The Business School

Strategic Management

BHT4002

Individual Report

Name: YE YUAN

Student Number: U1369141

Tutor: Dr Andrew

Date: 30th November

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Executive Summary: The ultimate goal of all companies is not to gain short-

term profits or victories over its rivalries, but to develop

a sustainable competitive advantage for its sustainable

growth in the long run. There has been various academic

approaches to achieve sustainable competitive advantage. In

general, they all can be divided into positioning approach

and resource-based approach. Positioning approach, such as

Porter’s Generic Strategies believes a company must choose

between low-cost leadership strategy and differentiation

strategy to achieve sustainable advantage, and it fails to

make a clear choice, it would be bound to fail. On the other

hand, the resource-based approach, such as Bowman’s

Strategic Clock argues that organizations can make an

unclear choice and should exploit all available sources of

competitive advantages (either low-cost or differentiation)

to achieve sustainable competitive advantages. However, DHL

does not create a unique mix of value, it achieves its

sustainable competitive advantages through a clear

differentiation strategy. It offers high-quality customer

services, fast deliveries and is able to take care of

customers’ inquiries and complaints efficiently and

effectively.

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Contents PageIntroduction:...................................................4Rational approach to strategic management:......................4Theoretical approaches to achieve competitive advantages:.......6Porter’s Generic Strategies:....................................7Bowman’s Strategy Clock:........................................9Introduction to DHL:...........................................12DHL and its customers:.........................................12Conclusion:....................................................14Reference:.....................................................15Appendices:....................................................17

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Introduction:

Competitive advantage refers to a significant set of

advantages a company possess over its rivalries, and which

can help the company to earn more revenue and growth rate

than its competitors (Aaker, 2001). The aim of all companies

is not to gain short-term profits or victories over its

rivalries, but to develop a sustainable competitive

advantage for its sustainable growth in the long run. This

report will firstly introduce a rational approach to

strategic management, and then introduce and explain two

primary academic theories in competitive advantage: the

positioning approach and the resource-based approach.

Furthermore, it will discuss how DHL achieve sustainable

competitive advantages through a differentiation strategy.

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Rational approach to strategic management:

A rational approach to strategic management begins at an

external/internal analysis of the business environment as

figure 1 shows. However, due to the uncertainty in the

current global economy, especially in Europe and North

America, companies may face difficulties after an analysis

of their external environment (Aaker, 2001). Additionally,

companies today are also facing new challenges, such as the

rapid development of Internet Communication Technology (ICT)

and social media which have changed the methods companies do

business; and intensely competitive market, and rapid

globalization (O’Sullivan, 2010). An external analysis must

include an industrial analysis, PEST analysis and an

analysis of Porter’s 5 forces that can help the company to

identity its external threats and opportunities (Johnson,

Whittington and Scholes, 2011).

Figure 1 Rational Model of Strategic Management

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(Source: O’Sullivan, 2010)

On the other hand, an internal analysis should involve a

resource audit, studying the material, human and monetary

resources, and intangible resources including brand names,

brand associations and so on (Ahmed & Rafiq, 2003).

Moreover, an internal analysis should also examine an

organization’s value chain to assess the overall

effectiveness and efficiency of a company’s operation (Ahmed

& Rafiq, 2003). Each elements of the value chain can add

value to a company. The overall objective of an internal

analysis is to find the strengths and weaknesses of the

company. After the internal analysis, a company can learn

what it is good at, able to do, what it is not capable of,

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and what problems it must be addressed before deciding

strategic options based on the rational model of strategic

management (Aaker, 2001).

Theoretical approaches to achieve competitive advantages:

There has been various debates about the ways to achieve

and sustain a company’s competitive advantages over the past

decades. In generally, two approaches emerged from such

debates, which are the positioning approach and the

resource-based approach.

The positioning approach was originally developed by

Michael Porter in the 1980s (O’Sullivan, 20100). Porter

asserted that an organization must first understand the

structure of the industry and the external environment to

decide strategic options in order to improve the company’s

performance and gain competitive advantages over its

competitors (Porter, 1980). Additionally, Porter also

pointed out that the success of achieving and sustaining

competitive advantage relies on the extent to which the

organization exploits the economic factors in the industry

(Porter, 1985). In other words, if a company can exploit

economic factors better than its competitors and maintain it

for a relatively long time, it can achieve sustainable

competitive advantages over its rivalries.

The analysis-choice-implementation framework (figure 2) can

illustrate how the positioning approach works:

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Figure 2: Analysis-choice-implementation framework

(Source: O’Sullivan, 2010)

According to the model, an organization develops a position

to meet the competitive forces in the industry it operates

in. Most importantly, Porter believes that even if the

entire industry faces unfavorable conditions, a company

which has a favorable position can still make above average

income (Porter, 1985).

On the other hand, in the 1990s, critiques of the

positioning approach led to the emergence of the resource-

based approach based on similar studies and views from

researches like “Prahalad & Hamel (1990), Stalk, Evans &

Shulman (1992) and Hall (1994)” (O’Sullivan, 2010). All

these authors agree that proper use of resources can develop

competitive advantages which are difficult to duplicate by

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competitors (Stalk, et.al, 1992). Resource-based approach

believes that the primary sources of competitive advantages

relies within the organization instead of identifying the

challenges and opportunities from the external environment

(Stalk, et.al, 1992). To make the difference between these

two approaches easier to understand, a positioning approach

can be understood as an “outside-in” approach, a resource-

based approach can be viewed as an “inside-out” approach.

Porter’s Generic Strategies:

In Porter’s Generic Strategies, he argues that a company’s

strengths come from making a decision between cost advantage

and differentiation (Porter, 1985). Applying such strengths

in either one segments or various segments in the industry

would result in three generic strategies: focus strategies,

differentiation strategies, and cost leadership strategies

(Porter, 1985).

Figure 3: Porter’s Generic Strategies

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(Source: Porter, Competitive Advantage, 1985)

The generic strategies are used at the unit level for the

company’s business. The reasons why they are called generic

strategies are these strategies can be applied by different

companies regardless of their industries (Porter, 1985).

Companies which use cost-leadership strategy seek to have

the lowest cost comparing to its competitors. As they have

the lowest costs, they can earn a higher profit margin than

their rivalries if they decide to sell at the industry

average price. Furthermore, they can also sell below the

industry average price to attract more customers and expand

market share. These companies seek to lower its costs

through economies of scale, outsourcing, and improving

process efficiencies (Porter, 1985). It is important to note

that low-cost leadership means lower overall costs, and not

just lower production or manufacturing costs. The main focus

of companies which uses low-cost leadership strategy is to

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achieve lower costs comparing to its competitors. For

example, Ryanair which offers cheap flights to Europe is a

good example of low-cost leadership.

Furthermore, companies which use differentiation strategy

look for developing unique values into their products or

services that can improve customer’s satisfaction (Porter,

1985). Differentiation strategy usually allow a company to

set a premium price for its products or services and thus

can give the company a higher profit margin. Common methods

to achieve differentiation strategy include: high quality

products or services, unique features, highly responsive

customer services, and innovated products (Porter, 1985).

The best example of companies which pursue a differentiation

strategy is DHL which offers superior customer services and

charged at a relatively higher price.

Lastly, a focus strategy is to focus on one or two segments

of the industry using either differentiation or cost-

leadership strategy (Porter, 1985). The methods to achieve

cost-leadership or differentiation are similar to what

discussed in the previous paragraphs, but the viability and

success of a focus strategy depends on the company’s

capabilities to defend a specific market segment from broad

scope competitors (Porter, 1985).

There are also numbers of other adaptations of Porter’s

generic strategies. For example, Michael Treacy and Fred

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Wiersema (1993) modified Porter’s framework and added three

value disciplines which can create customer values and

competitive advantages – “operational excellence, product,

leadership, and customer intimacy” (O’Sullivan, 2010).

Moreover, Bowman’s strategy clock is another adaptation of

generic strategies, which will be discussed in the next

section of this report.

Bowman’s Strategy Clock:

Cliff Bowman argues that the key variables are price and

perceived quality which determine the value of the company’s

products or services (Bowman & Faulkner, 1997). Instead of

the three strategies in Porter’s theory, Bowman’s framework

identifies eight positions of companies, and they vary in

price and perceived quality (Bowman & Faulkner, 1997).

Figure 4: The Strategy Clock: Bowman’s Strategic Options

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Source: Bowman, Competitive and Corporate Strategy, 1997

The first position has low price and low added value.

This is where organizations offer products or services which

are not differentiated in features, and thus they have to

compete on price. The second position: Low Price, is similar

to the cost-leadership position in Porter’s generic

strategies. This is where organizations seek to sell

products or services at a cheap price and look for high

volume of sales when they have relatively low profit margins

(Bowman & Faulkner, 1997). Organizations in this position

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can be very competitive and powerful as low price is valued

by a wide range of customers. A good example would be

Walmart in the retail industry or Ryanair in the airline

industry.

The third position: Hybrid, indicates a position where

organizations incorporate low-cost strategy with a focus on

differentiation (Bowman & Faulkner, 1997). These

organizations aim to provide differentiated goods at a low

price to give more value for customers’ money (Bowman &

Faulkner, 1997). The forth position: Differentiation is

similar to Porter’s differentiation strategy. Companies

which are in this position aim to provide high perceived-

value and usually increase the price of their products to

increase profit margin and maximize profits (Bowman &

Faulkner, 1997). Brand association managements are important

to companies which have this position as they want their

brand name to be linked to high quality in customers’

memories (Gale & Swire, 2006).

The fifth position is Focused Differentiation. Companies

which pursue such strategy focus on higher perceived value

and only sell at a premium price (Bowman & Faulkner, 1997).

The targeted customers of companies from this position only

purchase based on perceived value alone. Most luxury or

high-end fashion companies, such as Gucci and Armani uses

focused differentiation strategy. In addition, the sixth

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position is called Increased Price/Standard Product in

Bowman’s framework. This is a short-term strategy to

increase a company’s profits. In this position, a company

will increase its price without any change to its perceived

value (Stalk et.al, 1992). It may improve profits in a short

term but will lead to a loss of market share in the long-

term.

Moreover, the seventh position: High Price/Low Value is a

classic monopoly situation in which companies have

monopolistic power in the market and face no direction

competition (Bowman & Faulkner, 1997). Monopolistic power

allows a company to set high price regardless of the

perceived value as it is the only provider of such products

or services. Lastly, the eighth position is: Low

Value/Standard Price. This is a position where a company can

only offer low value products and has to lower its price to

attract customers (Bowman & Faulkner, 1997). Furthermore,

Bowman also stresses that position 6, 7, and 8 are supposed

to fail in an intensively competitive market as customers

will choose more companies in more competitive positions

based on price and perceived value (Stalk, et.al, 1992). In

addition, in an intensely competitive market, when companies

adopt position 6, 7 and 8 exist for a short-term, they will

be driven out of businesses by new entrants (Stalk, et.al,

1992).

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Introduction to DHL:

DHL was founded by Adrian Dalsey, Larry Hilblom and Robert

Lynn in 1969. Now, it grows into one of the world’s largest

transport and logistic company, consists of various

departments including DHL Express, DHL Supply Chain, DHL

Mails and DHL Global Fowarding (Liu & Wen, 2012). Since

1969, DHL has employed more than 285,000 staffs around the

world and provides services in approximately 220 countries

(Liu & Wen, 2012). Due to its continued success in

development of sustainable competitive advantage, it has

become the industry leader of the global transport and

logistics industry. Primary services provided by DHL include

international express, air freight, ocean shipping,

international postal service areas and ground transport

(DHL, 2014). Currently, with the rapid economic development

among Asian countries, DHL is shifting its focus from the

Europe and North America market to the Asian market and it

has started with building 6 distribution centers in Japan,

China, Korea, Australia and Thailand (Liu & Wen, 2012). The

current strategy DHL uses to achieve sustainable competitive

advantages over its competitors is differentiation strategy

based Porter’s Generic Strategies or the 4th position in

Bowman’s Strategic Clock.

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DHL and its customers:

DHL literally has operations in every place on earth and

thus has customers around the world. It accepts all types of

deliveries among all its operations in more than 220

countries (DHL, 2014). DHL values customer satisfaction

level and aims to provide specific services based on

different customer needs. It segments customers into three

general groups: normal customers, strategic customers, and

long-term relationship customers (Liu & Wen, 2012).

Strategic customers are those who have a relatively large

amount of logistic needs or complicated supply chain

requirements (Liu & Wen, 2012). Furthermore, the strategic

customer group remains a small size, and is consist of 250

top customers of DHL in the world. On the other hand, long-

term relationship customers are loyal customers who have

repeatedly purchased services from DHL for years (Liu & Wen,

2012). In addition, their logistics demands are usually much

easier than strategic customers. Lastly, normal customers

are customers who have purchased once or twice services from

DHL and they may still choose other logistic companies over

DHL in the future (Liu & Wen, 2012). In general, DHL is

committed to offer its best services and technologies to

strategic customers to remain a strong and close

relationship with them. However, it is surprising that the

primary goal of DHL is to focus on the long-term

relationship customer group as they are believed to be main

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source of revenue and growth for DHL. Furthermore, DHL also

strives to prove its high-quality services to normal

customers to turn them into long-term relationship

customers.

Furthermore, DHL measures its customer satisfaction levels

differently in the different states, countries or regions it

operates, due to differences in cultures and customers’

preferences (Liu & Wen, 2012). But in general, DHL measures

its customer satisfaction levels based on speed of the

logistic service and the efficiency and effusiveness of

taking care of customers’ complaints. For instance, in

Sweden, DHL Express measures its performance based on its

own Key Performance Indicators (KPIS), which includes how

fast DHL personnel pick up the phone and how fast they

resolve customers’ queries (DHL, 2014). Furthermore, KPIS

also indicates a tight timeframe when dealing with

customers’ complaints, and all complaints must be properly

dealt with within the agreed timeframe (DHL, 2014). As a

result, DHL Express has won the Customer Service Award for

the Best B2B Customer Service in Sweden in 2011 (DHL, 2014).

Because of DHL’s passion and commitment to provide a high-

quality service to all its customers and its high value on

customer satisfaction level, DHL successfully achieve

sustainable competitive advantages over its competitors

through a differentiation strategy. It would be very

difficult and costly to duplicate DHL’s strengths as no

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other international logistic company has the resources to

build operations in more than 220 countries and the

experience to remain positive relationship with customers

from different cultures and backgrounds.

Conclusion:

The ultimate goal of all companies is not to gain short-

term profits or victories over its rivalries, but to develop

a sustainable competitive advantage for its sustainable

growth in the long run. Porter suggests that a company must

choose between low-cost leadership strategy and

differentiation strategy to achieve sustainable advantage,

and it fails to make a clear choice, it would be bound to

fail. In contrast, advocates of the resource-based approach

argue that organizations can make an unclear choice and

should exploit all available sources of competitive

advantages (either low-cost or differentiation) to achieve

sustainable competitive advantages. This points has been

agreed by Porter’s 1996’s article in which he points out the

importance of the unique mix of value which can be created

by different activities. Furthermore, it has been further

illustrated by Bowman’s Strategic Clock, especially the

Hybrid position. However, DHL does not create a unique mix

of value, it achieves its sustainable competitive advantages

through a clear differentiation strategy. It offers high-

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quality customer services, fast deliveries and is able to

take care of customers’ inquiries and complaints efficiently

and effectively. Due to its large size, no other

international logistic company can complete international

delivery services at the same speed and cover the same range

of designations like DHL do. And due to lack of experience

of DHL, no other international logistic companies can remain

the same long-term positive relationship with customers as

DHL.

Reference:

Aaker, D. A. (2001), Strategic market management. John Wiley &

Sons, Inc. Courier-Westford, United States of America.

Ahmed, P.K & Rafiq, M. (2003), Internal market issues and

challenges, European Journal of Marketing, Vol. 37 No. 9, pp.

1177-1186.

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Berry, L.L & Parasuraman, A. (1991), Marketing to existing

customers, in marketing service: competing trough quality, The Free

Press, New York.

Bowman, C. and Faulkner, D. (1997) Competitive and Corporate

Strategy, London, Irwin

DHL, (2014) DHL official website. Retrieved from:

http://www.dhl.com/en.html (Accessed on 25th November)

Gale, B.T. and Swire, D.J. (2006) Value-Based Marketing and

Pricing, Boston, Customer Value Inc.

Johnson, G., Whittington, R. and Scholes, K (2011) Exploring

Strategy, 9th ed., Essex, Prentice Hall

Liu., J. & Wen, Y., (2012) Study of Competitiveness – A Case

Study of DHL. Retrieved from:

http://www.divaportal.org/smash/get/diva2:545580/FULLTEXT02 (Accessed

on 25th November)

O’Sullivan, K., (2010) Strategic Options –Approaches to

Sustainable Competitive Advantage. Retrieved from:

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http://www.cpaireland.ie/docs/default-source/Students/Study-Support/Strategy-

Leadership/strategic-options---approaches-to-sustainable-competitive-

advantage.pdf?sfvrsn=0 (Accessed on 25th November)

Porter, M. (1996) What is Strategy? Harvard Business Review,

Boston Vol.74, No.6, pp 61-78

Porter, M (1980) Competitive Strategy: Techniques for

Analysing Industries and Competitors, New York, The Free

Press

Porter, M (1985) Competitive Strategy: Creating and

Sustaining Superior Performance, New York, The Free Press

Stalk, G Jnr., Evans, P. and Schulman, LE. (1992) Competing

on Capabilities: The New Rules of Corporate Strategy",

Harvard Business Review, Boston, Vol.70, No.2, pp. 57-70

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Appendices:Figure 1

Figure 2

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Figure 3

Figure 4

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