Strategies to Sustain Competitive Advantage

Strategies to Sustain Competitive AdvantageQ1 victimization an appropriate transmit, evaluate the logical argument model of a ac ac companionship of your choice, describing how the club mark offs itself from its rivals and take war-ridden advantage.1. Executive SummaryCummins started off as diesel locomotive engine locomotive engine manufacturing company since 1919 and now growing as power loss exserter in the world. Cummins dist lay off net through company- owned electrical distributor, in thinkent distributor and dealer to exercise guest globall(a)y. In 2009, Cummins reported net income of $428 million in $10.8 billion of gross taxation 1.Cummins make believe been diversifying its employment to broad range of growths from power generation, filtration technology, turbo technology, fuel agreement, dismissal dominances and air manipulation 2. Due to external pressure and growing commercialize in Asia, Cummins recently setup Centre of Excellent in capital of Singapore focalise more(prenominal) on Marine and Offshore market. In this impale module assignment, militant strategy leave sole(prenominal) counsel on Cumminss marine and inshore furrow. In this PMA, the value rick is based on own pains experiences assumption. However, outline on financial will based overall Cummins stage line of products listed in stock market which named CMI.1.1. Vision StatementMaking peoples lives better by unleashing the reason of Cummins 3. Cummins regard in by exploitation new technology will lead to better living for the people.1.2. Mission StatementCummins military commission statement as quoted be busted 3Motivating people to act like owners working unneuroticExceeding node chances by al bearings being first to market the outstrip harvest-tidesPartnering with our nodes to make sure that they succeedDemanding that everything we do leads to a cleaner, healthier, safer environmentCreating wealth for all stakeholders.1.3. Cummins co mp be with Industrial leader body-build 1 Financial outline CMI Vs Industry Leader 4Figure 1 shows overview financial analysis of Cummins (CMI) canvas indoors industry leader 4. Cummins rank 35 among 379 diversified machinery industries in industrial not bad(predicate)s sector for market capitalisation. Cummins stock values increase more than triplet over the chivalric 3 years and promise future growth with its business strategy 4.1.4. naval system oceanic strategy has been familiarized by W.C. Kim and R Mauborge since 2004. Starting then, this strategy is adopted and implemented successfully in various makeups globally. Recently, Malaysias bloom Minister Datuk Seri Najib Razak shargond his experience on Ocean Strategy when relations with increasing crime in the country 5. He is victimization obscure Ocean Strategy as management tools in fix up to promote thought process out of the box. Key successful activities such as leveraged untapped resources when replaced police with soldier doing patrolling around countrys b aver and conduct training for new police lunge in the underutilised army facilities. This initiative save a lot of m superstary from authorities and promote cross functioning role among government agency 5.The precept of the ocean strategy is treating market as universe. There are two oceans forthcoming in the universe named Red Ocean and naughty Ocean. Red Ocean specify as known competition. In this Ocean, reaping is already well defined and adversarys further adequate to(p) to make do with toll 6 .Customer expectation on the product almost generic wine and not much technology can be developing in this area. For diesel engine in marine and seaward market, the foes for Cummins entangle Caterpillar, MTU and Mitsubishi. How Cummins can take apart trough induce market leaders?Cummins grant Blue Ocean Strategy when dealing with its business. Blue Ocean Strategy defines as untapped market which no competition and industri es that do not exist at this point of time 6. This in return will resulting laid-backer acquire discriminate with conventional appeal. This understandably shows in W.C. Kim and R Mauborge studys on business launches in 108 companies. They summarize r reddenue and profit impact of business launches shows in Figure 2. In this study, 86% business launches within own boundaries (Red Oceans) and 14% business launches feel for new opportunities (Blue Oceans) 6.Red Oceans approach focus on vivacious guest by improving their product and study shows that this resulted 62% on natural revenue and 39% on total profit. In contrast, 14% of the businesses launches by creating sorry oceans can bring in high return which about 61% of the total profit 6.Cummins spend firmly on research and victimisation for past 5 years as shown in Figure 3. In 2010 alone, Cummins invest 414million in new technology development 2. whizz of recent Blue Oceans initiatives is shot Marine and Offshore Centr e of Excellent in Singapore. This business focus on the Packaging instead of marketing conventional type of bare diesel engine like other competitor such as CAT, MTU and Mitsubishi. Figure 4 shows pictorial view on the value added ingredients into bare diesel engine1.5. Strategy CanvasFigure 5 shows strategy canvas of the marine and offshore diesel engine. X-axis represents unfavorable success actors of the markets competition and Y-axis correspond to values sensed by marine and offshore customer.Marine and offshore is a mature and work up market. Engine makers always compete with toll, image, brand, delivery, product mental process and wait on availability. Cummins performs second-rately in critical successful factors. However, in social club to compete in the competitive market, Cummins break through conventional way by creating new team to focus on product value added specifically for marine and offshore customer. Cummins example Blue Ocean strategy.Figure 6 shows Red Ocean strategy from others diesel engine maker and Blue Ocean strategy from Cummins.Q2 use either porters generic strategies or the Strategy Clock, identify examples of organizations following strategies of differentiation, low exist or low worth, and stuck-in-the spirit or hybrid. How successful are these strategies.2. Porters 5 forces generic StrategiesUsing the five forces framework, creative strategists may be competent to spot an industry with a great future before this bully futureis reflected in the prices of acquisition candidates Michael Porter 7.Porters five forcesThreat of freshly Entrants Analyse potential new arriver to market is classic to understand potential future competitorsBargaining Power of Buyers Buyers is the political companionship that puddle demand for industry, understand buyers unavoid adequate to(p)ness will help to cite competitive advantages. For example, bargaining power of buyers is high if product is standard.Threat of substitute products or service Buyers always weigh for alternative or cheapest way to labor products or service. Substitute product can bring the overall industry price lowerBargaining Power of Supplier Supplier supply in the altogether material or service to ber. Bargaining power of extendr is high when to galore(postnominal) buyer and little supplier in the marketRivalry among existing competitors Current fast moving industry, its important understand the strategy of existing competitors. face How competitor gain competitive advantages or product differentiation.Porters 5 Forces allowed the company undertand and analyse own industry struture and futher help the management to decide on companys strategy. accord to Porter, organisation is up to(p) to gain competitive advantanges by strategies the company maintain one of the Porters Generic Strategies as shown in Figure 8 1) Cost Leadership, 2) Differentiation, 3) think 8.2.1. Cost Leadership StrategiesCost leadership strategies em phasize on low woo in company strategies. ordinance will offer low per-unit court product or service to customer that sensitive to price. In order to become low make up permitr, company can practise integrating strategies ( loath, advancing and horizontal). There are few factors that will affect the strategies include economies of scale, skill curve, productivity, company structure, relationship with supplier and grapheme wangle. Several example organizations that practice this are Wal-Mart (general merchandiser), charge Asia (budget air passage) and Macdonalds (Fast Food) 9. In this PMA, I will use Air Asia as example to study its business model and look into company successful factor.Air Asia strategy as illustrate in Figure 9, the company mission is to continue to be the markets carrier low exist sufferr.In order to compete with other aircraft carrier and come upon company vision for Lowest approach airline, Air Asia implement a few strategy to fasten act exis t. Strategy implemented as per at a lower place2.1.1. Keep operation bell low- NO frillsIn order to compete in this competitive market, Air Asia able to exert operational cost low by implementing few NOs in the strategy 10NO meal No food or drinks will be provided free in the in-flight service.NO frequent rain handbill program NO Membership or rewarding program which commonly apply for others airline like Kris flyer for Singapore Airline and Skymiles for Delta airline.NO Seat assignment Ticket In order to keep administrative cost lowNO Entertainment NO news paper and diversion system such as pictorial matter, games and music.No slate Ticketless replaced conventional type printed ticketNo waiting lounge NO lounge provide in the airport2.1.2. Single air craft fleetIn order to streamline the operation, Air Asia phasing out its 14 Boeing B737 in 2010 and replace by only operate single air craft which is A320. Few advantages of using single aircraft as stated belowKeep inventory cost low salve cost in service and maintenance such as keeping very(prenominal) model of spares parts.No duplicated resource due to difference Air swap experience needed dress time and training cost due to only one model. This allowed the company avoid going to through the expensive learnedness curve process and also may dissatisfied demanding customer. Michael and Nikos study on the organisation learning curves for customer dissatisfaction across airlines. They plotted estimate U-Shaped learning curve as show in Figure 10 and show evident that accusation rates followed U-shaped function of experienceAble to increase fuel cleverness and improve productivity2.1.3. Simplified distribution systemAir Asia plan mere(a) user friendly system for customer to book and check- in their ticket. Customers are able to check in using own mobile as shown in Figure 11. This ticketless system is able to reduce waiting time for customer queuing to check- in at the airport counter.2.1.4. Point to point net profit ( 4 hrs) tout ensemble Air Asia flight is running by point to point network within 4 hours radius or less as its business model. This model only carry passenger from point A to point B without any connecting flight. This in order to keep operation cost simple in order to reduce be 10.2.1.5. Optimum Aircraft UtilizationAnother way to keep run cost low and maximizes profit, Air Asia increase productivity by optimise flight utilisation. Air Asia is the fastest in the region by achieving 25 minute turnaround time. Air Asia is able to achieve equal or more than 75% for last 5 years on the send factor. Once, Air Asia achieve close to 100% load factor for Bali Perth route. Load factor is defined by AirAsia as numbers of passengers as a helping of number of seats diminishn 10. On top of that, Air Asia applies Tier based system for ticketing which depend on supply and demand. When demand is low, the price is low. When demand is high the ticket price will also go hi gh. This system is efficient curiously during low season allowed Air Asia maintain the reasonable high portion load factor,2.2. Differentiate StrategiesDifferentiation strategies offer service or product which quaint sensed by customer. Differentiation strategies do not guarantee good payback especially current standard product offered in the industry is more than enough to meet customer expectation. There will a risk of infection on implementing this strategy and need to study carefully on customer necessary before implementing. output value added, extra servicing, products flexibility and better compatibility are some of the features that can create divide in the industry. Cost is not an trouble in this strategy hence company can demand higher(prenominal) price if customer strongly attached to offered differentiation features. Typical move in this strategy is product development. Organisations that apply these strategies include apple (Lifestyle product), Raul Lauren (Ap parel) and Maytag (Home appliance)Apple is applying differentiate strategies compare with other competitors in the industry by selling lifestyle product instead of conventional electronic gadget. In first 6 months of 2011, Apple spends 1.2 billion in research and development. This is about 40% increase compare with 2010 13. ace of the successful examples when Apple launches iPad during 2010 and Steve Jobs defined iPad as entirely new household of mobile devices. Apple sold more than 15 million units worldwide later instauration 14.2.2.1. Innovative and creativity productApple is a turn leading company in the market. The company famous in creating innovative products and able to capture a significant market share after launching new products. Apple spends heavily in research and development because the company believe RD are critical for future growth and are able to create competitive advantages2.2.2. Wide range of software and applicationsApple created some other successful political program for customer to download software and application. Traditional, example like phone, other competitor just focus on few simple features which only contains game, photography function, movie and some basic feature. By introducing new approach, Apple created The App Store. promptly The App Store has more than 350,000 apps available for i scream, iPad and iPod touch globally. The apps offered wide range of application from games, entertainment, utilities, fond networking, music and others. In Jan 2011, Apple announces that more than 10 billion apps have been downloaded .2.2.3. Apple storeUnlike others competitors store which only focus on products price and feature, Apple differentiate by giving customer different shop experience in the store. Apple design Apples retail store to give the patrons good impression of stylish, clean, fashion and stream-lined. The product like i Phone, iTunes and etc will placing in a place that customer can try out the features and appli cation.2.2.4. Provide good service and maintenanceApple provides good service respond compare with others competitors like Samsung and Nokia. In Singapore, Apple provides one to one exchange for i Phone if thither is defect and still under warranty. This is different from some of the competitors, depend on the level of repair, some will take about 2 to 3 weeks. This will create some issue for some consumer that only has one hand phone.2.3. sharpen StrategiesFocus strategies offers product or service to fulfil the requirement for targeted groups of customer in the industry 9. Focus strategies can be categorize into 2 Focus cost leadership which focus on low cost solution in narrow market and Focus differentiation provide customised product or service to niche market 16. Market penetration and market development can be use when applying focus strategies 9. Focus strategies honest when competitors are not able to support on unique requirement of sealed group of customer. Organisati on which pursuing this strategies include IKEA (Furniture), Ferrari (Automotive) and Federal Express (logistic)2.3.1. Focus Cost Leadership StrategyIKEA is the Swedish global article of furniture company that utilize focus cost leadership strategy in their business strategy. IKEA whirl wide range of home furnish product with low price so that legion(predicate) people can afford to purchase. In order to achieve the strategy, IKEA apply below concept2.3.1.1. Design and develop base on priceIn order to keep competitive price, IKEA design and develop product base on price. The price is fix even before the product is launch. The actor will have to work directly with supplier to ensure meet low cost by optimised productivity, material efficiency and process improvement 17.2.3.1.2. Reduce logistic, handling and operating costIn order to reduce logistic, handling and operating cost, IKEA designer always consider flat-pack transportation and self- fiction during design and development p hase. Flat-pack furniture is often delivered in multiple sub assemblies together with simple charge manual and required customer to perform self assembly. This modular concept is able to save transportation, handling and operating cost. For example, assembled furniture tends to be more large and is more expensive to store in warehouse and transportation. Besides, that, IKEA is able to save operating cost by reduce one Assembly process in production .2.3.1.3. Self-Service in IKEA StoreIn order t keep the operating cost low and reduce the needs of sales assistance, IKEA design the flow of store layout and display the product effectively by using developed room concept. For example, sofa is placed in living room fraction and bed is placed in Bed Room section. All the furniture is clearly labelled and useful information like dimension is easily determined in the display product 17.2.3.2. Focus Differentiate strategyFerrari is applying focus differentiate strategy by develop high per formance car within self-propelling industry. Ferrari focus on high end consumer compare with other automotive competitors like Honda, Toyota or Ford which target more broad customer. under is the strategy for Ferrari2.3.2.1. New Way of Purchase CarFerrari compete created innovative approach by introduce new way of purchase car premium Ownership Program to serve its target customer. This program include insurance, maintenance, warranty , Ferrari tailor made driving course and pit stop service which provide the customer mind free after owning and driving Ferrari car 18.2.3.2.2. Innovative technologyFerrari developed own software to meet customer service expectation such as rapid response times, up to date database and personalise customer service. One of the latest features such as, the customer can view the look of the vehicle and change the preference in Service configurator system even in pre-order stage 19.2.3.2.3. Best DealerFerrari believes choosing the right strategic par tner or dealer is the right way to serve the customer. In order to motivate the dealer, Ferrari created honored award Podio Awards for supplier or business partner recognition.2.4. Stuck in the middle or Hybrid StrategiesPorter does not recommend Stuck in the middle or Hybrid strategies if the company want to achieve above average performance in the industry. Company must choose either one of the strategy in the Porters Generic strategy. He claimed that it is difficult for a company to strategies the business to release low cost product but still remain unique perceived by customer 8.However, Rodney Goon argues on Porters theory and commented some of the company such as Singapore Airline (SIA) are able to success using Hybrid strategy. Figure 12 shows business strategy applied by SIA which plotted by Rodney 21. Singapore Airline have been awarded 2nd place in World Top Airline in 2010 by Skytrax in Hamburg 22. Figure 13 shows main operating cost for SIA. Top 3 costs consist of Fue l, Aircraft and People 23. In order to achieve competitive advantages, SIA apply below approach2.4.1. Become Market Leader Differentiation StrategySIA founded in 1972 started as small airline company and now evolve become the world trend leading company for Airline industry. SIA become market leader by setting trend started since 1970s when introducing headsets, drink and choice of meals in Economy Class. Figure 14 shows overview on SIA trend setting for more than 39 years in the industry. In 1991, SIA introduce satellite- based telephone to modify passenger to call to ground during flying. In 1998, in order to improve the tint and standard of in-flight meal, SIA formed International Culinary Panel which involves renowned chef from all over the world. By doing this, the passengers are able to enjoy world class cuisine even during travelling.In order to improve customer service satisfaction, SIA introduce in-flight entertainment system named Krisworld which include Audio and Video system. Passenger can look on movie, listen to music and playing game during flying. In 2004, SIA reach another milestone by flying world longest non-stop flight from Singapore to New York (Newark). In 2007, SIA flying new Airbus design A380 which is world largest passenger Aircraft from Singapore to Sydney .2.4.2. Brand Singapore Girl Differentiation StrategySIA successfully improve its service compare with others competitors by creating unique iconic image for SIAs air air hostess as Singapore Girl and promote Youre a great way to fly started in 1972. This iconic brand is famous of caring, elegant and good looking for girl whom will provide good service for the passenger during on maturate the plane. Singapore Girl has continuously won many awards in Airline and Travel Industry over the years .2.4.3. Low Cost -Cost Leadership StrategyEverything behind The Scenes Is subject To Rigorous Control quoted by Rodney . SIA spend heavily on the area that customer can be seen as discu ssed above in order to remain premium in the industry but cut of meat cost for area that behind the scene in order to remain cost compatible. Total cost for Singapore airline is about 14.2% is the lowest in the market compare with other competitors like American Airline which labor cost is approximately 31% of total operating expense . Other than that, average price per aircraft purchase is less than other airline provider. This is due to SIA is the market leader in trendsetting and always working with aircraft builder like Airbus when there is new product launching. First purchase in world for A380 allowed SIA command a better purchase price.Q3 What are the major advantages and disadvantages of an endogenic strategy?3. compositional strategyOrganisation is able to gain competitive advantages by using integrative strategy. Integrative strategy can be categorized as vertical, backward, precedent and horizontal integrating. There are advantages and disadvantages when applying eac h concept and detail discuss as below3.1. Vertical IntegrationVertical integration is business strategies which pass its business either through gaining moderate over company that distribute or selling its product (Forward integration) or taking control over company that provide the raw material for finish goods (Backward Integration). Figure 15 illustrate 4 typical stages for value added chain in PC industry (27). warning for Dell or Hewlett Packard, in order to kindle a personal computer, assembly components such as chips, microprocessor and disk drive etc is needed from others manufacturing company (Intel/ Micron). Similarly, component parts manufacturing needs raw material like chemical, metal and ceramic to manufacture the component. Kyocera is one of the suppliers for those materials. Backward integration strategy in this case is exhausting to taking control over components parts manufacturing and raw material supplier. Whereas for forward integration strategy, PC maker tr y to gains control over the company that selling or distribute the last-place product such as OfficeMax and ComUSA 27 This company provide platform to reach end user.3.2. Forward IntegrationForward integration strategy involves increase ownership or control over retailers or distributor and illustrates in Figure 16. One of the effective mean of forward integration is through Franchising 9. Approximate $2 trillion revenue created annually through franchising business every year globally. This equal to 4th largest Gross National Product in the world 28. Advantages and disadvantages as discuss belowAdvantages Getting understanding customer betterOne of the companies using forward integration strategy successfully is Dell. Dell founded in 1984 by Michael Dell with one direction selling final products to customer directly 29. By doing this, company able to reach end user and getting feedback instantly through companys distributor and retailer without filtering. Low development and train ing costBy introduce franchising the company are able to reduce development and training cost. Franchisor will provide training, equipment and product to franchisee. This in order to skip the trial error phase for franchisee and able to help franchisee pay profit with less risk. Example companies like Subway, McDonalds and 7-eleven. Provide better servicesCompany can provide better services through its own controlled network and services. Provide lower cost of salesIn order to compete in this competitive world, price of the end product is always one of the critical successful factors for the company. Dell is using this strategy to reduce price bypassing third party involvement such as retailers etc. No mark up from other company in the finished goodsDisadvantages Increase bureaucratic costExpanding business forward which also means that increase bureaucratic cost for completely value- added chain activities. Due to uncertain demand in current market, it will post some risk to the company Increase InventoryGetting control over distributors or retailer, indirectly manufacturer may have to manage alone product cycle inventory include end products. Company may incurred higher inventory cost if wrongly manage3.3. Backward Integration producer need supplier provide raw material in order to produce its end products or service. Backward integration allowed company gain control toward supplier as shown in Figure 16. Advantages and disadvantages as discuss belowAdvantages Getting better quality controlCompany are able to apply standard quality plan throughout the value chain. This is especially important when dealing with sophisticated components such as crankshaft, piston and turbocharger for engine. By improving the quality of this critical component will increase competitive advantages among the rivals Reduce menace from powerful vendorsBy increasing control over the vendors, it will reduce holy terror from powerful vendors. Optimized supply chainKeeping track of so many suppliers is onerous says Mark Shimelonis of Xerox 9. Nowadays, a number of companies following Japanese firms lead in managing the supply chain to ensure uninterrupted supplies and low prices. cut structure costOutsourcing is one of the examples of the backward strategy. Outsourcing strategy will able to reduce cost when company engaging third party specialist that do charging lower than company own operate value-chain activity. Cummins outsource IT support to India Company and plug-in design to CMR or Auto Maskin to keep the company structure cost lower. Nike outsourcing its manufacturing plant in China due to lower labor cost 27.Disadvantages applied science changeTechnology change is inevitable in current competitive market. But backward vertical integration may lock a company way of doing business and prevent organisation changes due to technology change. One of the examples is when radio manufacturer acquired a manufacturer of vacuum tube in fifties to reduce p roduction cost. When, transistors replace vacuum tube in 1960s, the competitor rapidly change to latest technology. However for this radio manufacturer company, the management recant to change and as the result, lost in the competitive advantages and cause business failure. Thus, backward integration can cause serious disadvantages when trying to match rapid technology change 27 Risk of information lossIncrease control over the supplier which mean also potentially important information flow to the supplier. For example, Cummins need to provide important parameter and interfacing information in the engine control module to backward supplier like CMR and Auto Maskin in order to joints develop the engine protection panel. Technical drawing will be shared among backward supplier and manufacturer. Potential high costLess supplier competition will lead to less efficiencies when produce a product. The backward support company will work in the comfort zone and less initiative. The manufact urer is forced to get the input from internal supplier even there will be some others external supplier can produce lower cost .As the result will cause potentially higher production cost .3.4. Horizontal IntegrationHorizontal integration refers to company that use single industry strategy and seeking control over competitor in same market. A number of the company apply this concept as growth strategy. Merger and acquisition allowed the company to expand its core business and technical capabiStrategies to Sustain Competitive AdvantageStrategies to Sustain Competitive AdvantageQ1 Using an appropriate model, evaluate the business model of a company of your choice, describing how the company differentiates itself from its competitors and sustain competitive advantage.1. Executive SummaryCummins started off as diesel engine manufacturing company since 1919 and now growing as power leader in the world. Cummins expand network through company- owned distributor, independent distributor and dealer to serve customer globally. In 2009, Cummins reported net income of $428 million in $10.8 billion of sales 1.Cummins have been diversifying its business to broad range of products from power generation, filtration technology, turbo technology, fuel system, emission controls and air handling 2. Due to external pressure and growing market in Asia, Cummins recently setup Centre of Excellent in Singapore focus more on Marine and Offshore market. In this post module assignment, competitive strategy will only focus on Cumminss marine and offshore business. In this PMA, the value curve is based on own industry experiences assumption. However, analysis on financial will based overall Cummins business listed in stock market which named CMI.1.1. Vision StatementMaking peoples lives better by unleashing the Power of Cummins 3. Cummins believe in by developing new technology will lead to better living for the people.1.2. Mission StatementCummins mission statement as quoted below 3Motiva ting people to act like owners working togetherExceeding customer expectations by always being first to market the best productsPartnering with our customers to make sure that they succeedDemanding that everything we do leads to a cleaner, healthier, safer environmentCreating wealth for all stakeholders.1.3. Cummins compare with Industrial leaderFigure 1 Financial Analysis CMI Vs Industry Leader 4Figure 1 shows overview financial analysis of Cummins (CMI) compare within industry leader 4. Cummins rank 35 among 379 diversified machinery industries in industrial goods sector for market capitalisation. Cummins stock values increase more than triple over the past 3 years and promise future growth with its business strategy 4.1.4. Ocean StrategyOcean strategy has been introduced by W.C. Kim and R Mauborge since 2004. Starting then, this strategy is adopted and implemented successfully in various organisations globally. Recently, Malaysias Prime Minister Datuk Seri Najib Razak shared his experience on Ocean Strategy when dealing with increasing crime in the country 5. He is using Blue Ocean Strategy as management tools in order to promote thinking out of the box. Key successful activities such as leveraged untapped resources when replaced police with soldier doing patrolling around countrys border and conduct training for new police force in the underutilised army facilities. This initiative save a lot of money from government and promote cross functioning role among government agency 5.The principle of the ocean strategy is treating market as universe. There are two oceans available in the universe named Red Ocean and Blue Ocean. Red Ocean defined as known competition. In this Ocean, product is already well defined and competitors only able to compete with price 6 .Customer expectation on the product almost generic and not much technology can be developing in this area. For diesel engine in marine and offshore market, the competitors for Cummins include Caterpillar , MTU and Mitsubishi. How Cummins can break trough become market leaders?Cummins apply Blue Ocean Strategy when dealing with its business. Blue Ocean Strategy defines as untapped market which no competition and industries that do not exist at this point of time 6. This in return will resulting higher profit compare with conventional approach. This clearly shows in W.C. Kim and R Mauborge studys on business launches in 108 companies. They summarize revenue and profit impact of business launches shows in Figure 2. In this study, 86% business launches within own boundaries (Red Oceans) and 14% business launches looking for new opportunities (Blue Oceans) 6.Red Oceans approach focus on existing customer by improving their product and study shows that this resulted 62% on total revenue and 39% on total profit. In contrast, 14% of the businesses launches by creating blue oceans can bring in higher return which about 61% of the total profit 6.Cummins spend heavily on research and developme nt for past 5 years as shown in Figure 3. In 2010 alone, Cummins invest 414million in new technology development 2. One of recent Blue Oceans initiatives is setting Marine and Offshore Centre of Excellent in Singapore. This business focus on the Packaging instead of selling conventional type of bare diesel engine like other competitor such as CAT, MTU and Mitsubishi. Figure 4 shows pictorial view on the value added components into bare diesel engine1.5. Strategy CanvasFigure 5 shows strategy canvas of the marine and offshore diesel engine. X-axis represents critical success factors of the markets competition and Y-axis correspond to values perceived by marine and offshore customer.Marine and offshore is a mature and establish market. Engine makers always compete with price, image, brand, delivery, product performance and service availability. Cummins performs averagely in critical successful factors. However, in order to compete in the competitive market, Cummins break through conve ntional way by creating new team to focus on product value added specifically for marine and offshore customer. Cummins applied Blue Ocean strategy.Figure 6 shows Red Ocean strategy from others diesel engine maker and Blue Ocean strategy from Cummins.Q2 Using either Porters generic strategies or the Strategy Clock, identify examples of organizations following strategies of differentiation, low cost or low price, and stuck-in-the middle or hybrid. How successful are these strategies.2. Porters 5 forces generic StrategiesUsing the five forces framework, creative strategists may be able to spot an industry with a good future before this good futureis reflected in the prices of acquisition candidates Michael Porter 7.Porters five forcesThreat of New Entrants Analyse potential new comer to market is important to understand potential future competitorsBargaining Power of Buyers Buyers is the party that create demand for industry, understand buyers requirement will help to maintain compet itive advantages. For example, bargaining power of buyers is high if product is standard.Threat of substitute products or service Buyers always look for alternative or cheapest way to get products or service. Substitute product can bring the overall industry price lowerBargaining Power of Supplier Supplier supply raw material or service to manufacturer. Bargaining power of supplier is high when to many buyer and less supplier in the marketRivalry among existing competitors Current fast moving industry, its important understand the strategy of existing competitors. Example How competitor gain competitive advantages or product differentiation.Porters 5 Forces allowed the company undertand and analyse own industry struture and futher help the management to decide on companys strategy. According to Porter, organisation is able to gain competitive advantanges by strategies the company using one of the Porters Generic Strategies as shown in Figure 8 1) Cost Leadership, 2) Differentiation, 3) Focus 8.2.1. Cost Leadership StrategiesCost leadership strategies emphasize on low cost in company strategies. Company will offer low per-unit cost product or service to customer that sensitive to price. In order to become low cost provider, company can practise integration strategies (backward, forward and horizontal). There are few factors that will affect the strategies include economies of scale, learning curve, productivity, company structure, relationship with supplier and quality control. Several example organizations that practice this are Wal-Mart (general merchandiser), Air Asia (budget Airline) and Macdonalds (Fast Food) 9. In this PMA, I will use Air Asia as example to study its business model and look into company successful factor.Air Asia strategy as illustrate in Figure 9, the company mission is to continue to be the markets carrier low cost provider.In order to compete with other aircraft carrier and achieve company vision for Lowest cost airline, Air Asia imple ment a few strategy to reduce operation cost. Strategy implemented as per below2.1.1. Keep operation cost low- NO frillsIn order to compete in this competitive market, Air Asia able to keep operational cost low by implementing few NOs in the strategy 10NO meal No food or drinks will be provided free in the in-flight service.NO frequent flyer program NO Membership or rewarding program which commonly used for others airline like Kris flyer for Singapore Airline and Skymiles for Delta airline.NO Seat assignment Ticket In order to keep administrative cost lowNO Entertainment NO news paper and entertainment system such as movie, games and music.No ticket Ticketless replaced conventional type printed ticketNo waiting lounge NO lounge provide in the airport2.1.2. Single air craft fleetIn order to streamline the operation, Air Asia phasing out its 14 Boeing B737 in 2010 and replace by only operate single air craft which is A320. Few advantages of using single aircraft as stated belowKeep inventory cost lowSaving cost in service and maintenance such as keeping same model of spares parts.No duplicated resource due to difference Air Craft experience neededReduce time and training cost due to only one model. This allowed the company avoid going to through the expensive learning curve process and also may dissatisfied demanding customer. Michael and Nikos study on the organisation learning curves for customer dissatisfaction across airlines. They plotted estimate U-Shaped learning curve as show in Figure 10 and show evident that complaint rates followed U-shaped function of experienceAble to increase fuel efficiency and improve productivity2.1.3. Simplified distribution systemAir Asia design simple user friendly system for customer to book and check- in their ticket. Customers are able to check in using own mobile as shown in Figure 11. This ticketless system is able to reduce waiting time for customer queuing to check- in at the airport counter.2.1.4. Point to point net work ( 4 hrs)All Air Asia flight is running by point to point network within 4 hours radius or less as its business model. This model only carry passenger from point A to point B without any connecting flight. This in order to keep operation cost simple in order to reduce costs 10.2.1.5. Optimum Aircraft UtilizationAnother way to keep operating cost low and maximizes profit, Air Asia increase productivity by optimise flight utilisation. Air Asia is the fastest in the region by achieving 25 minute turnaround time. Air Asia is able to achieve equal or more than 75% for last 5 years on the load factor. Once, Air Asia achieve close to 100% load factor for Bali Perth route. Load factor is defined by AirAsia as numbers of passengers as a percentage of number of seats flown 10. On top of that, Air Asia applies Tier based system for ticketing which depend on supply and demand. When demand is low, the price is low. When demand is high the ticket price will also go high. This system is effic ient especially during low season allowed Air Asia maintain the reasonable high percent load factor,2.2. Differentiate StrategiesDifferentiation strategies offer service or product which unique perceived by customer. Differentiation strategies do not guarantee good payback especially current standard product offered in the industry is more than enough to meet customer expectation. There will a risk on implementing this strategy and need to study carefully on customer requirement before implementing. Product value added, extra servicing, products flexibility and better compatibility are some of the features that can create differentiate in the industry. Cost is not an issue in this strategy hence company can demand higher price if customer strongly attached to offered differentiation features. Typical move in this strategy is product development. Organisations that apply these strategies include Apple (Lifestyle product), Raul Lauren (Apparel) and Maytag (Home appliance)Apple is appl ying differentiate strategies compare with other competitors in the industry by selling lifestyle product instead of conventional electronic gadget. In first 6 months of 2011, Apple spends 1.2 billion in research and development. This is about 40% increase compare with 2010 13. One of the successful examples when Apple launches iPad during 2010 and Steve Jobs defined iPad as entirely new category of mobile devices. Apple sold more than 15 million units worldwide after launching 14.2.2.1. Innovative and creativity productApple is a trend leading company in the market. The company famous in creating innovative products and able to capture a significant market share after launching new products. Apple spends heavily in research and development because the company believe RD are critical for future growth and are able to create competitive advantages2.2.2. Wide range of software and applicationsApple created another successful platform for customer to download software and application. Traditional, example like phone, other competitor just focus on few simple features which only contains game, photography function, movie and some basic feature. By introducing new approach, Apple created The App Store. Now The App Store has more than 350,000 apps available for iPhone, iPad and iPod touch globally. The apps offered wide range of application from games, entertainment, utilities, social networking, music and others. In Jan 2011, Apple announces that more than 10 billion apps have been downloaded .2.2.3. Apple storeUnlike others competitors store which only focus on products price and feature, Apple differentiate by giving customer different shopping experience in the store. Apple design Apples retail store to give the patrons good impression of stylish, clean, fashion and stream-lined. The product like i Phone, iTunes and etc will placing in a place that customer can try out the features and application.2.2.4. Provide good service and maintenanceApple provides good se rvice respond compare with others competitors like Samsung and Nokia. In Singapore, Apple provides one to one exchange for i Phone if there is defect and still under warranty. This is different from some of the competitors, depend on the level of repair, some will take about 2 to 3 weeks. This will create some issue for some consumer that only has one hand phone.2.3. Focus StrategiesFocus strategies offers product or service to fulfil the requirement for targeted groups of customer in the industry 9. Focus strategies can be categorized into 2 Focus cost leadership which focus on low cost solution in narrow market and Focus differentiation provide customised product or service to niche market 16. Market penetration and market development can be use when applying focus strategies 9. Focus strategies beneficial when competitors are not able to support on unique requirement of certain group of customer. Organisation which pursuing this strategies include IKEA (Furniture), Ferrari (Autom otive) and Federal Express (logistic)2.3.1. Focus Cost Leadership StrategyIKEA is the Swedish global furniture company that applied focus cost leadership strategy in their business strategy. IKEA offering wide range of home furnish product with low price so that many people can afford to purchase. In order to achieve the strategy, IKEA apply below concept2.3.1.1. Design and develop base on priceIn order to keep competitive price, IKEA design and develop product base on price. The price is fix even before the product is launch. The designer will have to work directly with supplier to ensure meeting low cost by optimised productivity, material efficiency and process improvement 17.2.3.1.2. Reduce logistic, handling and operating costIn order to reduce logistic, handling and operating cost, IKEA designer always consider flat-pack transportation and self-assembly during design and development phase. Flat-pack furniture is often delivered in multiple sub assemblies together with simple i nstruction manual and required customer to perform self assembly. This modular concept is able to save transportation, handling and operating cost. For example, assembled furniture tends to be more bulky and is more expensive to store in warehouse and transportation. Besides, that, IKEA is able to save operating cost by reduce one Assembly process in production .2.3.1.3. Self-Service in IKEA StoreIn order t keep the operating cost low and reduce the needs of sales assistance, IKEA design the flow of store layout and display the product effectively by using actual room concept. For example, sofa is placed in living room section and bed is placed in Bed Room section. All the furniture is clearly labelled and useful information like dimension is easily located in the display product 17.2.3.2. Focus Differentiate strategyFerrari is applying focus differentiate strategy by develop high performance car within automotive industry. Ferrari focus on high end consumer compare with other autom otive competitors like Honda, Toyota or Ford which target more broad customer. Below is the strategy for Ferrari2.3.2.1. New Way of Purchase CarFerrari compete created innovative approach by introduce new way of purchase car Premium Ownership Program to serve its target customer. This program include insurance, maintenance, warranty , Ferrari tailored made driving course and pit stop service which provide the customer mind free after owning and driving Ferrari car 18.2.3.2.2. Innovative TechnologyFerrari developed own software to meet customer service expectation such as rapid response times, up to date database and personalise customer service. One of the latest features such as, the customer can view the look of the vehicle and change the preference in Service configurator system even in pre-order stage 19.2.3.2.3. Best DealerFerrari believes choosing the right strategic partner or dealer is the right way to serve the customer. In order to motivate the dealer, Ferrari created pres tigious award Podio Awards for supplier or business partner recognition.2.4. Stuck in the middle or Hybrid StrategiesPorter does not recommend Stuck in the middle or Hybrid strategies if the company want to achieve above average performance in the industry. Company must choose either one of the strategy in the Porters Generic strategy. He claimed that it is difficult for a company to strategies the business to produce low cost product but still remain unique perceived by customer 8.However, Rodney Goon argues on Porters theory and commented some of the company such as Singapore Airline (SIA) are able to success using Hybrid strategy. Figure 12 shows business strategy applied by SIA which plotted by Rodney 21. Singapore Airline have been awarded 2nd place in World Top Airline in 2010 by Skytrax in Hamburg 22. Figure 13 shows main operating cost for SIA. Top 3 costs consist of Fuel, Aircraft and People 23. In order to achieve competitive advantages, SIA apply below approach2.4.1. Bec ome Market Leader Differentiation StrategySIA founded in 1972 started as small airline company and now evolve become the world trend leading company for Airline industry. SIA become market leader by setting trend started since 1970s when introducing headsets, drink and choice of meals in Economy Class. Figure 14 shows overview on SIA trend setting for more than 39 years in the industry. In 1991, SIA introduce satellite- based telephone to enable passenger to call to ground during flying. In 1998, in order to improve the quality and standard of in-flight meal, SIA formed International Culinary Panel which involves renowned chef from all over the world. By doing this, the passengers are able to enjoy world class cuisine even during travelling.In order to improve customer service satisfaction, SIA introduce in-flight entertainment system named Krisworld which include Audio and Video system. Passenger can watch movie, listen to music and playing game during flying. In 2004, SIA reach a nother milestone by flying world longest non-stop flight from Singapore to New York (Newark). In 2007, SIA flying new Airbus design A380 which is world largest passenger Aircraft from Singapore to Sydney .2.4.2. Brand Singapore Girl Differentiation StrategySIA successfully improve its service compare with others competitors by creating unique iconic image for SIAs air stewardess as Singapore Girl and promote Youre a great way to fly started in 1972. This iconic brand is famous of caring, elegant and good looking girl whom will provide good service for the passenger during on board the plane. Singapore Girl has continuously won many awards in Airline and Travel Industry over the years .2.4.3. Low Cost -Cost Leadership StrategyEverything behind The Scenes Is subject To Rigorous Control quoted by Rodney . SIA spend heavily on the area that customer can be seen as discussed above in order to remain premium in the industry but cutting cost for area that behind the scene in order to rema in cost compatible. Total cost for Singapore airline is about 14.2% is the lowest in the market compare with other competitors like American Airline which labor cost is approximately 31% of total operating expense . Other than that, average price per aircraft purchase is less than other airline provider. This is due to SIA is the market leader in trendsetting and always working with aircraft builder like Airbus when there is new product launching. First purchase in world for A380 allowed SIA command a better purchase price.Q3 What are the major advantages and disadvantages of an integrative strategy?3. Integrative strategyOrganisation is able to gain competitive advantages by using integrative strategy. Integrative strategy can be categorized as vertical, backward, forward and horizontal integration. There are advantages and disadvantages when applying each concept and detail discuss as below3.1. Vertical IntegrationVertical integration is business strategies which expand its busine ss either through gaining control over company that distribute or selling its product (Forward integration) or taking control over company that provide the raw material for finish goods (Backward Integration). Figure 15 illustrate 4 typical stages for value added chain in PC industry (27).Example for Dell or Hewlett Packard, in order to produce a personal computer, assembly components such as chips, microprocessor and disk drive etc is needed from others manufacturing company (Intel/ Micron). Similarly, component parts manufacturing needs raw material like chemical, metal and ceramic to manufacture the component. Kyocera is one of the suppliers for those materials. Backward integration strategy in this case is trying to taking control over components parts manufacturing and raw material supplier. Whereas for forward integration strategy, PC maker try to gains control over the company that selling or distribute the final product such as OfficeMax and ComUSA 27 This company provide pl atform to reach end user.3.2. Forward IntegrationForward integration strategy involves increase ownership or control over retailers or distributor and illustrates in Figure 16. One of the effective mean of forward integration is through Franchising 9. Approximate $2 trillion revenue created annually through franchising business every year globally. This equal to 4th largest Gross National Product in the world 28. Advantages and disadvantages as discuss belowAdvantages Getting understanding customer betterOne of the companies using forward integration strategy successfully is Dell. Dell founded in 1984 by Michael Dell with one direction selling final products to customer directly 29. By doing this, company able to reach end user and getting feedback instantly through companys distributor and retailer without filtering. Low development and training costBy introduce franchising the company are able to reduce development and training cost. Franchisor will provide training, equipment and product to franchisee. This in order to skip the trial error phase for franchisee and able to help franchisee generate profit with less risk. Example companies like Subway, McDonalds and 7-eleven. Provide better servicesCompany can provide better services through its own controlled network and services. Provide lower cost of salesIn order to compete in this competitive world, price of the end product is always one of the critical successful factors for the company. Dell is using this strategy to reduce price bypassing third party involvement such as retailers etc. No mark up from other company in the finished goodsDisadvantages Increase bureaucratic costExpanding business forward which also means that increase bureaucratic cost for whole value- added chain activities. Due to uncertain demand in current market, it will post some risk to the company Increase InventoryGetting control over distributors or retailer, indirectly manufacturer may have to manage whole product cycle invento ry include end products. Company may incurred higher inventory cost if wrongly manage3.3. Backward IntegrationManufacturer need supplier provide raw material in order to produce its end products or service. Backward integration allowed company gain control toward supplier as shown in Figure 16. Advantages and disadvantages as discuss belowAdvantages Getting better quality controlCompany are able to apply standard quality plan throughout the value chain. This is especially important when dealing with sophisticated components such as crankshaft, piston and turbocharger for engine. By improving the quality of this critical component will increase competitive advantages among the rivals Reduce threat from powerful vendorsBy increasing control over the vendors, it will reduce threat from powerful vendors. Optimized supply chainKeeping track of so many suppliers is onerous says Mark Shimelonis of Xerox 9. Nowadays, a number of companies following Japanese firms lead in managing the supply chain to ensure uninterrupted supplies and low prices. Lower structure costOutsourcing is one of the examples of the backward strategy. Outsourcing strategy will able to reduce cost when company engaging third party specialist that performing charging lower than company own operate value-chain activity. Cummins outsource IT support to India Company and panel design to CMR or Auto Maskin to keep the company structure cost lower. Nike outsourcing its manufacturing plant in China due to lower labor cost 27.Disadvantages Technology changeTechnology change is inevitable in current competitive market. But backward vertical integration may lock a company way of doing business and prevent organisation changes due to technology change. One of the examples is when radio manufacturer acquired a manufacturer of vacuum tube in 1950s to reduce production cost. When, transistors replace vacuum tube in 1960s, the competitor rapidly change to latest technology. However for this radio manufacturer c ompany, the management refuse to change and as the result, lost in the competitive advantages and cause business failure. Thus, backward integration can cause serious disadvantages when trying to match rapid technology change 27 Risk of information lossIncrease control over the supplier which mean also potentially important information flow to the supplier. For example, Cummins need to provide important parameter and interfacing information in the engine control module to backward supplier like CMR and Auto Maskin in order to joints develop the engine protection panel. Technical drawing will be shared among backward supplier and manufacturer. Potential high costLess supplier competition will lead to less efficiencies when produce a product. The backward support company will work in the comfort zone and less initiative. The manufacturer is forced to get the input from internal supplier even there will be some others external supplier can produce lower cost .As the result will cause p otentially higher production cost .3.4. Horizontal IntegrationHorizontal integration refers to company that use single industry strategy and seeking control over competitor in same market. A number of the company apply this concept as growth strategy. Merger and acquisition allowed the company to expand its core business and technical capabi