Competitive Strategy Frameworks which you can use

Brief Summary of Competitive Strategy Frameworks which you can use to create and develop your competitive strategy

Below is a summary of various competitive strategy frameworks that you can employ to create and develop your business’s competitive strategy.

Hayes & Schmenner (1978)

Hayes & Schmenner (1978) identify five different dimensions that can assist companies to achieve competitive advantage: price; quality; dependability; product flexibility; and volume flexibility.  Wheelwright (1978) indicates four different types of competitive priorities for gaining advantage over a company’s rivals:

(i)                 price;

(ii)               flexibility;

(iii)             quality; and

(iv)             dependability. 

He further separates strategic manufacturing decisions into structural (strategic decisions and includes capacity, facility, technology, and vertical integration), andinfrastructural (tactical decisions regarding quality, production planning and control, and workforce).

Miles & Snow (1978)

One of the major works on competitive strategy field is that of Miles & Snow (1978) that identifies four strategic types:

•  Prospectors (companies here maintain a level of flexibility and utilise innovation practices to deal with uncertainty and environmental changes.  This type is usually creators of change in which their competitors must respond.  They lack however, of internal efficiency as they focus entirely on product and market innovation);

• Defenders (they seek stability and control in their operations with purpose to achieve maximum efficiency.  This type of companies rarely focus in improving their methods of operations, adjust their technology and structure);

• Analysers (companies here combine elements of the above two types and stress both stability and flexibility.  This type in ‘stable’ environments operate efficiently through formalised structures and processes, whereas in ‘less-stable’ areas they monitor closely competitors’ activities with purpose to adapt to more promising ideas); and

•  Reactors (perform poorly and they lack of strategy.  This type rarely enhances its business strategy, structure, and processes until is forced by environmental changes).

 

Porter (1980)

Another popular competitive strategy framework was proposed by Porter (1980, 1985) that suggests a two-dimensional model: strategic advantage and strategic target.  Subsequently, Porter (1985) uses the dimensions of competitive advantage and competitive scope, in place of the strategic advantage and strategic target (either broad or narrow).  Therefore, he identifies four competitive strategies that could be pursued by businesses: cost leadership; cost focus; differentiation; and differentiation focus.  Companies employing a cost leadership or cost focus strategy attempt to be the low cost producer in an industry.  On the other hand, companies utilising a differentiation or focus differentiation strategy endeavour in differentiating their product lines with purpose to appear unique in a given industry, and thus allow them charge a premium, price. 

Richardson et al. (1985)

Based on the empirical study of 15 Canadian electronics firms, Richardson et al. (1985) identified two categories of competitive priorities with three distinct corporate missions within each one: Competitive advantage depending on:

(i)                 innovations skills (technology frontiersman; technology exploiter; and technological serviceman), and

(ii)               low cost production (customiser; cost-minimising customiser; and cost minimise).

Mintzberg (1988)

Mintzberg (1988) proposes a typology of generic competitive strategies using the dimensions of:

•   differentiation strategies (for instance, price differentiation strategy; image differentiation strategy; support differentiation strategy; quality differentiation strategy; design differentiation strategy; and undifferentiation strategy), and

• scope strategies (for instance, unsegmentation strategy; segmentation strategy; niche strategy; and customising strategy). 

According to Mintzberg (1988), differentiation is a supply-driven concept, whilst scope is a demand-driven concept.

Day (1990) and Miller & Dess (1993)

Day (1990) and Miller & Dess (1993) extended the two-dimensional model three-dimensional model (customer value, costs, and scope of market coverage).  They argue that businesses fall somewhere along a continuum of all three dimensions - relative cost, relative differentiation, and relative focus – regardless of whether or not researchers choose to measure all of them.

Roth and Morrison (1992),

Roth and Morrison (1992), following Miller (1987), argued that competitive attributes could be represented in four dimensions: complex innovation; marketing differentiation; product/market scope; and, conservative cost control. 

Hill (1993)

Hill (1993) takes a similar approach to competitive advantage.  He claims that companies should focus to those criteria that ‘win orders’ against the competition in the marketplace.  Such criteria are:

·         price,

·         delivery,

·         quality,

·         product design and

·         variety. 

Chandler and Hanks (1994),

Chandler and Hanks (1994), propose three dimensions:

·         innovation;

·         quality; and

·         cost leadership. 

Day and Nedungadi (1994)

Day and Nedungadi (1994) identify seven competitive attribute themes: low cost processing; superior service; dealer strength; lowest delivered cost; broad market scope; segment focus; and, innovative features. 

Feurer & Chaharbaghi (1994)

Feurer & Chaharbaghi (1994) develop a holistic approach to define competitiveness.  According to the authors, a company and its rivals will constantly strive to match and improve their capabilities, offerings and potential in order to increase the level of customer and shareholder values.  Another dimension of competitiveness according to Feurer & Chaharbaghi (1994) is the company’s ability to act and react within its competitive environment which requires financial strength to make the essential investments in technology and people.  Hence, companies will have to go through a process of continuous change in order to improve their market position as well as maximising their potential for making a greater profit level as they are competing with other firms of investments opportunities in attracting the necessary funds provided by their shareholders.

Katsikeas (1994)

Katsikeas (1994) reports four comparable dimensions:

·         production capability;

·         marketing capability;

·         product superiority; and

·         competitive pricing. 

Wright et al. (1995)

Wright et al. (1995) suggest three competitive attribute dimensions:

·         high costs and high innovation/differentiation;

·         low costs and low innovation/differentiation; and

·         low costs and high innovation/differentiation. 

Bowman & Faulkner (1996)

Bowman & Faulkner (1996, cited in: Johnson & Scholes, 1999) refine the strategy matrix by using perceived added value and price dimensions, and propose a “strategy clock”. The authors suggest five possible routes for formulating competitive strategies:

·         low price/low added value (route 1);

·         low price (route 2);

·         hybrid (route 3);

·         differentiation (route 4); and

·         focused differentiation (route 5).

Krajewski and Ritzman (1996)

Krajewski and Ritzman (1996) propose expand the cost, quality, time, and flexibility elements of competitive strategy to low-cost operations, high-performance design, consistent quality, fast delivery time, on-time delivery, development speed, customisation, and volume flexibility. 

Walley and Thwaites (1996)

Walley and Thwaites (1996) approached the subject of competitive strategy by employing an integrated approach of numerous theories and combines RBV, Porter’s generic strategies with external powers (such as: customers, rivals, suppliers, regulations and similar), which can influence a company’s performance (as illustrated in the following figure).  The main framework used is Porter’s generic strategy typology and encompasses factors relating to resources (assets and skills within a company) on which competitive advantage is based, its drivers, and sustainability. 

 

Figure: A Holistic Model of Competitive Advantage

Source: Walley,K. and Thwaites, D. (1996). A Review, Synthesis, and Interpretation of the Literature on Competitive Advantage. Journal of Strategic Marketing, 4, 172.

Hooley et al. (1998)

Hooley et al. (1998) propose that there are six basic positioning strategies, each differentially rooted in the resource profiles of firms:

·         low price;

·         superior quality;

·         rapid innovation;

·         superior service;

·         differentiated benefits; and

·         tailored offering.

Thus, while there may be some overlap regarding the nature of competitive attributes, the particular means by which firms can compete appear to differ markedly (Hooley et al., 2003).

Ma (1999a)

Ma (1999a) states that a competitive advantage arises (as illustrated in the following Figure) from one or more of the following three sources:

(i)                 Ownership-based: a company can gain advantage by ownership or possession of certain valuable assets or factors (for instance, strong market position, unique resource endowment, or reputation);

(ii)               Proficiency-based: by superior knowledge, competence, or capabilities in conducting and managing its business process (for instance, by producing quality products at lower costs and delivering the right products to its customers in the right place at the right price and time through the right channels); and

(iii)             Access-based: by opportunity or rights to gain superior access to inputs and markets (for example, exclusive relationship with supplier or distribution channel).

Figure: Generic Sources of Competitive Advantage

Source: Ma H., (1999). Creation and Preemption for Competitive Advantage. Management Decision, 37 (3), pg.261

Spanos and Lioukas (2001)

Spanos and Lioukas (2001) developed and tested a model that combines both the Resource Based-View and Porter’s strategic framework.  Their model (see following Figure) integrates strategic variables that will assist a firm to generate above-average performance, elements of the industry companies operate within and firm specific effects that provide the relevant conditions for the sustainability of performance.  The study findings confirm the importance of this relationship between the two different strategic syntheses in relation to performance.

 

Figure: Spanos & Liouka’s (2001) Conceptual Framework

Source: Spanos, Y.E. & Lioukas S. (2001). An Examination into The Causal Logic of Rent Generation: Contrasting Porter’s Competitive Strategy Framework and the Resource-Based Perspective. Strategic Management Journal, 22, pg. 913.

White (2004)

White (2004) states that companies develop competitive strategies with purpose to maximise the “economic value added” not just for themselves but for the whole chain of value adding activities from the inputs to the outputs delivered to customers.  As illustrated in the following Figure, companies will attempt to:

(i)                 Minimise the consumer surplus (shown as V-P);

(ii)               Increase the value to customer (shown as V);

(iii)             Minimise their costs compare to the costs of the Low Cost Leader (S-C).  Here a company positioned as S will have to attempt to maximise the profit margin by minimising the gap with the Low Cost Leader, and

(iv)             Lower its costs by innovating in the areas of technology and processes within its organisational structure

 

Figure: Value Creation According to White (2004)

Source: White, C. (2004). Strategic Management. Palgrave: Macmillan, pg. 276.

 

Furthermore, White (2004) following his concept on value creation suggests five generic strategic options for gaining competitive advantage and three strategies that guarantee failure.  White (2004) uses the following Figure to illustrate his framework that was adapted from Bowman and Faulkner’s (1996) initial concept.  On the Vertical Axis, White (2004) shows the product’s Value Added and as it is perceived by a company’s customers (differentiation degree). There are three prospects:

(i)                 A company employs a lower than the standard value added;

(ii)               A company employs a standard value added; and

(iii)             A company employs a higher than standard value added.

 

On the Horizontal Axis, the price positioning is illustrated.  The three possible positions are:

(i)                 A company charges a price lower than the standard (low cost leader);

(ii)               A company charges a standard price; and

(iii)             A company charges a higher price than the standard (high costs involved in this position).

 

The five generic strategies (shown 1, 2, 3, 4, and 5) can be used to develop successful strategies, whereas strategies 6, 7, and 8 will result to strategic failure.  White (2004) justifies this position by stating that those three strategies will either involve high prices and costs with standard (or less) value, or a standard price with low value. 

 

White’s (2004) strategic positions are explained as follows:

(i)                 Positions 1 and 2: In this case a company seeks to be a Low Cost Leader or a Focused Low Cost Leader;

(ii)               Positions 4 and 5: Here a company will seek to establish themselves as Product Differentiators or Focused Product Differentiators; and

(iii)             Position 5:  Here a combined approach is taken into consideration.

 

Figure: Strategies for Increasing Value Added

 

Source: White, C. (2004). Strategic Management. Palgrave: Macmillan, pg. 277.

 

The resource-based theory (RBV)

RBV is based on the work of Penrose (1959) and Wernerfelt (1984) and has been extended by various other studies (Barney, 1991; Grant, 1991, 1996; Wernerfelt, 1995; Amit & Shoemaker, 1993; Henderson & Mitchell, 1997; Combs & Ketchen, 1999; Cockburn et al., 2000; Priem & Butler, 2001a).

RBV stresses the importance of a company’s unique competencies and resources in strategy formulation, implementation and performance (Parnell, 2002; Spanos & Lioukas, 2001).  According to RBV paradigm, competitive advantage arises when a company is employing a value creating strategy in their markets (Hooley & Greenley, 2005; Parnell, 2000).  To be successful such strategy, companies must possess and deploy distinct resources that on the one hand create value for customers and on the other hand cannot be imitated by its competitors (Hooley & Greenley, 2005; Parnell, 2000; Mahoney and Pandian, 1992). 

 

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Dr. A. Michail