This past quarter I had two MBA classes, statistics and a class called Achieving Competitive Advantage. (8 weeks is technically a sixth, not a quarter, but that sounds weird!)
For this class we worked remotely in groups to make a Powerpoint competitive analysis of an assigned company, including both slides and extensive slides notes written like a research paper. My team’s industry was athletic footwear and we were assigned Adidas as the company to analyze. I learned a lot about the workout shoe industry and the top sports shoe companies these past 8 weeks! I also became very familiar with Google Slides and What’s App, our group’s chosen work tools. Thanks to the ladies of Team Adidas for being a great team of 100% achievement!
A company has a competitive advantage over its rivals “when its profitability and profit growth are greater than the average of other companies competing for the same set of customers. The higher its profitability and profit growth relative to rivals, the greater its competitive advantage will be” (textbook, see below).
The strategy process
Creating a formal business model strategy has five steps:
- Create the company’s mission and major goals.
- Analyze the company’s competitors to identify the opportunities and threats.
- Analyze the company’s internal environment such as its strengths and weaknesses. Part 2 & 3 of this list form what is commonly known as a SWOT analysis: strengths, weaknesses, opportunities, and threats.
- Select strategies to build on strengths, to correct weaknesses, to take advantage of opportunities, and to eliminate threats. These strategies should also be consistent with the mission statement and major goals of the company.
- Implement the strategies. (Very important! Doing, not just planning!)
One interesting section of this chapter was a list of characteristics of high-performance strategic leaders:
- vision, eloquence, and consistency
- articulation of a business model
- commitment
- being well informed
- willingness to delegate and empower
- astute use of power
- emotional intelligence
This list contains helpful ideas about areas of improvement, for both current and future leaders in business.
External Analysis
External analysis is all about understanding the opportunities and threats to a company. First, define the industry the company competes in, using the customer’s point of view to decide which customer needs the company meets. A model called Porter’s Competitive Forces is helpful for external analysis, read more here. Other external analysis topics in this chapter included strategic groups, the industry lifecycle, and the macro environment of economic, global, technological, demographic, social, and political forces that can affect a company.
Internal Analysis
Part of internal analysis is identifying a company’s distinctive competencies, which are specific strengths that allow a company to differentiate their product and/or lower their costs compared to competitors. Distinctive competencies give companies a competitive advantage. For example, Apple’s distinctive competency is design since customers want to own their products because of their sleek, modern design and intuitive user experience.
A company’s resources can play a role in distinctive competencies. Resources can include aspects of production such as labor, land, etc. as well as non-physical resources like employee knowledge, patents, and more. Internal analysis also studies a company’s value chain, which is the cycle of research & development (R&D), production, marketing & sales, and customer service. This chain of activities cycles through in a row, with logistics, human resources, information system, and company infrastructure supporting every step in the chain. An internal analysis also studies the four building blocks of competitive advantage: efficiency, quality as excellence and reliability, innovation, and customer responsiveness.
Functional Level Strategy
Functional level strategy consists of the actions managers take to improve efficiency and effectiveness of one or more of the value chain activities described above. Efficiency includes building economies of scale, which is saving money by producing in large quantities. Efficiency also studies the learning effects of becoming more efficient the more times a task is completed, up to a certain point. Quality is important to study because high-quality products are reliable, they do the job well, and they are perceived by the customer to be superior to competitors’ products. GE’s six sigma quality improvement process is interesting to read more about. Innovation can often improve efficiency and effectiveness in a functional level strategy, but there is a high rate of failure. Customer responsiveness is part of functional level strategy, centered on giving customers what they want, when they want it, at a price hey are willing to pay… without compromising profitability.
Business Level Strategy
Business level strategy is “the overarching competitive theme of any given market” (textbook), which is WHOM a company decides to serve: which customer segments, what customer needs and desires to satisfy, and how to satisfy those customer needs and desires. Business level strategy is usually described in the company’s mission statement. Two main strategies are a low cost strategy vs. a differentiation strategy, which was explained by comparing the strategy of Walmart vs. Nordstrom. There are different combinations and degrees of low-cost and differentiation strategies a company can pursue, such as Gap competing in a market space between Walmart and Nordstrom.
Competitive Advantage Example:
Spanish fast-fashion brand Zara was profiled in an textbook example which explained Zara’s competitive advantage of speed, achieved by breaking most of the traditional “rules” of fashion companies.
- It takes most fashion companies 6-9 months to go from designing to selling in stores, but this same process only takes 5 weeks for Zara, enabling the company to quickly respond to changing trends.
- Zara owns its own factories with many fast, computer-controlled machinery to cut garments (less waste, saves time compared to human error) and it keeps about half of the production in-house.
- Zara has its own designers, warehouses, and its own stores, so time-consuming negotiations and middle men are not needed for their design-to-sales-floor process.
- The Zara designers use real-time analytics to track what is trending and selling. They also talk to store managers to see what is popular every week, besides the traditional trend spotting at fashion shows, etc.
- They create 40,000 new designs a year, which is cut down to 10,000 designs that are actually produced in small lots. Labor-intensive finishes like hand-sewing is done near the factory, and production space/power/time is alway under the maximum possible in case Zara needs to quickly make something new that is trending.
- Zara deliberately underproduces products so they can sell out, to create scarcity value – making fashionistas want to visit Zara often to see what’s new, before it’s gone.
- Zara also carries less inventory that rival stores so it does not need to reduce prices as often on older merchandise to make room for new merchandise.
Textbook
The book used for class was Strategic Management, 12th edition, by Hill, Schilling, and Jones. Rent it on Amazon Textbook Rental around $20 for several months. Thank you Amazon Textbook Rental! We only covered about half the book in class, you could learn a lot from this easy-to-understand book filled with lots of interesting examples.
I started the online MBA program at Montclair State University in January 2017.