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 : 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:

  1. 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.
  2. 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.
  3. Describe in some detail the actions that would address or correct the situation.
  4. Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.
  5. 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:

  1. Analyze the use of resources and capabilities to achieve a competitive advantage by Harley Davidson.  
  2. Are their differentiation advantages imitable by other companies? Why or why not?
  3. How can opportunities for profitable differentiation be identified?
  4. 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:

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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

7