Building Competitive Advantage through Functional Level Strategy, and Chapter Six, Business-Level Strategy and the Industry Environment.
What are functional-level strategies? How do they relate to the competitive advantage of a company? How can functional-level strategy contribute to efficiency?
Describe economies of scale and how it relates to competitive advantage. What strategic significance do economies of scale have for a company? What does it do with the competitive advantage of a company?
How does innovation relate to competitive advantage? What can be done to sustain innovation in a company?
How do customer relations contribute to competitive advantage? What is the effect of customer relations on value creation and its components?
Chapter 6 Questions:
Define fragmented and consolidated industries. What are the differences between these two types of industries? How can an industry be consolidated?
What opportunities and advantages do consolidated industries offer that fragmented industries do not?
Describe horizontal and vertical integration. How do businesses leverage these strategies for growth, and how can they aid them in gaining a competitive advantage? How developing competitive advantage could fail by horizontal and vertical integration.
How did Toyota become a Global Leader?
Fragmented and Consolidated Industries
- Fragmented industry: Many small and medium-sized companies compete, with no single company having a significant market share. Examples: Restaurants, clothing stores.
- Consolidated industry: A few large companies dominate the market. Examples: Airlines, automobile manufacturers.
- Differences: In fragmented industries, competition is more intense, and companies have less pricing power. In consolidated industries, there is less competition, and companies have more pricing power.
- Consolidation: Industries can consolidate through mergers, acquisitions, or when successful companies grow and gain market share.
2. Opportunities and Advantages of Consolidated Industries
Consolidated industries offer:
- Greater profitability: Less competition and higher prices lead to increased profits.
- Economies of scale: Large companies can achieve cost advantages through scale.
- Increased bargaining power: Large companies have more leverage with suppliers and buyers.
- Reduced rivalry: Less competition can lead to a more stable and predictable market.
3. Horizontal and Vertical Integration
- Horizontal integration: Expanding a company's operations within the same industry. Examples: A coffee shop chain acquiring another coffee shop chain.
- Vertical integration: Expanding a company's operations into different stages of the supply chain. Examples: A coffee shop chain buying a coffee bean farm (backward integration) or starting its own delivery service (forward integration).
- Leveraging strategies:
- Growth: Both strategies can help companies grow in size and market share.
- Competitive advantage: Can lead to cost savings, increased efficiency, and greater control over the value chain.
- Failure:
- Horizontal integration: Can lead to antitrust issues or difficulties in integrating acquired companies.
- Vertical integration: Can be risky if the company lacks expertise in the new stages of the supply chain, and it can reduce flexibility.
4. Toyota's Global Leadership
Toyota became a global leader through a combination of factors:
- Lean manufacturing: Pioneering and perfecting the Toyota Production System, focused on efficiency and waste reduction.
- Quality: Emphasizing high quality and reliability in its vehicles.
- Continuous improvement: A culture of "kaizen" – constantly seeking ways to improve processes.
- Customer focus: Understanding and responding to customer needs.
- Global expansion: Strategically expanding into new markets around the world
Here's a breakdown of the concepts and answers to your questions regarding functional-level strategies, competitive advantage, and industry analysis.
Functional-Level Strategies and Competitive Advantage
- Functional-level strategies are actions taken by specific departments or functions within a company (like marketing, operations, or finance) to improve their efficiency and effectiveness. These strategies are essential for achieving a company's overall business-level strategy.
- Relationship to competitive advantage: When functional-level strategies are executed effectively, they lead to:
- Increased efficiency: Doing things better, reducing costs.
- Improved quality: Making better products or services.
- Greater innovation: Developing new and valuable offerings.
- Enhanced customer responsiveness: Better meeting customer needs.