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PSA Peugeot-Citroen - Competitive Strategy


2.2 The Assessment of the CompanyíŽs Competitive Strategy

The competitive strategy view of the company was the long-term business success that was largely governed by understanding and manipulating the factors, which caused the inequalities so as to give the company a sustainable competitive advantage (University of Warwick, 2002).  The companyíŽs competitive strategy was assessed in the following steps (University of Warwick, 2002):

Step 1: A clear set of long-term goals íV Where are we going?

Step 2: The scope of the business íV What are we going to do?

Step 3: Competitive advantage íV How are we going to do it?

Step 4: The strategic logic íV How do we know it will work?

2.2.1 Step 1: A clear set of long-term goals íV Where are we going?

This step required a description of the underlying mission of the company and the objectives (including financial performance) that it wanted to achieve over a defined time horizon.  Calvet of PSA declared in 1995 that they made great strides in extending their international presences and their ambitious goals were to progressively make 25 percent of their sales outside Western Europe.

2.2.2 Step 2: The scope of the business íV What are we going to do?

This step described the scope of the organization in which product-markets it chose to compete.  PSA adopted a globalization strategy with related diversification as the scope of the business.  The company included two general car-manufacturing companies: Automobiles Peugeot and Automobiles Citroen.  The two achieved synergies as they could extend and apply their distinctive competence across a wide array of similar activities such as R&D. 

2.2.3 Step 3: Competitive advantage íV How are we going to do it?

This step articulated the benefits that the company could bring to its customers and to itself by its positioning within its chosen product-markets.  According to PorteríŽs Generic Strategy Model in Figure 2 (Pitts et al, 1996), the company adopted a Cost Leadership Strategy and created uniquely low cost to the customers.  Low cost could also help to enter a new market or gain market share quickly.

2.2.4 Step 4: The strategic logic íV How do we know it will work?

This last step was the strategic logic behind competitive advantage.  It involved the positioning (market-based) logic and the resource-based logic.  The positional logic underpinned the competitive (positional) advantage ambitions.  The resource-based logic focused on the core competences (resources and capabilities) of the company, asserting that it was the distinctiveness that enabled sustainable positional advantages to be constructed.  Hence, competitive advantage was a composite of a resource-based view and a market-based view as shown in Figure 3 (University of Warwick, 2002).

2.2.4.1  Positional (market-based) logic

Matching the list of available competitive advantages from the analysis of PorteríŽs Five Force Model, the following were the positional advantages for Cost Leadership Strategy:

íP        Scale economies and experience

íP        Strong financial background

íP        Strong distribution network and relationship

íP        Absolute cost advantages

íP        Strong R&D

íP        Ability to expand new terrains

2.2.4.2  Resource-based logic

PSA had the following core competences (resources and capabilities) that leaded to the above positional advantages:

Economies of scope

The company was able to utilize their synergies through economies of scope to create value not only in the individual business, but across the entire company as well.  Economies of scope arose when the average cost of a single product was lowered by its joint production with other products in a multi-product company (University of Warwick, 2002).  Their synergies included standardization of vehicles, joint purchasing of components, and share of R&D expenses, which significantly enhanced scale economies and experience, and eventually achieved cost advantages.

Value Chain

The value chain was an outward manifestation of the underlying competences of the company and as such, it provided a direct link to competitive advantages (University of Warwick, 2002).  There was a strong top management commitment in seeking to locate every possible source of cost advantage in its value chain of activities.  Productivity was improved and reduction in costs was significant.

The primary activities were the sequential part of the chain, which reflected the logical flow of product or service through the chain to the customer.  PSA had focused mainly in logistics and operations as shown in following table:

Inbound logistics

Operations

Outbound logistics

Marketing/sales

Service

íP         Large shipments from low cost strategy with massive volumes

íP         Reduced delivery time

íP         Economies of scale in plants; experience effects

íP         Reduced delivery time

íP         Bulk or large order shipment by low cost strategy with massive volumes

íP         Reduce delivery time

íP         Mass marketing; mass distribution; national and campaigns

 

The supporting activities were the overhead structure and the company had put efforts in every activity so that they could support their primary activities:

Infrastructure

Human resources management

Technology development

Procurement

íP         Centralized cost controls

íP         Reduced hierarchical levels

íP         Intensive training to emphasize cost saving means; encourage employees to look for new ways to improve methods

íP         Use project team

íP         Careful personnel planning

íP         Economies of scale of R&D and technology development; learning and experience amortized over large volume

íP         Standardization of vehicles

íP         Simplification of product ranges and assembly lines

íP         Joint purchasing of components through Sogedac with strong bargaining power with suppliers

Both the primary and supporting activities related to the set of relationships between all the elements in the value chain which provided the corporate glue and made the chain worth more than the sum of its parts (University of Warwick, 2002).  This was also the value of its strategic asset providing inimitability, which was difficult to imitate from other competitors.

Relationship of distribution networks

There was clear differences and separation between the two marques in product design and style, the development of production processes, and marketing and sales, with two distinct dealer networks competing with each other.  It was effective as this could avoid any disadvantages from weaker marque and posed a barrier to new entrants. 

Strong R&D

The company spent 3.8 percent of the consolidated turnover in 1994 on R&D, which was a high percentage compared to other European competitors.  Most of the employees in R&D worked for the two marques on the development of new models, on market-driven technological innovations or on manufacturing technologies and methods.  They had joint developments with the other companies for cars, traffic and systems developments. 

They were the world leader in diesel cars and had a significant competitive advantage in this domain.  The electric car was one of the top research priorities for PSA and became the second family car for driving short distances mainly in towns, which they believed they were three years ahead of competition in this domain. 

Strong financial background

The company was the main French exporter and their financial background was improved when their profitability rose to FF3.1 billion in 1993.  Hence, they had strong abilities to support their future strategies and development.


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