Keys Sources of SCA
...lso the organization itself and its resources. Having discussed the need for competitive advantages to be sustainable over time, it is necessary to identify some of the possible sources of these advantages. There are two approaches used by an organization to establish superiority over their competitors. The approaches can be environment based or resources based. Types of environment based approaches are Michael Porter’s Generic Strategies, Market Option Matrix and Expansion Method Matrix. Generic Strategies look at 4 generic strategies that are open to any business organization: cost leadership, differentiation, focus cost and focus differentiation. In Market Option Matrix, 4 types of strategies are considered by an organization: market penetration, product development, market development and diversification. Expansion Method Matrix examines the organization internal and external expansion opportunities in considering the strategies of acquisition, joint venture, alliance and franchise. There are three main approaches to the development of resource based strategies: value chain, the resource based view and cost reduction. Value chain look into adding value to upstream activities such as processing raw materials and downstream strategies concentrated on differentiated products toward specific market segment. The resource-based consider an organization key resources and core competencies for its strategies. Cost reduction approach look at the six routes of: design, supplier relationships, economies of scale and scope, the experience curve, capacity utilization and synergistic effects. Both environments based and resource based approaches resulted in the following sources of competitive advantages that an organization can rely on: • Low costs. The development of low-cost production enables the company to compete against other companies either on the basis of lower prices or possibly on the basis of the same prices as its competitors but with more services being added. Low cost producer typically sell a standard, or no frills, product and place considerable strategic emphasis on reaping scale or absolute cost advantages from all sources. Example of this is Mustafa Shopping Centre and Tiger Airway. Both focuses their efforts on building and selling no-frills products and services to their customers. • Differentiation. The development of unique features or attributes in a product or service that position it to appeal to a part of the total market. Branding is an example of this source of competitive advantage. Differentiation is a viable strategy for earning above average returns because the resulting brand loyalty lowers customers’ sensitivity to price. Example of the successful use of a differentiation strategy is Nike athlete shoes and Mercedes-Benz. Both rely on their brand to differentiate themselves from their competitors. • Niche marketing. A company may select a small market segment and concentrate all its efforts on achieving advantages in this segment. The goal is to find an extremely favorable niche that is well suited to the firm’s internal and external environment that other companies are not likely to challenge or dislodge it. An example is Microsoft which develops its first disk operating system (DOS) in 1980 for IBM’s personal computers. The demand at that time for open system software was very small and Microsoft was able to fill that niche and to successfully grow with it. • Vertical integration. The degree to which an organization operates vertically in multiple locations on an industry’s value chain from extracting raw materials to manufacturing to retailing. For example by assuming a function previously provided by a supplier is called backward integration (going backward to an industry’s value chain). By assuming a function previously provided by a distributor is known as forward integration (going forward on an industry’s value chain) • Synergy. This is the combination of different units of a business by sharing fixed overheads, technology know-how, sales force or resources to bring about benefits that are much greater than if business is done individually by the different units. This is the leverage of core competencies of each individual units of the organization. It will also result in cost saving and increase in bargaining power of the organization. For example when POSB merged with DBS, they leverage on their resourc...