Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

124 Part 2: Strategic Actions: Strategy Formulation

Figure 4.3 Examples of Value-Creating Activities Associated with the Differentiation Strategy

Support

Functions

Value Chain

Activities

Customers

Finance

Human Resources

Management Information Systems

Make long-term investments in development of new technology and innovative

products, in marketing and advertising, and in ability to provide exceptional service.

Recruit highly qualified employees and invest in training that provides them with the

latest technological knowledge and the capabilities to provide breakthrough services.

Acquire and develop excellent information systems that provide up-to-date market

intelligence and real-time information in all areas relevant for strategic and major

operational decisions.

Supply-Chain

Management Operations Distribution

Marketing

(Including

Sales)

Follow-up

Service

Develop and

maintain positive

relation with

major suppliers.

Ensure the

receipt of high

quality supplies

(raw materials

and other

goods)

Develop

flexible systems

that allow rapid

response to

customers’

changing needs.

Manufacture

high-quality

goods.

of goods to

customers.

Provide

accurate and

timely delivery

Invest in

effective

promotion and

advertising

program.

Build strong

positive

relationships

with customers.

sales service.

Ensure high

customer

satisfaction.

Have

specially

trained unit to

provide after-

Source: Based on information from M. E. Porter, 1998, Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press;

D. G. Sirmon, M. A. Hitt, & R. D. Ireland, 2007, Managing firm resources in dynamic environments to create value: Looking inside the black box, Academy

of Management Review, 32: 273–292; D. G. Sirmon, M. A. Hitt, R. D. Ireland, & B. A. Gilbert, 2011, Resource orchestration to create competitive advantage:

Breadth, depth and life cycles effects, Journal of Management, 37: 1390–1412.

cannot expect to successfully use the differentiation strategy. Next, we explain how firms

using the differentiation strategy can successfully position themselves in terms of the five

forces of competition (see Chapter 2) to earn above-average returns.

Rivalry with Existing Competitors

Customers tend to be loyal purchasers of products differentiated in ways that are meaning-

ful to them. As their loyalty to a brand increases, customers’ sensitivity to price increases is

reduced. The relationship between brand loyalty and price sensitivity insulates a firm from

competitive rivalry. Thus, reputations can sustain the competitive advantage of firms fol-

lowing a differentiation strategy.^81 Alternatively, when highly capable rivals such as Samsung

practice imperfect imitation by imitating and improving on products, companies such as

Apple must pay attention. Thus, Apple must try to incrementally improve its iPhone and

iPad products to exploit its investments. However, it must also invest in exploring highly

novel and valuable products to establish new markets to remain ahead of Samsung.^82