Ch. 2 — Strategy & Technology

Core Concepts Strategy Fundamentals

Sustainable Competitive Advantage (CA)

The ability of a firm to consistently outperform its industry peers over a long period. Achieving CA requires establishing a unique difference that can be preserved against competitor imitation. [cite: 9]

Porter, Competitive Advantage

Competitive Strategy

Deliberately choosing a different set of activities to deliver a unique mix of value. Strategy is about being different, not just doing the same things better. [cite: 10]

Porter, "What is Strategy?"

Operational Effectiveness

Performing similar activities better than rivals. While important, it is usually not enough for sustainable CA because rivals can quickly copy "best practices." [cite: 10]

Porter, HBR 1996

Switching Costs

The costs a consumer incurs when moving from one product to another. These can be monetary (fees), time-based (learning a new UI), or effort-based (moving data). [cite: 18]

Gallaugher, Ch. 2

Network Effects

When the value of a product or service increases as its number of users grows. Examples include eBay and social media platforms. [cite: 18]

Gallaugher, Ch. 2

Barriers to Entry

Factors that make it difficult for new firms to enter an industry. High barriers lead to a low threat of new entrants and more likely sustainable profits. [cite: 14]

Porter's Five Forces Model

Industry Analysis Porter's Five Forces

Porter’s Five Forces model is focused externally, describing how a firm is positioned within its industry. It evaluates: (1) Rivalry among existing competitors, (2) Threat of new entrants, (3) Threat of substitutions, (4) Bargaining power of suppliers, and (5) Bargaining power of buyers. [cite: 13]

Industry structure profoundly influences strategy. For example, the personal computer industry is notoriously "tough" due to intense rivalry and high supplier/buyer power, leading to low profitability for most. However, firms like Apple reconcile this by building ecosystems that lock in customers. [cite: 19, 20]

Strategic Insight: An industry with HIGH barriers to entry has a LOW threat of new entrants. For example, starting a professional football team has a massive capital barrier compared to starting a food truck. [cite: 13, 14]

The Value Chain is the set of activities through which a product or service is created and delivered to customers. It is split into Primary Functions (revenue drivers like Logistics, Operations, Marketing) and Support Functions (cost centers like HR, R&D, Procurement). [cite: 24, 25]

Sustainable CA is often created by linking components of the value chain in unique ways. In Apple's case, the "Genius Bar" staff at the Apple Store represent the "Service" primary function, providing a key touchpoint that differentiates the brand from competitors. [cite: 25]

Key Distinction: Primary functions "touch" the product or service, while support functions provide the infrastructure to allow primary functions to happen. [cite: 25]

Barriers to Entry Protecting the Moat

Barrier Type	Definition / Mechanism	Example
Capital Intensity	How much money is required to start the business. [cite: 14]	Building a semiconductor fab or a football stadium.
Switching Costs	Time, effort, or money needed for a customer to move to a rival. [cite: 18]	Moving from Windows to Mac (learning curve).
Network Effects	Value increases as more users join the network. [cite: 18]	eBay (more buyers attract more sellers).
Distribution Channels	The difficulty of getting the product to the final customer. [cite: 15]	Shelf space at Walmart or access to an app store.
Regulation	Legal hurdles, patents, and intellectual property. [cite: 15]	FDA approval for a new life-saving drug.

Source: MCCombs Strategy Slides, based on Michael Porter's Frameworks. [cite: 13, 14, 15]

Knowledge Check Are you a strategist?

Unit 02 Assessment Strategy Quiz

Strategy & Technology

The External View: Positioning Within the Industry

The Internal View: The Value Chain Model