishes
its offerings from those of its competitors (i.e. How the firm competes)
SEGMENTATION: concerns choices of which customers, needs,
localities a firm targets (i.e. Where the firm competes)
The Nature of Differentiation:
Differentiation and Segmentation
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
DIFFERENTIATION ANALYSIS
25
THE PRODUCT
THE CUSTOMER
What needs does it satisfy?
By what criteria do they choose?
What motivates them?
What are key attributes?
How do patterns of customer preferences link to product attributes
What price premiums do product attributes command?
What are demographic, sociological, psychological drivers of customer behavior?
FORMULATE DIFFERENTIATION STRATEGY
- Select product positioning in relation to product attributes
- Select target customer group
- Ensure customer/ product compatibility
- Evaluate costs and benefits of differentiation
Analyzing Differentiation: The Demand Side
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
DIFFERENTIATION ANALYSIS
29
- Multidimensional Scaling: maps consumer perceptions of competing products along key differentiating variables
- Conjoint Analysis: uses estimates of consumer preferences for particular product attributes to forecast demand for new products that comprise different bundles of product attributes
- Hedonic Price Analysis: estimates the price that consumers will pay for particular product attributes
Techniques for Analyzing Product
Attributes and Positioning
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
DIFFERENTIATION ANALYSIS
27
High
Low
Low
High
EFFECTIVENESS
GENTLENESS
Tylenol
Bufferin
Excedrin
Bayer
Anacin
Private label aspirin
Differentiation in Pain Relievers:
Multidimensional Scaling of Competing Products
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
DIFFERENTIATION ANALYSIS
28
Sources of uniqueness:
- Product features and product performance
- Complementary services (such as credit, delivery, repair)
- Intensity of marketing activities (advertising; promotion)
- Technology embodied in design and manufacture
- Quality of purchased inputs
- Procedures that impact the customer experience (e.g. the, rigor of quality control, service procedures, frequency of sales visits)
- Skill and experience of employees
- Location (e.g. with retail stores)
- Degree of vertical integration (allows control over inputs and intermediate processes)
Analyzing Differentiation on the Supply Side
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
DIFFERENTIATION ANALYSIS
Key to successful differentiation: consistency of all aspects of the firm’s relationship with its customers.
Product Integrity: the total balance of product features
- Internal integrity: consistency between function and structure
- External integrity: fit between the product and customers’ objectives, values,
and lifestyle
Successful differentiation strategies achieve consistency of internal and external integrity (e.g. Harley-Davidson, Apple, Starbucks)
Product Integrity
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
DIFFERENTIATION ANALYSIS
32
Linkages:
1. Distinctive can design can assist canners’ marketing activities.
2. High manufacturing tolerances can avoid breakdowns in customer’s canning lines.
3. Frequent, reliable delivery can permit canner to adopt JIT can supply.
4. Efficient order processing system can reduce customers’ ordering costs.
5. Competent technical support can increase canner’s efficiency of plant utilization.
Supplies of steel
& aluminum strip
Service & technical support
Sales
Distribution
Inventory holding
Manufacturing
Design Engineering
Inventory holding
Purchasing
Distribution
Marketing
Canning
Processing
Inventory holding
Purchasing
CANNER
CAN MAKER
1
2
4
5
3
Using Value Chains Linkages to Identify Differentiation Opportunities: Can Manufacture
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
DIFFERENTIATION ANALYSIS
36
Features of Cost Leadership and
Differentiation Strategies
© 2019 Robert M. Grant, www.contemporarystrategyanalysis.com
COMBINING COST AND DIFFERENTIATION STRATEGIES
Generic strategy | Key strategy elements | Resource and organizational requirements |
Cost leadership | Scale-efficient plants Design for manufacture Control of overheads and R&D Process innovation Outsourcing/offshoring Avoiding marginal customers | Access to capital Process engineering skills Frequent reports Tight cost control Specialization of jobs and functions Incentives linked to quantitative targets accounts |
Differentiation | Emphasis on branding advertising, design, service, quality, and new product development | Marketing abilities Product engineering skills Cross-functional coordination Creativity Research capability Incentives linked to qualitative performance targets |
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