SOUTHERN CROSS UNIVERSITY
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Your assignments must be submitted as either Word documents, text documents with .rtf extension or as .pdf documents. If you wish to submit in any other file format please discuss this with your lecturer well before the assignment submission date. Student Name:
Harleen Sodhi
Student ID No.:
22011288
Unit Name:
Competitive Strategy
Unit Code:
MNG00114
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Assignment No.:
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Janelle Mawhinney 2 Report based on published case studies th
Friday 4 September, 2015 04/09/2015
Declaration: I have read and understand the Rules Relating to Awards ( Rule Rule 3 Section 18 – Academic Misconduct Including Plagiarism ) ) as as contained in the SCU Policy Library. I understand the penalties that apply for plagiarism and agree to be bound by these rules. The work I am submitting electronically is entirely my own work.
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Harleen Sodhi
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Date:
04/09/2015
MNG00114
COMPETITIVE ADVANTAGE CASE ANALYSES INTRODUCTION Competitive advantage relates to “…how a strategic business unit (SBU) creates value for its users both greater than the costs of supplying them and superior to that of rival SBUs”
(Johnson et al. 2015, p.107); Google, PepsiCo and Singapore Airlines are all organisations that possess particular strategic capabilities which contribute to their sustained competitive advantage. The purpose of the report is to explore and understand what capabilities lead to sustained competitive advantage for the case organisations; analysis of the each of the cases is based from the beginning of the organisations to present. The following report provides evidence that each organisation has achieved sustained competitive advantage and follows on to analyse and explain the reasons for the sustained competitive advantage and using Porter’s five forces model, a Resource -based view
analysis and exploration of the implementation of Porter’s generic strategies . Limitations of this report include that information examined is public information and that company information would allow for a more in-depth analysis. DESCRIPTION OF CASE STUDIES GOOGLE Google is a multinational technology organisation based in California, that specialises in internet related products and services, including software, internet advertising, and most famously, search (Google 2015). The case analysed is ‘Google’s strategy in 2008’ written by John E. Gamble from the University of South Alabama (Thompson, Strickland & Gamble 2008); the case examines Google’s history, financial performance, business model, product offering and execution of strategies used by Google, up until 2008.
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PEPSICO PepsiCo is the largest food and beverage company in the US and second largest in the world (Seabrook 2011). The case used, published in the Essentials of Strategic Management textbook, written by John Gamble and Arthur Thompson analyses PepsiCo’s diversification strategy in 2008 and examines PepsiCo’s s trategic history, business model and uses a variety of models to analyse PepsiCo’s competitive strengths and weakness,
providing strategic recommendations for the future. SINGAPORE AIRLINES Singapore Airlines (SIA) is an international airline company based in Singapore, the case analysed was published by the Journal of Air Transport Management, and analyses the strategy and organisation of SIA; the case research took place over seven years and in particular researched the company’s strategy, competitiveness and core competencies. EVIDENCE OF SUSTAINED COMPETITIVE ADVANTAGE GOOGLE Google is the third most valuable brand in the world (Forbes 2015a) and is the second largest public company in the world with a market value in excess of $367 billion (Forbes 2015b). Google has become one of the world’s most trusted and used search engines holding over 66% of the global search market (Net Market Share 2015), followed by direct competitor Bing with a much smaller 10% of market share. Google has acquired over 180 companies since it launched in 1998 (D'onfro 2015). Google’s share price reached a record high in October 2013 in excess of $1,000 per share, when compared with $85 per share in 2004 during Google’s IPO (Yahoo Finance 2015), in less than 10 years Google has experienced almost a 1200 percent increase in share price. Google’s distinctive resources regarding its established brand, human and f inancial resource
availability; and distinctive competencies regarding Google’s unique culture concerning office spaces and work guidelines such as ‘20% time’ (Gersch 2013) allows for a level of
innovation that provides value for customers regarding new product offerings, which is difficult for competitors to imitate, giving Google its sustained competitive advantage.
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PEPSICO PepsiCo owns 22 brands that generate revenues of over $1 billion per annum (Pepsico n.d.) with the third highest market value in the beverage industry (Forbes 2015b) and, ranks in the top 100 Forbes list of ‘World’s biggest public companies’ (Forbes 2015b). PepsiCo is placed first, second and third globally in the savoury snacks, social beverages and nutrition markets (Johnston & Compton n.d.), respectively; with PepsiCo outperforming its chief competitor, The Coca Cola Company, in 2014, experiencing organic growth of 3.5% and Coca Cola only 2% growth over the year (Forbes 2014). PepsiCo’s market share of non-alcoholic beverages in the US has also increased from 26%
in 2006 (Gamble & Thompson 2010) to 28.7%; as well as, being the leader in savoury snacks in the US with a 36.6% market share (Speculations 2015). PepsiCo possesses distinctive capabilities that give PepsiCo a sustained competitive advantage, due to its longestablished and strong brand names, competitive distribution and manufacturing processes and vast financial resources. SINGAPORE AIRLINES SIA is ranked globally as the third most valuable airline brand (Brand Finance 2012) with a market value of over $10 billion SIA ranks in the top ten airlines in the global airline industry (Forbes 2015b). In the airline environment, an industry ranked as one of the worst performing in the Fortune Global 500 rankings, SIA has never posted a loss on an annual basis, achieving substantial returns superior for its industry, and in comparison to competitors (Heracleous & Wirtz 2009). SIA owns its entire fleet of 104 aircrafts, unlike competitors who lease a major fraction of their fleet; SIA’s fleet has an average age of 7
years, making SIA one of the world’s youngest and most fuel efficient airlines (Singapore Air n.d.), giving SIA distinctive resource capabilities allowing for SIAs sustained competitive advantage. AN AL YS IS GOOGLE The Resource Based View (RBV) approach to competitive strategy argues that internal resources are more important to a firm than external factors when trying to achieve and sustain competitive advantage (David 2009). There are four key criteria to whether a
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business’s capabilities can be assessed in terms of providing competitive advantage. These
are that the capabilities have value, rarity, inimitability and non-substitutability (VRIN) (Johnson et al. 2012). Value of Strategic Capabilities
Google creates value for customers through the provision of relevant information and websites rapidly. Google is taking advantage of opportunities for innovation, such as, 20% time and Google’s Adsense program which has brought value for advertisers as Google directs visitors to websites, generating revenue through increased traffic, as well as, creating profits for Google. Google holds 66% of the global search market (Net Market Share 2015) due to its ability to meet customers’ search requirements in the first few li nks, which is
essentially a distinctive capability and is valuable to customers Rarity Google’s capabilities are rare because of their unique skills regarding displaying relevant
search results and at a rapid rate; competitors such as Microsoft’ s Bing find it difficult to match the search results provided by Google. Google also possesses intellectual capital in the form of particularly talented individuals, hiring only those who meet a strict criterion including factors such as leadership, cognitive ability and ‘googleyness’ (Reilly 2014); giving Google distinctive capabilities in the form of intellectual capital and talented individuals. Inimitability
Inimitable capabilities are those capabilities that competitors find difficult to imitate or obtain (Johnson et al. 2012). Google possesses causal ambiguity because the capability is difficult to discern, as there are key financial and physical resources (such as one of the world’s largest databases (Compare Business Products n.d.) available for Google’s use, which they do, competently, giving them a greater advantage over competitors; however, the primary capability of Google is based on talent and innovation produced through employees’ tacit knowledge and experience, that is difficult for competitors to pin and imitate. Non- Substitutability
Threat of substitutes in the technology industry is high, Google has valuable and inimitable qualities, and the online world is quickly developing, with many different ways of accessing information, Google search is debatably most efficient. Google excels when it comes to providing relevant search results and quickly, giving it a competitive advantage for now, but innovation is consistently required to maintain and, create more for value for customers and to sustain competitive advantage.
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The use of the RBV determines that sustained competitive advantage is achieved through innovation using distinct capabilities that Google possesses; the utilisation of distinctive resources and capabilities by Google has lead to this sustained advantage, as the resources are inimitable, valuable, rare and hard to substitute. PEPSICO Porter’s Five Forces framework is used to “…identify the attractiveness of an industry in
terms of five competitive forces...new entrants, substitutes, supplier power, buyer power and competitive rivalry.” (Johnson et al. 2015, p.28) , the framework is also used as a useful
starting point for strategic analysis, as it aids in setting an agenda for action on critical issues identified by the framework (Johnson et al. 2015, p.28). Competitive Rivalry
New Entrants
Buyer Power Supplier Power
Substitutes
Moderate. There is risk of diversification from a direct competitor such as Coca Cola, a firm that is of roughly equal size. However, PepsiCo and Coca Cola are in a duopoly, which means that smaller players are reluctant to challenge the two organisations; high fixed costs and entry barriers also reduce competitive rivalry Low. Beverage and snack industry is fairly saturated, and high investment requirements are needed to successfully enter the market, as well as, a small number of multinationals dominating the market share, creating retaliation risks such as, price wars. High. Many substitutes available, with low cost of switching leading to a higher degree of price sensitivity, giving leverage to buyers over firms Low. Less concentrated supplier, as there is a large number of them and switching costs are relatively moderate, with the cost of losing a client like PepsiCo being a greater financial risk for the supplier than it would be for PepsiCo High. Numerous alternatives of drinks available that are targeting the same market, in not only the beverage industry but also in the savoury snack industry
The five forces are moderate, which for smaller firms would make the industry less attractive; however, PepsiCo is already well established with a high degree of brand loyalty, making the industry very attractive. Coca cola is one of PepsiCo’s fiercest competitors in the beverage industry which was threatening PepsiCo’ s profitability; PepsiCo’s strategic use of a mergers with Frito-Lay into the savoury snack industry and acquisitions of both fast food outlets such as Taco Bell, and the nutritional market with Quaker Oats (Gamble & Thompson 2010) has lead to the diversification of PepsiCo’s portfolio and has aided in PepsiCo’s achievement of
sustained competitive advantage, particularly as the leader in the savoury snacks industry. It should be noted that due to changing consumer preferences and mature nature of the beverage and snack market, PepsiCo should continue a product proliferation strategy as Harleen Sodhi | 22011288
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noted in the case, and use dynamic capabilities to innovate and develop new products, to ensure PepsiCo’s competitive advantage remains sustained.
SINGAPORE AIRLINES On the business level, SIA uses a dual strategy of using two generic strategies simultaneously, that is, cost leadership and differentiation (Heracleous & Wirtz 2009); entitled by Porter as ‘stuck in the middle’ and as risky (Johnson et al. 2015, p.114). SIA’s
attainment of delivering premium service at expenditures close to those of a budget carrier challenges Porter’s belief of differentiation and cost leadership being mutually exclusive
strategies (Heracleous & Wirtz 2009). Corporate level strategy at SIA displays a related diversification strategy, with SIA consisting of 36 direct subsidiaries and direct companies (Heracleous & Wirtz 2009). As part of SIA’s international strategy SIA ha s joined in an alliance with Star Alliance, one of the three major airline alliances. SIA has achieved a sustained competitive advantage through the practice of SIA’s ‘five pillars’ of organisational activity including: rigorous service design and development, total
innovation, profit consciousness ingrained in all employees, achieving strategic synergies, and developing staff holistically (Heracleous & Wirtz 2009), these distinctive competencies have positioned SIA as a premium service carrier with high levels of innovation and costeffective service excellence, that is difficult for competitors to imitate giving SIA sustained competitive advantage. COMPARISON PepsiCo uses a diversification strategy to achieve sustained competitive advantage due to the mature nature of the snack and beverage industry, and rivalry from fierce competitors such as Coca Cola and Kraft, which own the primary substitutes of PepsiCo products. SIA similarly, uses a related diversification strategy, due to the substitutable nature of airline and transport options and to diversify its portfolio, reducing risk from changing external factors. Google is already a diversified organisation as its offering is rare with many subsidiaries, and possesses valuable, rare, inimitable and non-substitutable capabilities, which has reduced its rivalry outcompeting Google, as can be seen by the large difference between Google’s 66% market share lead and Bing’s second la rgest 10% market share (Net Market Share
2015). The nature and rapid development of the technology industry leads Google’s primary strategy to be innovation to improve current products and create new ones through Google’s ‘20% time’ allowing for employees to work on side projects. Harleen Sodhi | 22011288
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Innovation is a key strategy for both SIA and PepsiCo also, as innovation is a key driver of economic growth and business success (Brooks 2013). CONCLUSION Three organisations competing in three different industries have been analysed with the evidence of sustained competitive advantage being presented, followed by an analysis of how the sustained advantage was achieved with the support of Porter’s five forces model,
generic strategies and resource based view. Each organisation has achieved a sustained competitive advantage in their respective industry, with Google holding the greatest competitive advantage due to the uniqueness of its product offering and competitor inimitability.
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REFERENCES Brand Finance, 2012, 'Best Global Brands', accessed September 1, 2015, from . Brooks, C 2013, 'Innovation: Key to Successful Business', Business News Daily , accessed September 1, 2015, from . Compare Business Products, n.d., 'Top 10 Largest Databases in the World', accessed September 1, 2015, from . David, F 2009. Strategic management: A competitive advantage approach, 14th edn, Pearson Education Limitied, Upper Saddle River. D'onfro, J 2015, 'Google's Ten Biggest Acquisitions', Business Insider , accessed September 3, 2015, from . Forbes, 2014, 'The Year That Was: PepsiCo', accessed September 1, 2015, from . Forbes, 2015a, 'The World's Most Valuable Brands', accessed September 2, 2015, from . Forbes, 2015b, 'The 2015 Global 2000', accessed September 1, 2015, from . Gamble, J & Thompson, A 2010, Essentials of Strategic Management: The Quest for Competitive Advantage, 2nd edn, McGraw Hill Education, New York.
Gersch, K 2013, 'Google's Best New Innovation: Rules Around '20% Time'', Forbes, accessed September 2, 2015, from . Google, 2015, 'Company Overview', accessed September 2, 2015, from . Heracleous, L & Wirtz, J 2009, 'Strategy and organization at Singapore Airlines: Achieving sustainable advantage through dual strategy', Journal of Air Transport Management , Harleen Sodhi | 22011288
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vol. 15, no. 6, pp. 274-279. Johnson, G, Whittington, R & Scholes, K 2012, Fundamentals of strategy , Financial Times /Prentice Hall, Harlow, England. Johnson, G, Whittington, R, Scholes, K, Angwin, D & Regner, P 2015, Fundamentals of Strategy , 3rd edn, Pearson Education Limited, Harlow.
Johnston, H & Compton, J n.d., 'The PepsiCo Advantage', Pepsico, accessed September 2, 2015, from . Net Market Share, 2015, 'Search engine market share', accessed September 3, 2015, from . Pepsico, n.d., 'Brands Explore', accessed September 1, 2015, from . Reilly, K 2014, 'Google's Hiring Secrets Revealed', LinkedIn Talent Blog , accessed September 4, 2015, from . Seabrook, J 2011, 'Snacks for a fat planet', The New Yorker , accessed September 2, 2015, from . Singapore Air, n.d., 'About Singapore Airlines - Our Fleet', accessed September 2, 2015, from . Speculations, G 2015, 'PepsiCo Rides On Growth In Frito-Lay And Developing Markets In The First Quarter', Forbes, accessed September 1, 2015, from . Thompson, A, Strickland, A & Gamble, J 2008, Crafting and executing strategy , McGrawHill/Irwin, Boston. Yahoo Finance, 2015, 'GOOG Historical Prices', accessed September 4, 2015, from . Harleen Sodhi | 22011288
