Strategy

Plans that specifically focus on actions and responses of competitors

About creating, protecting, and exploiting competitive advantage
Looks outward to the marketplace and to the actions of competitors

1. Strategy, markets, and competition

Strategic choices

Selecting arena of competition; determines cast of external characters who

will affect a companys economic future
Management of those external agents: anticipate and control responses of
them

Barriers to entry, as part of the potential entrants, is the most important of the
Porters Five Forces: Substitutes, Suppliers, Potential Entrants, Buyers, and
Competitors
Differentiation is not sufficient to protect a firm from the ravages of a highly
competitive market: most differentiated products also compete in markets where
there are no barriers to entry
Barriers to entry: incumbent firms are able to do what potential rivals cannot;
barriers to entry & incumbent competitive advantages are the same

Entrant competitive advantage has no value. (pg 6)

Competitive advantages are almost always grounded in what are essentially local
circumstances geography / product market space
Examples: Walmart, Apple, Intel (pg 7, 8)
Competitive advantages are likely to be found when arena is local than large and
scattered b/c source of CA tends to be local and specific, not general or diffuse
Increasingly global world service more important, manufacturing less important
service consumed and produced locally opportunities for CA likely to increase
Two questions for strategic analysis:

In the market in which the firm currently competes or plans to enter, do any
competitive advantages actually exist? And if they do, what kind of
advantages are they?

Three kinds of CA:

Supply: cost advantage (privileged access to crucial inputs, proprietary

technology)
Demand (not differentiation since competitors may be equally able to
differentiate/brand their products; arise b/c customer captivity based on
habit, cost of switching, or on difficulties and expenses of searching for
substitute provider)

Economies of scale: cost per unit declines as volume increases b/c fixed cost
spreads among more units incumbent with larger scale enjoys lower cost
Other CA may include i. government protection ii. Superior access to
information
Economic forces behind CA are more likely to be present in markets that are
local either geographically or in product space

Most companies that manage to grow & still achieve a high level of profitability do it
in one of 3 ways:

Replicate local advantages in multiple markets (Coca Cola)

Focus within product space as that space itself becomes larger (Intel)
Gradually expand activities outwards from the edge of dominant market
positions (Wal-Mart and Microsoft)

If no competitive advantage, then focus on operational efficiency

If competitive advantage, manage them

Case: elephants and ants

o Leaders free to make decisions without regard to what the ants might
do
o Ants should leave the space if they are already in it, for their slim
chance depends entirely on the elephant messing up
o Even if incumbents advantages shrink, ants should still refrain from
entering b/c itll just be one of many entrants pursuing profit on a level
playing field. Economic life will be average at best; most likely, will get
crushed by elephant
o Elephants still have to manage CA; first priority is to sustain what it
has, which requires recognizing resources and limits of its CA

Differences made by understanding:

Allows firm to reinforce and protect existing advantages and make

incremental investments to extend them
Distinguish potential areas of growth geographical & product line that are
likely to yield high returns from tempting areas that would undermine the
advantages
Highlights policies that extract maximum profitability from firms situation
Spots threats that are likely to develop & identifies those competitive inroads
that require strong countermeasures

Other branch: potent competitors of similar capacities enjoying benefit of CA

strategy formulation most intense and demanding

Know, anticipate competitor reaction

Strategic planning embraces all the things a company does in which a
competitors direct reactions are critical to its performance pricing policies,
new product lines, geographical expansions, and capacity additions

Methods of analyses

Game structure/simulation
Prisoners dilemma entry / preemption
Cooperation / bargaining