Steps in strategic cost analysis in firm

The techniques described in this chapter can be summarized by outlining the steps required in strategic cost analysis:  Identify the appropriate value chain and assign costs and assets to it. Diagnose the cost drivers of each value activity and how they interact. Identify competitor value chains, and determine the relative cost of competitors and

Sources of differentiation Advantage of the firm

A firm differentiates itself from its competitors when it provides something unique that is valuable to buyers beyond simply offering a low price. Differentiation allows the firm to command a premium price, to sell more of its product at a given price, or to gain equivalent benefits such as greater buyer loyalty during cyclical

The cost of differentiation infirm

Differentiation is usually costly. A firm must often incur costs to be unique because uniqueness requires that it perform value activities better than competitors. Providing superior applications engineering support usually requires additional engineers, for example, while a highly skilled sales force typically costs more than a less skilled one. Achieving greater product durability than

Buyer value and differentiation of the firm

Uniqueness does not lead to differentiation unless it is valuable to the buyer. A successful differentiator finds ways of creating value for buyers that yield a price premium in excess of the extra cost. The starting point for understanding what is valuable to the buyer is the buyer’s value chain. Buyers have value chains

Buyer Purchase Criteria for the firm

1. Buyer Purchase Criteria Applying these fundamentals of buyer value to a particular industry results in the identification of buyer purchase criteria—specific attributes of a firm that create actual or perceived value for the buyer. Buyer purchase criteria can be divided into two types: Use criteria. Purchase criteria that stem from the way in

Differentiation strategy of the firm

Differentiation stems from uniquely creating buyer value. It can result through meeting use or signaling criteria, though in its most sustainable form it comes from both. Sustainable differentiation requires that a firm perform a range of value activities uniquely that impact those purchase criteria. Meeting some purchase criteria requires that a firm perform just

Steps in differentiation of the firm

The concepts in this chapter can be summarized by outlining the analytical steps necessary for determining the bases for differentiation and selecting a differentiation strategy. Determine who the real buyer is. The first step in differentiation analysis is to identify the real buyer. The firm, institution, or household is not the real buyer, but

Technology and competition

Any firm involves a large number of technologies. Everything a firm does involves technology of some sort, despite the fact that one or more technologies may appear to dominate the product or the production process. The significance of a technology for competition is not a function of its scientific merit or its prominence in

Technology strategy: The Choice of Technologies to Develop

At the core of a technology strategy is the type of competitive advantage a firm is trying to achieve. The technologies that should be developed are those that would most contribute to a firm’s generic strategy, balanced against the probability of success in developing them. Technology strategy is a potentially powerful vehicle with which

Technology strategy: Technological Leadership or Followership

The second broad issue a firm must address in technology strategy is whether to seek technological leadership. The notion of technological leadership is relatively clear—a firm seeks to be the first to introduce technological changes that support its generic strategy. Sometimes all firms that are not leaders are viewed as technological followers, including firms

Technology strategy: Licensing of Technology

The third broad issue in technology strategy is technology licensing, a form of coalition with other firms.6 Firms with a unique technology are often asked for licenses, or are forced to license by government regulations. Licensing is also a way to gain access to technology. Where technology is an important source of competitive advantage,

Technological evolution

Since technological change has such a powerful role in competition, forecasting the path of technological evolution is extremely important to allow a firm to anticipate technological changes and thereby improve its position. Most research on how technology evolves in an industry has grown out of the product life cycle concept. According to the life

Formulating technological strategy of the firm

The concepts in this chapter suggest a number of analytical steps in formulating technological strategy in order to turn technology into a competitive weapon rather than a scientific curiosity. Identify all the distinct technologies and subtechnologies in the value chain. Every value activity involves one or more technologies. The starting point in formulating technological

The strategic benefits of competitors

The presence of the right competitors can yield a variety of strategic benefits that fall into four general categories: increasing competitive advantage, improving current industry structure, aiding market development, and deterring entry. The particular benefits achieved will differ by industry and the strategy a firm is pursuing. 1. Increasing Competitive Advantage The existence of

What makes a “good” competitor?

Competitors are not all equally attractive or unattractive. A good competitor is one that can perform the beneficial functions described above without representing too severe a long-term threat. A good competitor is one that challenges the firm not to be complacent but is a competitor with which the firm can achieve a stable and

Influencing the pattern of competitors

The benefits of good competitors suggest that it may be desirable for a firm to attack some current competitors and not others, and to encourage the entry of new competitors provided they meet the tests of a good competitor. Since it is usually desirable to have more competitors early in an industry’s development than

The optimal market configuration for the firm

The principles of competitor selection imply that holding a 100 percent market share is rarely, if ever, optimal.54 It is sometimes more sensible for firms to yield position and allow good competitors to occupy it than to maintain or increase share. While this is contrary to managers’ beliefs in some firms and almost heretical

Pitfalls in competitor selection

The principles of competitor selection are not always followed. The following pitfalls seem to be among the most common: Failure to Distinguish Good and Bad Competitors. Many companies do not recognize which of their competitors are good competitors and which are not. This leads them to pursue across-the-board moves, or worse yet, to attack

Bases for industry segmentation

An industry is a market in which similar or closely related products are sold to buyers, as shown schematically in Figure 7-1.2 In some industries a single product variety is sold to all buyers. More typically, however, there are many existing or potential items in an industry’s product line, distinguished by such characteristics as

The industry segmentation matrix for the firm

Having identified the relevant segmentation variables with structural or value chain implications, the next task is to combine them into an overall segmentation of the industry. The task is usually difficult because there are many relevant segmentation variables—in some industries there can be dozens. The challenge is to distill these variables into the most