Group Assignment 1
Liberty University
BUSI 400-D10 Strategic Management:
April 6, 2020
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Chapter 5 Summary Review Questions
1. Explain why the concept of competitive advantage is central to the study of strategic
management.
Competitive advantage is central to the study of strategic management. An organization
cannot be strategic without considering the competitive factors that cause differentiation in the
marketplace. “In today’s modern, fast-paced and competitive marketplace, to survive and grow
every product and service offering must have some clear, distinct competitive advantage over its
competitors in the marketplac When preparing a e” ("Driving competitive advantage", 2018).
strategy for success, an organization must prioritize a competitive advantage, in an effort to
achieve sustainability, as well as profitability. Kaleka and Morgan note that a competitive
advantage is a “critical strategic step in enabling the best performance outcomes” (Kaleka &
Morgan, 2017, p. 25).
An organization cannot be strategic without considering a competitive advantage.
Likewise, a company cannot create a competitive advantage without being strategic. Therefore,
it is imperative that these two factors work simultaneously to generate success.
2. Briefly describe the three generic strategies - overall cost leadership, differentiation, and
focus.
Organizations seeking to remain competitive in the market would be wise to consider
Porter’s three generic strategies for achieving a competitive advantage.
The first strategy is overall cost leadership. This strategy focuses on maintaining a
competitive advantage, while keeping costs low. Several factors enable this overall cost
leadership strategy to be effective, one of which is competitive parity, which aims to use cost
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advantages to generate higher profits than competitors (Dess, McNamara, Eisner, & Lee, 2019,
p. 142).
The second strategy is differentiation, which prioritizes the differing factors that set a
firm apart from the competition. These differentiating factors can vary but include “prestige,
image, quality, technology, innovation, and exceptional service” (Dess et al., 2019, p. 146).
The final strategy is focus. Utilizing this strategy, an organization will find a target
market in which to place their focus and efforts. Organizations utilizing this strategy may
implement either a cost advantage or differentiation focus. “Cost focus explains differences in
cost behavior in some segments, while differentiation focus exploits the special needs of buyers
in other segments” (Dess et al., 2019, p. 152).
3. Explain the relationship between the three generic strategies and the five forces that determine
the average profitability within an industry.
Low Cost
The five forces generally limit a company’s ability to be profitable. When an
organization is able to find a way around these limits utilizing one or more of the generic
strategies, they are often more successful than their competitors. Having an overall low-cost
strategy allows firms to still come out on top even when competition is stiff. Lower costs keep
companies in rotation for purchases and with their customer base even when competitors are
cutting costs to try and keep up. Being one of the least expensive providers of a service or good
will create a loyal customer base and often make it difficult for new and upcoming companies to
break into the market. Also, having the versatility to meet the changing demands from suppliers
is an added benefit to having a low-cost position (Dess, McNamara, Eisner, & Lee, 2019, p. 44).
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Differentiation
Differentiation generates an expected level of “special” for the products or services
received. Brand names often make customers far more comfortable paying much higher prices
for products. Enabled companies like Nike have built a reputation for quality products therefore
customers will pay top dollar for things with the logo or brand name on them. The margins
generated from sales are so high there is no need to attempt an overall low-cost advantage. The
entry barriers are much more stringent within industries housing organizations that have
mastered differentiation (Dess et al., 2019, p. 148). Car manufacturers are an excellent example
of this idea, there are not very many new manufacturers in the market due to expected products
from the powerhouses like Ford or Toyota. By creating these unique products businesses are
able to drive the train on pricing and maintain bargaining power over suppliers and buyers alike.
Buyers are limited in their ability to price shop for comparable products and suppliers often just
want to be somehow tied in with larger household names lending to the quality and reputation of
their products as well. An illustration of that would be the relationship between Dodge and the
HEMI brand. Customers will favor products they believe to be unique or of high quality over
cheaper or less known products. This loyalty cuts down the likelihood of customers switching
brands or trying to find a substitute for the product.
Focus
The focus strategy requires a firm to pick or combine the strategies of differentiation and
low-cost. Finding new ways to create a sub-category inside of an existing market like LinkedIn
is a perfect example of focus strategy (Dess et al., 2019, p. 150). Firms that are able to combine
these strategies often are the most successful. Being able to keep competitors at bay, maintain
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low costs, and have customer differentiation and favor your products is the best possible position
to be in.
Chapter 5 Application Questions & Exercises
1. Research Amazon. How has this firm been able to combine overall cost leadership and
differentiation strategies?
Amazon is a perfect example of a company using a differentiation strategy and overall
cost leadership to have a competitive advantage. Amazon differentiates itself by offering so
many products at your fingertips, customer service, logistics and quick delivery. “Amazon's
culture of listening to customers, instead of competitors has enabled it to get ahead of the market
as it's able to think for itself, instead of blindly following what other brands are doing”
(Severson, 2020). Amazon offers consumers a vast product assortment, more convenience,
exceptional competitive pricing.
3. Think of a firm that has attained a differentiation focus or cost focus strategy. Are its
advantages sustainable? Why? Why not? ( Consider its position vis-à- Hint: vis Porter’s
five forces.)
Wal-Mart has utilized a cost focus strategy to set itself apart among its competitors, with
low selling prices in a one stop shop. Although the competitive rivalry is strong in the retail
industry, Wal-Mart has a competitive advantage over many of its competitors by offering a
wealth of products and services in one place. You can have your oil changed, buy food and
furniture all in one place at an affordable price! “Michael E. Porter’s Five Forces analysis model
is a strategic management tool that evaluates the effects of external factors that determine the
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competitive landscape of the industry. These external factors define the bargaining power of
customers or buyers, the bargaining power of suppliers, the threat of substitution, the threat of
new entrants, and competitive rivalry” (Greenspan, 2019). The threat of substitutes is weak, the
bargaining power of customers and suppliers is weak giving Wal-Mart a stronghold in the
industry. Although threats of new entrants in the industry are strong, Wal-Mart is a giant and
would be nearly impossible to slay. With the rising competition of online based businesses such
as Amazon, Wal-Mart may face challenges in the future.
4. Think of a firm that successfully achieved a combination overall cost leadership and
differentiation strategy. What can be learned from this example? Are the advantages
sustainable? Why? Why not? (Hint: Consider its competitive position vis-a-vis Porter's
five forces.)
Having cost leadership means a company has managed to create the lowest cost of
operation in their industry. Differentiation strategy is when a company manages to create a
product that is unique to all its competitors. The combination of these two things is very difficult
to achieve. However, there are some businesses who have achieved this accomplishment. One
example would be Wal-Mart. Wal-Mart is well known for having the lowest prices in the
industry and has unique products specific t their stores. Recently, celebrities have been creating
their own lines of home goods and clothing that is only to be sold at Wal-Mart stores. In this
way the company has achieved selling products unique from its competitors and selling them at
the lowest cost. This method is sustainable because Wal-Mart has proved to be able to either
buy-out or out-price its competitors over the years. Not only can Wal-Mart fight off competition
with prices, the ability and ease of ordering online created 37% growth for the company in 2019
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(Melton, 2020). With the new ability to make online grocery sales Wal-Mart is creating even
more competitive advantage. Wal-Marts competitive competition according to Porter’s five
forces is very strong because of the high number of customers, price sensitivity, number of
suppliers, and customer loyalty. All this adds up to a low threat of substitution, strong buyer
power, and a low threat of new entry. Wal-Mart is a strong business and does well for itself.
Chapter 6 Application Questions & Exercises
1. What were some of the largest mergers and acquisitions over the last two years? What
was the rationale for these actions? Do you think they will be successful? Explain.
The largest publicized merger or acquisition in the last 2 years would be T-Mobile and
Sprint. For a while there, there was not much else on the news. It was so big, because the
government was worried about T-Mobile becoming a monopoly in the cell phone provider
industry, which is a very valid concern. It had to be approved by the government and had some
very stern guidelines. Another largely publicized one would be Amazon and Whole Foods.
Anything Amazon does is publicized so it is no surprise when Amazon decided to buy Whole
Foods because it would be a big deal.
Like any other merger or acquisition these companies wanted to generate more profits so
that would be the rationale behind these decisions. I believe they were very smart. Amazon is
such a good “parent” company for any business (Dess, McNamara, Eisner, & Lee, 2019, p. 183).
They are so diverse and can make money in almost everything it seems. It was a great move for
Amazon. The T-Mobile merger was a bit riskier because now they are being closely monitored
so they do not become a monopoly. The amount of time it took for it to go through was very
costly to the companies as well. I see both being successful due to the experience within the
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companies and that the resources are really not an issue with any of the companies involved so
they are not one-sided business ventures.
4. Use the internet and select a company that has recently undertaken diversification into
new product markets. What do you feel were some of the reasons for this diversification
(e.g. leveraging core competencies, sharing infrastructures)?
The Coca-Cola Company, founded in 1886, is the world’s largest beverage company, but
even well-established companies such as this may be forced to change with the times. The
company began diversifying its large portfolio of well-known brands several years ago based on
a variety of reasons. Carbonated soft drinks (CSD) sales have been in a steady decline for the
last 15 years as soda consumption has reached a 32-year low.
“Besides emerging consumers’ health consciousness, Coca-Cola has also been dealing
with the mounting threats of city soda taxes and warning labels (Maamoun, 2020). While no ”
state currently has an excise tax on sugar-sweetened beverages, some cities have levied taxes on
soda based on volume. In 2017, Philadelphia became the second city to put a tax on sugary
drinks and soda, with sales on those beverages dropping by a whopping 51% in the first year.
“Sugary drink consumption went down more than 50% three years after Berkeley, California,
passed a soda tax (Sorto, 2019). Several countries, including the United Kingdom, Hungary, ”
and South Africa, have instituted taxes on beverages based on sugar content.
The Coca-Cola Company has been aggressively diversifying its business to shift from
focusing on traditional added-sugar carbonated drinks to concentrating on products that will
appeal to a younger, more health conscience demographic, which has resulted in a global
portfolio where 95% of the drinks are exempt from the sugar tax (Weinbren, 2018).
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Coca-Cola has increased revenue from introducing new varieties of its traditional brands,
such as Orange Vanilla Coke and Coca-Cola Zero Sugar, as well as the launch of three new
brands: Adez, Honest, and Fuzetea. Adez, a new plant-based drink line previously owned by
Unilever, is relaunching with products that are entirely vegan, including a dairy-free smoothie
containing seeds, fruit juices and vitamins, with no added sugar. Honest and Fuzetea join Coca-
Cola’s other brands of ready-to-drink (RTD) teas, such as Gold Peak and Peace Tea.
A large portion of the diversification the company has undertaken is through portfolio
management and acquisitions. “This consists of businesses whose profitability, growth, and cash
flow characteristics complement each other and adds up to a satisfactory overall corporate
performance” (Dess, McNamara, Eisner, & Lee, 2019, pp. 183-184). In 2017, Coca-Cola
acquired the Topo Chico premium sparkling mineral water brand, which has been bottled in
Mexico since 1895. The following year, the company launched its first-ever alcoholic drink -
Chu-Hi - made with a distilled Japanese beverage (shocho), sparkling water and flavoring (Zacks
Equity Research, 2018). Also, in 2018, they purchased British coffeehouse chain Costa, the third
largest coffee seller in , with 3,800 stores in 32 the industry (behind Starbucks and McDonald’s)
countries. “ Cola’s profits had dropped from almost USD 9 billion in 2013 to USD 1.2 Coca-
billion in 2018, so expanding into the more profitable and promising hot beverage industry had
become more of a necessity than a luxury at that point.” (Maamoun, 2020). In June of 2019, “the
company introduced a ready- -drink canned Costa coffee, representing the first major product to
introduction since it acquired the chain” ("Coca-Cola's Q2 earnings may show diversification
efforts paying off", 2019).
Finally, in 2019, Coca-Cola announced the acquisition of Chi Ltd in Nigeria, recognized
as an innovative, fast-growing leader in expanding beverage categories, including juices, value-
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added dairy and iced tea This acquisition further signals Coca-. “ Cola’s optimism about Africa’s
consumer opportunity and a commitment to its long-term investment and growth plan on the
continent, where it has been present for more than 90 years ("How Coca Cola is continuing its ”
portfolio diversification strategy 2016). ”,
Chapter 6 Experiential Exercise
AT&T is a firm that follows a strategy of related diversification. Evaluate its success (or
lack thereof) with regard to how well it has (1) built on core competencies, (2) shared
infrastructures, and (3) increased market power. (Cody Grave)
Rationale for
Related
Diversification
Successful/
Unsuccessful?
Why?
Build on Core
Competencies
Successful
AT&T has always valued the customer and have proven
that they are the priority. There values show that people
are priority with “Be there”, “Stand for equality”, and
“Embrace Freedom” values, just to name a few (“AT&T
Core”, 2018, para.1). Currently, AT&T is supporting
families in this time of need with the COV -19 ID
pandemic. They have launched a free kid’s digital
library with TIME and created a $10 million distance
learning and family connections fund.
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Rationale for Related
Diversification
Successful/
Unsuccessful?
Why?
Shared infrastructures
Successful
AT&T signed an agreement with Tillman to
build new towers and increase their overall
footprint across the US. Working with Tillman
infrastructure has built hundreds of macro towers
and will continue to build them nationwide. This
is the focus of AT&T, creating a community of
companies and suppliers for towers and sites to
continue to build their footprint and
infrastructures (“AT&T and Tillman”, 2018,
para. 7).
Increased Market Power
Unsuccessful
AT&T acquired DirecTV in 2015, which seemed
to be a huge step in increasing their market
power. However, since the deal, their pay TV
has continuously declined. To date, the company
has seen nearly 15% shrinkage, primarily due to
DirecTV "Was AT&T's acq (uisition”, 2019).
The issue is not only from DirecTV; AT&T has
continued to increase their debt by over $50
billion since the deal.
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References
AT&T and Tillman build hundreds of cell towers with more underway. (2018, December 17).
Retrieved from https://about.att.com/story/2018/hundreds_of_cell_towers.html
AT&T core company values. (2018, November 27). Retrieved from
https://about.att.com/pages/values
Coca-Cola's Q2 earnings may show diversification efforts paying off. (2019, July 19). Retrieved
from https://www.investing.com/analysis/cocacolas-q2-earnings-may-show-
diversification-efforts-paying-off-200441779
Dess, G. G., McNamara, G., Eisner, A. B., & Lee, S.-H. (2019). Strategic management: text &
cases (9th ed.). New York, NY: McGraw-Hill Education.
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analysis-porters-model-case-study
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cola- -continuing- -portfolio-diversification-strategy/#5b115fef2adfis its
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Maamoun, A. (2020, January 15). Coca-Cola brews a hot acquisition: Costa coffee. Retrieved
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2019-and-increase-35-for-the-fourth-quarter/
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bezos-uses- -beat-competition.htmlto
Sorto, G. (2019, May 15). Sugary drink sales plummeted in Philadelphia after soda tax, study
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sales-decrease/index.html
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