DEVELOPING

A
COMPETITIVE
STRATEGY
OBJECTIVES
Understand the basic approach of how
firm's competitive strategy is developed

Explain the strategic measure of success,

financial and nonfinancial factors.

Describe the critical business factors in a

business firm and how they can be
measured.
OBJECTIVES

Explain the consequences of lack of

strategic information.

Describe the two basic competitive

strategies, namely,
a) Cost Leadership
b) Product Differentiation
STRATEGY
set of policies, procedure
and approaches
to business that produce
long term success.
COMPETITIVE STRATEGY
set of policies and procedures
that a business uses to gain a
competitive advantage in the
market

simply a company’s long-term

action plan of how to gain an
edge over its rivals
Finding strategy begins determining
the purpose and long-range
direction or on the other words the
mission of the company
BASIC COMPETITIVE STRATEGIES

COST LEADERSHIP PRODUCT DIFFERENTIATION

compete on the compete with the ability to

offer unique products or
basis of providing a
services that are often
quality product or
priced higher than
services in a low products and services of
price. competitors
 Who are our most important customer?
Q
U How sensitive are their purchases price, quality, and
service?
E
S Who are our most important supplier?

T What substitute products exist in the marketplace and

I how do they differ from our product in terms of price and

O quality?

N Is the industry demand growing or shrinking?

S
Is there overcapacity?
 STRATEGIC MEASURES OF SUCCESS

Financial performance
measures include

Growth in Sales and Earnings

Cash Flows

Stock Price
Non-financial measures of
operations include

Market Shares

Product Quality

Growth Opportunities
The non-financial factors show the firm's current
and potential competitive position as measured
from three additional perspective

The Customer

Internal Business Process

Innovation and Learning

Critical Success How to measure CSF
Factors
FINANCIAL MEASURES OF SUCCESS

Level of sales, critical product groups, sales

Sales  trend, percent of sales from new products,
sales forecast accuracy.

Earnings from operations, earnings trend,

Profitability dividend growth

Cash flow, trend in cash flow, interest coverage,

Liquidity asset turnover, inventory turnover, receivables
turnover, credit ratings

Market Value Share price

NON- FINANCIAL MEASURES OF SUCCESS CUSTOMER FACTORS

Customer Customer returns and complaints, customer

Satisfaction survey

Coverage and strength of dealer and

Dealer and distributor channel relationships, e.g., number
distributor of dealers per state or region

Marketing Trend in sales, performance, training, market

and selling research activities; measured in hours or peso

Timeliness of On-time delivery performance, time from

delivery order to customer receipt

Quality Customer complaints, warranty expense

 INTERNAL BUSINESS PROCESS
Number of defects, number of returns,
customer survey, amount of scrap, amount of
Quality  rework, field service report, warranty claims,
vendor quality defects

Cycle time (from raw materials to finish

Productivity products); labor efficiency; machine efficiency;
amount of waste, rework, and scrap

Flexibility Setup time, cycle time

Equipment Downtime, operator expensive, machine

readiness capacity, maintenance activities

Safety Number of accidents, effects and accidents

 Learning and Innovation
Product Number of design changes number of new
patents or copyright, skills of research and
Innovation development staff

Timeliness of new Number of days over or under the announced

product ship date

Skill Number of training hours, amount of skill

development performance improvement

Employee turnover, number of complaints

Employee morale
employee survey

Rate of turnover, training, experience, adaptability,

Competence financial and operating performance measures
CONSEQUENCES OF LACK OF
STRATEGIC INFORMATION

DECISION MAKING BASED ON INCORRECT INVESTMENT

INTUITION DECISIONS

LACK OF CLEAR AND FAVORABLE

LACK OF CLARITY ABOUT
PERCEPTION OF THE FIRM BY
DIRECTION AND GOALS
CUSTOMERS AND SUPPLIERS
DECISION MAKING BASED
ON INTUITION

Without strategic
information, decisions may
be made based on gut
feelings rather than data
and analysis.
LACK OF CLARITY ABOUT
DIRECTION AND GOALS

Without strategic
information, the
organization may
not have a clear
vision of its goals
and direction.
LACK OF CLEAR AND FAVORABLE
PERCEPTION OF THE FIRM BY
CUSTOMERS AND SUPPLIERS

Without strategic information,

a company may not be able
to anticipate or respond to
changes in the market,
putting it at a competitive
disadvantage
INCORRECT INVESTMENT DECISIONS

choosing products, markets or

manufacturing processes inconsistent with
strategic goals

If a company does not have

strategic information, it may
not be able to identify and
capitalize on opportunities to
gain a competitive advantage.
 COST LEADERSHIP AND PRODUCT
DIFFERENTIATION

Cost Leadership

Producing product at a lower cost.

Makes a sustainable profit at a lower prices

Product Differentiation

Uniqueness of the product or services

Allows to change higher price and outperform the
competition in the profit without reducing cost
 Distinct Aspect of the Two Competitive Strategies

Aspect Cost leadership Differentiation

Strategic Target Broad cross setion of the market Focused section of the market

Basic of Competitive
Lower cost in the industry Unique product or service
Advantage

Wide Variety, differentiating

Product Line Limited Selection
features

Lowest Possible cost with high

Innovation in differentiating
Production Emphasis quality and essential product
products
features

Premium price and innovative

Market Emphasis Low Price
differentiating features.
 Other Strategic Issues

A firm does not achieve at least one

strategy is not likely to be successful. This
situation is what Michael calls “getting stuck
in the middle”. A firm that stuck in the
middle is not able to sustain a competitive
advantage .
 CONTEMPORARY
COST MANAGEMENT
TECHNIQUES
OBJECTIVE
Understand and describe the contemporary cost
management techniques such as ;

a.Total Quality Management h. Theory of Constraints

b. Just-in-time Production System i. Life Cycle Costing
c. Process Reengineering j. Target Costing
d. Benchmarking k. Computer-Aided Design and
e. Mass Customization Manufacturing
f. Balance Scorecard l. Automation
g. Activity-based Costing and m. E- Commerce
Management n. The Value Chain
TOTAL QUALITY
MANAGEMENT
(TQM)
is a technique which
management developed
policies and practices to
ensure that the firm's
products and services
are exceed customers
expectations
 The Two Major
Characteristics of TQM are;

(1) a focus on serving customers and

(2) system problem-solving using teams made up of
front-line workers
JUST-IN-TIME
JIT is production system also
known as pull-it-through
approach, which the material
are purchased and the units
are produced only as needed
to meet actual customers
demand.
 Major Features of JIT
Production System
1. Production is organize in manufacturing cells
2. Workers are trained to be multiskilled.
3. Aggressively pursued.
4. Emphasis is placed on reducing setup time.
5. Supplier are carefully selected.
c. Process
Reengineering
Reengineering is a process
for creating competitive
advantage in which a firm
recognized its operating and
management functions,
often with the results of jobs
are modified, combined or
eliminated
c. Process
Reengineering
is diagrammed in
detail, questioned,
and completely
redesigned in order to
eliminate necessary
steps to reduce
opportunities for
errors and reduce
cost.
STEPS USE IN PROCESS
REENGINEERING ARE;
1. A business process is diagrammed in detail.
2. Every step in the business process must be analyzed
and justified.
3. The process is redesign to include only those step that
make product or services more valuable.
4. This process skin you the following anticipated results
1. Process is simplified 3. Cost are reduced, and

2. Process is completed 4. Opportunities for

in less time errors are reduced
 d.

Benchmarking is a process by which a firm

a) determine its critical success factors

b) studies the best practices of other firms (or other units within a
firm) for achieving its critical success factors, and

c) then implement improvement in the firm's process to match or

beat the performance of those competitors.
E. MASS
CUSTOMIZATION
is a management technique in
which marketing and production
process are designed to handle the
increase variety that result from
delivering customized production
and services to customers.
F. Balance Scorecard

-is an accounting report that includes the

firm’s critical success factors in four areas;
Financial Performance
Customer Satisfaction
Internal Business Process
Innovation and Learning
G. ACTIVITY-BASED COSTING AND
MANAGEMENT

Activity analysis
-is used to develop a detailed
description of a specific activities
perform in the operation of firm
 Activity-Based Costing (ABC)
- used to improve the accuracy of
cost analysis by improving the
tracing of cost to product or to
individual customer.

Activity Based Management

(ABM)
- uses activity analysis to
improve operational control and
management control
 EXAMPLE
The following cost information has been established by the accounting department of XYZ
Manufacturing Company:

Direct Materials 495,000

Direct Labor 600,000

Factory Overhead:

COST POOL ACTIVITY COSTS COST DRIVER ACTIVITY LEVEL

Machine Set-ups 300,000 Number of set-ups 100 set-ups
Materials Handling 150,000 Weight of materials 50,000 lbs
Hazardous waste control 50,000 Weight of hazardous waste 10,000 lbs
Quality control 100,000 Number of inspections 1,000 inspections
Other overhead cost 300,000 Machine hours 30,000 machine hours
Total overhead 900,000
Detailed cost information is provided as:

PRODUCT X PRODUCT Y PRODUCT Z TOTAL

Direct materials 150,000 180,000 165,000 495,000
Direct labor 200,000 200,000 200,000 600,000

Activities:
Number of set-ups 45 30 25 100
Weight of materials in lbs 15,000 10,000 25,000 50,000
Weight of hazardous waste 2,500 5,000 2,500 10,000
Number of inspections 400 200 400 1,000
Machine hours 10,000 10,000 10,000 30,000
FORMULA:
Cost Rate=Activity Cost/Activity Level

STEP 1:Calculate for the overhead rates per activity based on cost
drivers

STEP 2 :Allocate overhead based on activity using the rates

calculated

STEP 3 :Compute for the total manufacturing overhead cost for

each product
H. Theory of Constraint (TOC)
-sequential process of identifying and removing constraints in a
system.

The five basic sequential followed in applying TOC:

1. Analyze the factors of production ( materials, labor, facilities, method etc.)

required in the production chains
2. Identify the weakest link
3. Focus Improvement efforts on strengthening the weakest link
4. If improvement efforts are successful, eventually weakest link will improve to the
point where it no longer the weakest link
5. At this point, a new weakest link (new constraint)must be identified and
improvement efforts must be shifted over the link.
I.LIFE CYCLE COSTING
-is a management technique that identify and monitor the
cost of the product through its life cycle.

The steps in the cycle:

1. research and development

2. product design including prototyping, target costing and
testing.
3. manufacturing, inspecting packaging and warehousing.
4. marketing, promotion and distribution.
5. sales and service
 J. Target Costing
Involves the determination of the
desired cost of a product or the basis
of a given competitive price so that
the product will earn a desired profit.
The basic relationship in this
approach is

Target cost = Market determined price - Desired Profit

K. COMPUTER - AIDED DESIGN
MANUFACTURING
Computer-aided design (CAD)
The use of computer in the product development, analysis and
design modifications to improve quality and performance of
product

Computer-aided manufacturing (CAM)

The use of computer to plan, implement and control the
production
 L. Automation

Involves and require a

relatively large investment
in computers, computer
programming, machines
and equipment
 Two Integration Approaches

Flexible manufacturing system (FMS)

A computer aided network of auto mated equipment that produce
one or more groups of part or variation of a product in a flexible
manner.

Computer integrated manufacturing (CIM)

A manufacturing system that totally integrates all office and factory
function within a company via a computer-based information
network to allow hour by hour manufacturing management.
M. E-COMMERCE
Established companies will undoubtedly continue to expand into
cyberspace to expand into cyberspace - both business to business
transaction for retailing.

The internet has important advantage over more conventional

marketplace for some kinds of transaction such as mortgage
banking.

Example: Amazon.com and eBay

E. THE VALUE CHAIN

Value chain refers to the

sequence of business
function in which usefulness
is added to the product or
services of the company.
 Analyzing the firm value chain helps
management discover:

1. which steps or activities are not competitive

2. where cost can be reduce, or
3. which activity should be outsource, and
4. how to increase value for the customer at one or more
of the steps of the value chain.
 When properly implemented,
these approaches can

(a) enhance quality,

(b) reduce cost,
(c) increase output and
(d) eliminate delays in responding to customer
Internal Value Chain is a set of
activities required to design,
developed, produce,market and
deliver product or services to
customers.
SEATWORK
 REFERENCES
-Competitive Strategy: Definition, Types, and
Execution (Kitov,2023)

-What Is a Competitive Strategy? (Indeed

Editorial Team,2023)
THANKYOU
By : GROUP 4