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Table of Contents
Competitive Advantages ............................................................................................................................... 2
Business Level Strategy ................................................................................................................................. 2
Cost leadership ............................................................................................................................................. 2
Five Porte’s Forces and Cost leadership ....................................................................................................... 3
Differentiation Strategy ................................................................................................................................ 3
Five Porte’s Forces and Differentiation ........................................................................................................ 4
Focused strategy ........................................................................................................................................... 4
Five Porte’s Forces and focused strategy ..................................................................................................... 5
Combination strategy ................................................................................................................................... 5
Stuck in the Middle ....................................................................................................................................... 6
Stage of industry life cycle ............................................................................................................................ 6
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Competitive Advantages

In this week, I found exciting materials in this chapter and in the class. In the business, we

want to make and sustain completive advantages. For this purpose, we define different strategy

and direct our company to that direction. However, we can see many big corporations lost the

game even though they thought that they were using strategies that create competitive advantages.

As professor Vincenti told us several time, we can learn through experiences. Even at the

organizational level, we can learn from the failure of other companies. Some years ago, WEBVAN

made a big failure; Amazon went through the failure by recruiting the failed managers of that

company. In fact, Amazon learned by recognizing the things that went wrong. So, in this chapter,

we learn what strategy can produce competitive advantages.

Business Level Strategy

Michel porters defined three types of the generic strategy of (1) cost leadership, (2) focused

strategy and (3) differentiation which can differently help the company to create competitive

advantage base on the size of the market.

Cost leadership

In this strategy, the company wants to dominate the market by offering low-cost products.

In this way, the company should:

 Focusing on building efficient-scale systems

 Reducing the cost of business in all business units from value chain to sale

and advertisement
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 Avoiding target, the customers who are more likely to pay slowly and

unpaid.

 Focusing strictly on cost and controlling the overhead.

For the company, it is better to increase the number of products to decrease the cost of

production. But it is critical for the company to attain competitive parity, which is a situation that

the company dominated other competitors in the market. In fact, the company can increase its

return in comparison to others.

However, this strategy can cause several problems, and some of them are:

 Ignoring part of the activities in the business

 The vulnerability of the business because of increasing the price on

the production of low-cost items

 Heavy investment in the production, facilities and other equipment

can reduce the flexibility of the company to change its strategy whenever there is a

change in the environment.

Five Porte’s Forces and Cost leadership

In this strategy, our low price can make the barrier to new entry companies. In buyer power,

we can offer a better price to our key clients. In supplier power, we will have better protection

against the supplier because of the volume of the products. In substitutes’ threat, our low-cost

strategy will defend our position. In rivalry, we can rely on our competitiveness on price.

Differentiation Strategy

It refers to the way that the company makes itself distinguishable from others. This strategy

can be seen in different business and products such as companies who manufactures prestige items,

innovate items, feature items, great customer service provider, and dealer network. In support
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activity, we can mention infrastructure, when the company cares too much about the company’s

image. For this purpose, the company tends to hire a well-known CEO to increase the reputation

of the company. In human resource, the company wants to hire the best people in the industry, and

in this way, the company also provide the excellent training program to increase the performance’s

level of employees in the company. In technology, we use from the best IT infrastructure to support

the activities. In the primary activity, the company will use from more efficient operations for both

decreasing the damage and increasing the speed of transferring the items. In operation, we use

from the method to decrease the errors and improve the quality. In advertising, the company will

use from the innovative program to affect the target audiences. Also, we are working on building

a unique relationship with our unique clients. However, it should be considered that sometimes

by offering a similar product with lower price, we can affect the sell of the higher-price product,

and make the buying-decision of buyer difficult.

Five Porte’s Forces and Differentiation

If we want to use 5 forces in this strategy, in entry barriers, the customer’s loyalty can make

the barrier to other to enter into the market. In buying power, as we have fewer competitors, our

customers have less negotiation power. In supplier power, we can also mitigate the increase’s price

of the input products from suppliers. Because of having more loyal customers, there is less threat

in substituting from others. In a rivalry, also we can rely on brand loyalty, which can decrease the

effect of rivalry.

Focused strategy

In this strategy, we focus on specific part of the market, which is a narrow part, and in this

way, we offer two kinds (1) cost focus and (2) differentiation focus. In cost focus, we want to offer

an affordable price in this narrow market. in differentiation focus, we target the market by
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providing differentiation of our service and product. During the time, this strategy can be copied,

and we will face the new competitors in the market.

Five Porte’s Forces and focused strategy

In entry barriers, our core competencies can help to make a higher barrier to new rival to

come into the industry. In buyer power, because of having fewer alternatives, the buyers have less

power in the negotiation. In supplier power, the supplier generally has more power in the

negotiations because the number of products is low. In threat of substitutes, core competence and

niches market can help to mitigate the effects of being replaced by others.

Combination strategy

In this way, the company will integrate differentiation and cost leadership strategy to create

efficiently a unique value for the clients. It means that the corporation will produce several

products with high quality and low price. This strategy cannot be copied easily for the other rivals.

In this way, we can use for IT governance to improve the efficiency and effectiveness of the

primary and support activity in the value chain. For example, in mass customization, we will take

advantage of automated machines in the production.

Five Porte’s Forces and combination strategy

In this strategy, the company will offer the lowest price for the products, so there is a very

low threat for a substitute. Because of having a perfect competitive position, the entry of rivals is

very low. This company will have high power for a supplier because the volume is so high, and

suppliers will have to sell the product to this company at a more desirable price. Buyers also

because of being fewer competitors will have less power in their business with the company.
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Stuck in the Middle

This situation will happen when a company has a failure in integrating the mentioned

strategies together. It means that the company had problems in generating a high scale of operation

and revenue to cover all the related expenses. In this way, the company should accurately evaluate

revenue’ sources and profits in the value chain.

Stage of industry life cycle

In every business, we have a specific life cycle, and it contains four stage of (1)

introduction, (2) growth, (3) maturity, and (4) decline. It is crucial that managers and business

owner know about their life cycle position. For example, while industry needs to have more

research and development activities in the introduction, this specific business should consider the

production’s efficiency in the maturity in order to decrease the production’s cost. For this purpose,

different strategies will bring different result in the life cycle. For example, differentiation can be

used in the introduction and growth stage. In maturity, we can use for differentiation and overall

cost leadership, and in decline, we can use form overall cost leadership and focus strategy. Another

example can be the process design that should be focused highly in maturity and lowly in other

stages.