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a basis for the firms long term success? a basis for value creation?

Do we really know where it resides? Can it be sustainable?

When two or more firms compete within the same market, one firms possesses a competitive advantage over its rivals when it earns a persistently higher rate of profit (or has the potential to earn a persistently higher rate of profit)
R. M. Grant, 2000

Cost advantage

Competitive advantage

Differentiation advantage

Types of competitive advantage

Low cost Differentiation

Industry-wide

Cost leadership

Differentiation

Market
Niche
Focus with low cost

Focus with differentiation

Types of competitive advantage

Low cost
Industry-wide
Market
Cost Leadership

Differentiation
Differentiation

Hybrid Strategy

Niche
Focus with low cost

Focus with differentiation

In-between there might be a successful strategy (Value for Money)

Hybrid strategies can be more effective

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Given enough time and money, your competitors can duplicate almost everything youve got working for you. They can hire away some of your best people. They can reverse engineer your processes. The only thing they cant duplicate is your culture. HIRE AWAY BEST PEOPLE Guy bumps into a competitors star engineer at a trade event: While not everyone is for sale, enough are to make you vulnerable.
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REVERSE ENGINEER PROCESSES Even if youve got things patented, trademarked or cloaked in multiple layers of secrecy, your competitors can see what you deliver, what you get done and the core pieces of how you do it. Even if they cant duplicate what you do exactly, they can get close enough to hurt you or take it to the next level and render your processes obsolete.

Cost Leadership

Differentiation

Efficient scale Standardization Design for low production cost Control of overheads and R&D Avoid marginal customers

Quality Innovation Design Credibility Brand name Reputation Environmental posture Customer service Integrated services

What is meant by sustainable competitive advantage?

Durable Valuable to the firm Exploiting weaknesses and neutralizing threats Unique
Difficult for competitors to imitate Not easily substitutable
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Increased competition leads to decrease of differences in competitive advantage What can be left for differentiation? Unique features of differentiation become prerequisites for survival Dynamism & complexity of the environment

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The firm must seek competitive advantage in combining resources & capabilities
Develop resources and capabilities, which are

rare, valuable, non-tradable,

Make those resulting competences sustainable by

precluding imitation or substitution by competitors

The firm must offer competitive products

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Innovation

Reputation Architecture of relationships

Strategic assets

DQE

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Source: Competitiveness: Strategies of the best UK companies , Winning DTI-CBI

Prerequisites
Quality Low cost Operational performance Delivery time

Elements of differentiation Quality

Low cost Oper. performance Delivery time Creditability

Creditability
Product Service Design Marketing Customer service Customized product

Product Service Design Marketing Customer service Customized product

Reputation Innovative product

Reputation Innovative product

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 Quality and quality of customer service

Design Innovative product Customized product with integrated services Environmental friendly

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Strong research and development capabilities Reflects in the companys product development processes Companies with strong research capabilities often lead the market with innovation

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Access to intellectual properties Hold intellectual right which can exist in the form of trademarks, trade names, copyrights and patents

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Exclusive re-selling or distribution rights Holding exclusive distribution right is another source of sustainable competitive advantage. When a company holds exclusive rights to a product within a given territory; that product can only be sourced from the distributor or holder of such rights.

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Ownership of capital equipment This source of competitive advantage is mainly exploited by companies operating in industries where heavy machinery is needed. Example of such industries where ownership of capital equipment is a competitive advantage includes publishing, manufacturing, oil exploration, construction and mining.
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Superior product or customer support Any company that has the capacity to quickly respond to customers need and provide subsequent support will have a competitive advantage over competitors.

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Low cost or high volume production If your business has the capacity to produce in high volume; then it can gain a sustainable competitive advantage by reducing its profit margin and recoup it through high volume sales and turnover.

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Economic factors The seventh source of sustainable competitive advantage is the economic factor of a region within a speculated time frame. A manufacturing company operating from China or India will have competitive advantage over a company manufacturing in the United States because the economic system in China is more favorable with respect to start up overhead and labor cost.
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Superior database management and data processing capabilities This source of competitive advantage is quite clear and understandable. A company that demonstrates the capacity to process data speedily will have a competitive advantage over other firms with lower processing capacity. This source of competitive advantage usually plays itself out in the banking industry, telecommunication industry and the service industry in general.

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Strong marketing strategy In the market place, the company with the best marketing strategy wins. No doubts about it. The competition to gain a stronger competitive advantage in the marketplace is the reason why giant corporations spend millions of dollars on marketing research and advertising annually.
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Access to working capital Access to working capital is one of the strongest sustainable competitive advantages a business can have over its competitors. Access to working capital is the difference between a billion dollar company and a million dollar company or a small business and a big business.
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Excellent management team and operations Show me a business that is a market leader in its industry and I will show you a business backed by a strong management team. Exploiting other sources of competitive advantage without a strong business team on ground will only be a futile attempt. A business management team is essential to harnessing opportunities that create the needed competitive advantage.

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Barriers to entry or monopoly Some businesses have gained competitive advantage because the entry in their industry has been limited by surrounding circumstances. A good example of industry where barriers to entry creates competitive advantage is the oil exploration and mining sector (industries where licenses are needed to gain entry because there is government restriction on entry). Monopoly is also a sustainable competitive advantage and can be gained by having strong ties with the government.
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