COMPETITIVE

STRATEGY,
ADVANTAGE &
CORE COMPETENCIES
Prof Makam Balaji
IBS
COMPETITION AND THE QUEST FOR PROFITS ARE THE DRIVING
FORCES OF FIRMS IN A MARKET ECONOMY.

- UNKNOWN
 “Do not repeat the
tactics which have
WHAT IS STRATEGY? gained you one
victory, but let your
 Competitive Strategy is about being different. methods be regulated
by the infinite variety
 It means deliberately choosing a different set of of circumstances.”

activities to deliver a unique mix of value.

Sun Tzu
c. 490
 MICHAEL PORTER. 1998 Chinese military
strategy
 “Strategy is making tradeoffs in marketing. The essence of
strategy is choosing what not to do. Positioning choices
determine not only which activities a company will perform and
how it will confirm individual activities but also how activities
relate to one another. While operational effectiveness is about
achieving excellence in individual activities and functions,
strategy is about combining activities.”
 “Strategy must have
continuity. It can't be

COMPETITIVE STRATEGY constantly

reinvented. The
ability to change
 Competitive strategy refers to how a company
constantly and
competes in a particular business. effectively is made
easier by high-level
 A winning competitive strategy is founded on
continuity.”
consistently understanding and predicting changing
Michael Porter
market conditions and customer needs. Professor
Harvard Business
School
 In Competitive Strategy we focus on strategic thinking,
competitiveness and 'the relentless pursuit of victory.'

 Here the focus is on 'process' - how to create a sense of

'destination' and develop thoughtful plans to ensure you
stay on course.
 The breakthrough came with Shuji Nakamura's invention of
the blue laser diode, whose shorter wavelength opened
the door to higher density optical media.

 The last format war was decided in favor of Toshiba which

was heading the DVD (Digital Versatile Disc) forum.

 Toshiba (SD) & Sony (MMCD) – IBM (Louis Gerstner)

 Filesystem – ISO13346
ERA OF HDTV
 1998 – commercial HDTV

 No commonly accepted, inexpensive way to record or play HD

content.

 In fact, there was no medium with the storage required to

accommodate HD codecs, except JVC's Digital VHS and Sony's
HDCAM.

 The DVD Forum, chaired by Toshiba, was deeply split over

whether to go with the more expensive blue lasers.

 The forum approved HD-DVD after two turndowns from Blu-

ray association.
SONY – A SAGA OF BLU-RAY DISC
 HDTVs – Battle for supremacy in the new generation DVD
format for home videos

 Sony and Team (Disney, Sony Columbia, MGM, 20th Century Fox, HP & Blockbuster)

 Toshiba and Team (Paramount, DreamWorks, Microsoft, Intel, Warner Brothers &
Universal Pictures)

 The final nail in the coffin took only 8 days when Sony and
team backing Blu-ray have defeated Toshiba and team
backing HD-DVD.

 Blue-ray’s victory was not by luck but by a series of

strategic actions that lead to the making of a champion.
BLUE-RAY VS. HD-DVD
 Sony and Toshiba –Battle Royale

 The first-next generation home video was launched in

2006.

 Blu-ray – more revolutionary, greater digital capacity, and

greater interactivity.

 Toshiba – more proven technology, lower player

manufacturing cost, and lower line manufacturing upgrade
costs.

http://www.engadget.com/2005/09/19/blu-ray-vs-hd-dvd-state-of-the-s-union-s-division/
 20th Century Fox
Buena Vista Home
Entertainment
MOVIE STUDIOS, RENTALS & PC Hollywood Pictures
Lions Gate
Miramax
 Movie-studios play an important role coz they have the Entertainment
MGM Studios
exclusive rights on releasing the DVDs of the movies New Line Cinema
Sony Pictures
distributed (network externalities). Entertainment
Touchstone
 DVD market is a huge market (Rentals - $23.7 billion; Sales - Entertainment
The Walt Disney
$16 billion (Dark Knight sold 10 million copies in first week). Company
Vivendi Universal
 Rental companies – Blockbuster, Netflix, and Games
Warner Bros.
Hollywood Video (Blu-ray) & Hollywood Video (HD-
DVD).

 HP & Sony supported Blu-ray; while Microsoft and Intel Dreamworks

Paramount Pictures
supported HD-DVD. Later agreed for Blue-ray too. Universal Studios
Warner Brothers
 EARLY TO MARKET, EARLY TO GAIN
CRITICAL MASS
 Toshiba launched HD-DVD in winter of 2005 before the Holiday
Season.

 Priced at $499 – planned to sell 10,000 units with four titles of

Warner Home Video.

 Samsung released the first Blue-ray priced at $999 along with

seven titles of Sony.

 Initial sales were 2 for HD-DVD to 1 for Blu-ray players.

LATE
 Initial Blue-ray was smaller capacity (less than 2 hrs movies and PIONE
ENTR
ERS
hence not release – Lord of Rings) and was plagued with other ANT
problems.
STRATEGIC COMMITMENT
 With a high priced player coming second to the market and
holding serious limitations in benefits.

 Unlike the HD-DVD team where major studios elected a

dual-platform strategy, effectively hedging their bets, no
member of the original Blu-ray team defected towards HD-
DVD.

 The Blu-ray team had strategic commitment.

 In the fall of 2006, Sony released its PS3 game console

priced at $599, each equipped to play Blu-ray content as a
standard feature.
COMPETITION . . . . SPILLS OVER
 Sony had not only staked out its strategy, but promised to
sink other products in its portfolio if the standards war
was not won by Blu-ray.

 Unlike the Blu-ray team, the HD-DVD team continued to

hedge their bet even in the game console arena.

 Microsoft, a HD-DVD backer, allowed Xbox 360 customers

to upgrade their game consoles with a HD-DVD add-on for
approximately $200, but did not include HD-DVD as a
standard feature within its next generation player.
BY EARLY 2007
 By the start of 2007, less than a year after their
introduction, 425,000 Blu-ray players were in the market.

 400,000 of which were bundled PS3 game consoles (2008

– 2 million).

 In contrast, 170,000 standalone HD-DVD players and

150,000 HD-DVD upgraded Xbox 360s were in the market.

 Before the release of the PS3, HD-DVD’s were outselling

Blu-ray titles by two to one.

 By early 2007, the gap had narrowed significantly.

 • 4000 – 11,000 film
are produced

MINOR SKIRMISH annually.

• 200 production
companies .
 Adult film studios believed they had a new market in
• Employ 1,200–1,500
releasing titles on the next generation format. performers .

• Earn $9–$13 billion

 Eight companies worldwide can replicate Blu-ray Discs (2 in gross revenues
annually
Sony; 5 Disney – Both disagreed to replicate).

 Meanwhile, adult film studios were able to find HD-DVD Adult Film Industry
2007, US
replicators, making it the de-facto standard of this key
early market influencer (VHS won the war with Betamax
mainly due to the adult movies replicated on such tapes).

 Late 2007 Blu-ray replicators were identified (Vivid group,

followed by Digital Playground).
 THE WAR CRESCENDOS THEN ABRUPTLY
ENDS
 The war between Blu-ray and HD-DVD intensified throughout 2007. Toshiba
cut the price of their HD-DVD players to below $300 by the summer of
2007. 

 Likewise, Sony had lowered its PS3, which played Blu-ray discs, to below
$499.

 Both companies were going for install base.

 In June of 2007, Dallas based Blockbuster announced that they would only
stock Blu-ray titles, effectively ditching HD-DVD.

 In their announcement, Blockbuster cited the larger number of titles

available on Blu-ray, thus making HD-DVD redundant.
CONTD…
 In contrast, Paramount and DreamWorks both announced in
August of 2007 their choice to ditch Blu-ray in favor of HD-
DVD.

 Sensing that the war was nearing a decisive moment, Toshiba

pulled harder on the price lever and lowered the HD-DVD
players below $200 in time for the 2007 holiday season.

 Yoshihide Fujii, head of Toshiba's HD DVD, stated

 “Right now, we need to increase the size of the market.” Install

base was always known to be a deciding factor, and Toshiba
sought to sell one million units in the remainder of the year.
CONTD…
 In January 2008, Warner Bros. joins Disney, Twentieth
Century Fox, and Sony in exclusively distributing titles in
the Blu-ray format for next generation DVDs.

 On February 12, both Netflix and Best Buy elect to sell on

only Blu-ray titles and players respectively. 

 By February 20th, Toshiba admitted defeat.

 BBC – Breaking News

POST-MORTEM
 Sony’s Blu-ray victory over Toshiba was never assured.

 Two distinct areas where Sony outmaneuvered Toshiba.

 First one - impenetrable commitment of the Blu-ray consortium

in contrast to the hedging practiced by members of the HD-DVD
team.

 By exclusively backing the Blu-ray format Disney, Twentieth

Century Fox, and Sony’s Studios all signaled to the market that
their format would not go gently into the sunset.

 In contrast, Paramount and Warner Bros. signaled indifference. 

POST-MORTEM
 Second, there was deep commitment of Sony in the form of
forcing the Blu-ray player on its PS3 game console.

 Sony PS3 at $599 was overpriced as a game console alone.

 In contrast, the Nintendo Wii was priced at that time at $299

and the Microsoft Xbox 360 was $399, both much lower than
the PS3.

 Although Sony may have ceded much needed market share

within the gaming business by saddling the PS3 with
supporting the Blu-ray player, the PS3 did seed the market
with much needed Blu-ray players.
2008
 By the time Toshiba attempted to catch up in market
share by lowering the price of its HD-DVD players to $199,
it was too late.

 Between March 2006 and February 2008, about one million

HD-DVD players had been sold globally, far short of Blu-
ray’s 6.3 million players.

 It was not that Toshiba was uncommitted to winning the

standards war, it was that the team backing the HD-DVD
standard collectively placed less at risk in their
commitment than the team backing Blu-ray.
THE ROLE OF PRICING
 Throughout the standards war, price played a key role in
determining the winner.

 More significantly, network externalities encourage disproportionate

rewards to the leading user base. 

 Network externalities encourages disproportionate rewards to the

lead base.

 Toshiba clearly understood the importance of penetration pricing in

a standards war.

 HD-DVD players entered the market at half the price of the Blu-ray
players and were consistently priced lower than Blu-ray players
throughout the war. 
 Sony also understood this issue.

 Sony was at a cost disadvantage to HD-DVD in that the Blu-ray

players cost more to produce.

 To overcome this cost disadvantage, Sony bundled Blu-ray with

PS3.

 Samsung stand alone Blu-ray player $999 – three months later

Sony PS3 with Blu-ray at $599 ($400 discount).

 Loss-leader pricing strategy

 Either way, the resulting bundle of PS3 and Blu-ray yielded a

better tradeoff in perceived price to perceived benefits for
more consumers than the lower-priced stand-alone HD-DVD
players.
 Adult
Game
Film
Console Studios

Loss-
Movie
leader
strategy Studios

Movie
Rental
Companies
 “An
COMPETITIVE ADVANTAGE organization's
ability to learn,
 Competitive strategy is concerned with how a company can gain a
and translate that
competitive advantage through a distinctive way of competing. learning into
action rapidly, is
 A competitive advantage is an advantage over competitors gained
the ultimate
by offering consumers greater value, either by means of lower competitive

prices or by providing greater benefits and service that justifies advantage.”

higher prices.
Jack Welch
 The differentiation and cost leadership strategies seek Former CEO, GE

competitive advantage in a broad range of market or industry

segments.

 By contrast, the differentiation focus and cost focus strategies are

adopted in a narrow market or industry.

 Toshiba – Cost leadership; Sony - Differentiation

 FedEx brings a
variety of
SUSTAINABLE COMPETITIVE ADVANTAGE distinctive
competencies into
 Sustainable competitive advantage allows the maintenance and this competitive
strategy, including
improvement of the enterprise's competitive position in the
its aircraft fleet, its
market. hubs and package
handling systems,
 It is an advantage that enables business to survive against its
its package
competition over a long period of time. tracking and
customer support
 Sustainable competitive advantage is achieved by continuously
functions, and its
developing existing and creating new resources and capabilities logistics support.
in response to rapidly changing market conditions.
FedEx
THE ROOTS OF COMPETITIVE STRATEGY
 Core competencies

 The Core Competence Of The Corporation by C.K.Prahalad and

Gary Hamel, Harvard Business Review, May-June 1990.

 Core competencies are those capabilities that are critical to a

business achieving competitive advantage.

 These areas of expertise may be in any area but are most likely to
develop in the critical, central areas of the company where the
most value is added to its products.

 Core Competencies are not seen as being fixed. Core

Competencies should change in response to changes in the
company's environment. They are flexible and evolve over time.
IDENTIFYING CORE COMPETENCIES
Provides potential
access to a wide
variety of markets

Makes a significant
contribution to the
perceived customer
benefits of the end
product

Difficult for
competitors to
imitate
PIONEERS VS. LATE-ENTRANTS
 When pioneers enter at the optimal position, they can
establish preemption advantages.

 Late entrants benefit from advancing technology that

enables them to provide higher quality at lower cost.

 Pioneers are more likely to persist when variety is

important. However, later entrants are more likely to be
successful when consumers value quality.

 Pioneers – Experience curve or learning curve – produce at

low cost