competitive advantage version2

7/27/2019 Competitive Advantage Version2

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Competitive Advantage Group IV

N-15 Anisha Ganguli

N-45 Kathita Goel

N-22 Ashish Upadhyay

N-23 Ashug Arora

N-40 Gaurav Gupta

N-39 Divesh NayyarN-55 Neeraj Bhalla

N-60 Puneet Babbar

N-36 Devavrata Singh

N-41 Gourav Seth


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Competitive Positioning

In which industry should the organization compete?(Use Porters 5 Forces Model)

Which strategy to use?

Cost Leadership , Differentiation or Both

How to configure the value chain to support the strategy?

(Use the value chain analysis framework)


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Competitive Advantage ?

Popular Belief- It is about trouncing rivals,Actually -Its about creating superior value.

It is a relative concept.

INDUSTRY STRUCTURE RELATIVE POSITION

Porters framework Five forces Value chain

The analysis focuseson

Drivers of industry profitability Differences in activities

The analysis explains Industry average price and cost Relative price and cost


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Key Indicators of How Well the Strategy Is Working

Wrong Indicators

Return on sales (ROS)Growth- Market Share

Trend in profit margins

Trend in stock price and stockholder value

Organizations are supposed to use resources effectively.

Return on invested capital (ROIC)- multidimensional nature of competitioncomprising of

Creating value for customers, Dealing with rivals, and Using resources productively.

Goalsand how performance is measured against financial measure have a huge

impact on how people in organizations behave.


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Framework for Competitive Advantage


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Relative Price

Strategy choices aim to shift relative price or relative cost in Companys favor

A company can sustain a premium price only if it offers something that is both

unique and valuable to its customers - Wil l ingness to pay(WTP), the

mechanism that makes it possible for a company to charge a higher price

relative to rival offerings.

The ability to command a higher price is the essence ofdifferentiation.

Produce at lower cost than your rivals.

More efficient ways to create, produce, deliver, sell, and support yourproduct or service.

Relative Cost


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What about Non Profit organizations?

Price Value for Society

Cost Fewer resources


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Baby University (Baby U), in Cambridge, MANon profit organization that took steps to find its competitive advantage and is now

successfully meeting its goals.

offers free parenting skills workshops modeled on the success of Geoffrey Canadas

Through weekly workshops, playgroups, and home visits, Baby U helps parents strengthen

their parenting skills.

Its competitors include church groups, social workers, and other social services.

The organization didnt have a cost advantageother parent skills services in the area were free

too.

But Baby U had three things its competitors did not:

1) A proven model to increase parenting skills, based on the success of Harlem Childrens Zone

2) Weekly incentives for the parents in the form of gift cards to grocery stores and a raffle cash

prize; and

3) Sense of community that stays with Baby U families after they graduate from the program.

Baby U staff shared these three advantages with potential clients, its

classes filled up.

Competitive Advantage of a Non Profit Organization : Example


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There are three ways to Compete :

Low Cost or Differentiation or Both


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Competitive advantage arises from the activities in a Companys Value Chain

ACTIVITIES Perform SAME activities as

rivals, execute better

Perform DIFFERENT activities

from

rivals

VALUE CREATED Meet same needs at lower cost Meet different needs and/or

same needs at lower cost

ADVANTAGE Cost advantage, but hard to

sustain

Sustainably higher prices

and/or lower costs

COMPETITION Be the BEST, compete on

EXECUTION

Be UNIQUE,

compete on STRATEGY


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Example

Companies pursuing an overall cost leadership strategy McDonalds

Wal-Mart

Companies pursuing a differentiation strategy Harley Davison

Apple

Companies pursuing a focus strategy Rolex

Lamborghini

5-11


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Competitive Advantage and Business Performance


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Operational Effectiveness (OE) is not Strategy !!

OE and Strategy are both essential to obtain superior performance, but acompany can outperform rivals only if it can establish a difference that it canpreserve.

1. Competitors can quickly imitate management techniques,technologies, input improvements and superior ways to meetcustomers needs.

E.g.: Japanese companies (1970-1990) enjoyed substantial cost & qualityadvantages (productivity frontier). Now they need to learn strategy.

2. Competitive Convergence: The more the rivals outsourceactivities, the more generic those activities.

Rivals can quickly copy any market position. Competitive advantage is temporary. Rivals imitate the improvements in quality, cycle times or supplier

partnerships.


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The Value Chain

The value chain is the representation of the firm as a set of value creatingactivities.

Activities in the value chain include primary activities like production and

marketing as well as support activities such as human resource

management and finance.


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FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

LOGISTICS LOGISTICS & SALES

MIS that supports

fast response

capabilities

Training to support

customer service

excellence

Unique product features.

Fast new product

development

Quality of

components &

materials

Defect free

products.

Wide variety

Fast delivery.

Efficient order

processing

Building brand

reputation

Customer technical

support. Consumer

credit. Availability of

spares

Using the Value Chain to Identify Differentiation Potential


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Value Chain

Each activity in the value chain can potentially add to perceived benefits.

Each activity also adds to costs.

In practice it is difficult to isolate the incremental perceived benefit and the

incremental cost of each activity.

A typical value chain analysis can be performed in the following steps:

Analysis of own value chain which costs are related to every single activity

Analysis of customers value chains how does our product fit into their value

chain

Identification of potential cost advantages in comparison with competitors Identification of potential value added for the customer how can our product

add value to the customers value chain (e.g. lower costs or higher

performance) where does the customer see such potential


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Value Creation, Resources, and Capabilities

To perform activities more effectively than the rivals firms

need resources and capabilities that the rivals do not have.

Resources are specialized assets (patents, established brand

name etc.)

Capabilities are activities a firm can perform better than its

rivals do.


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Value Creation, Resources, and Capabilities

Capabilities have some of the following characteristics

They are typically valuable across multiple markets and

products

They are embedded in organizational routines that survive

when individuals are replaced

They represent tacit knowledge in the organization


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Concept of Value System

Value chain analysis should cover the whole value system in which the

organization operates because the way they perform activities affects

organization's cost or price or vice versa.


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Mind the Gap

At its most fundamental, Competitive Advantage means achieving a bigger

gap than your competitors between the value your customers see in yourproduct and the costs you incur in providing that product

competitive advantage version2

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