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 Nayyar N-55 Neeraj Bhalla N-60 Puneet Babbar N-36 Devavrata Singh N-41 Gourav Seth

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)

Competitive Advantage ?

Popular Belief- It is about trouncing rivals, Actually -It s about creating superior value. It is a relative concept.
INDUSTRY STRUCTURE RELATIVE POSITION

Porter s framework

Five forces

Value chain

The analysis focuses on

Drivers of industry profitability

Differences in activities

The analysis explains Industry average price and cost

Relative price and cost

3

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 competition comprising 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.

Framework for Competitive Advantage

Relative Price
A company can sustain a premium price only if it offers something that is both unique and valuable to its customers - Willingness 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 of differentiation.

Relative Cost
Produce at lower cost than your rivals. More efficient ways to create, produce, deliver, sell, and support your product or service.

Strategy choices aim to shift relative price or relative cost in Companys favor
6

What about Non Profit organizations?

Price Value for Society Cost Fewer resources

Competitive Advantage of a Non Profit Organization : Example

Baby University (Baby U), in Cambridge, MA Non 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.

There are three ways to Compete : Low Cost or Differentiation or Both

Competitive advantage arises from the activities in a Companys Value Chain

ACTIVITIES

Perform SAME activities as rivals, execute better

VALUE CREATED

Perform DIFFERENT activities from rivals Meet same needs at lower cost Meet different needs and/or same needs at lower cost

ADVANTAGE

Cost advantage, but hard to sustain Be the BEST, compete on EXECUTION

Sustainably higher prices and/or lower costs Be UNIQUE, compete on STRATEGY

COMPETITION

10

Example

Companies pursuing an overall cost leadership strategy

McDonalds Wal-Mart Harley Davison Apple Rolex Lamborghini

Companies pursuing a differentiation strategy

Companies pursuing a focus strategy

5-11

Competitive Advantage and Business Performance

Operational Effectiveness (OE) is not Strategy !!

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

1.

Competitors can quickly imitate management techniques, technologies, input improvements and superior ways to meet customers needs.
E.g.: Japanese companies (1970-1990) enjoyed substantial cost & quality advantages (productivity frontier). Now they need to learn strategy.

2.

Competitive Convergence: The more the rivals outsource activities, 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.

The Value Chain

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

Activities in the value chain include primary activities like production and marketing as well as support activities such as human resource management and finance.

Using the Value Chain to Identify Differentiation Potential

MIS that supports fast response capabilities

Training to support customer service excellence

Unique product features. Fast new product development

FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

INBOUND LOGISTICS

OPERATIONS

OUTBOUND LOGISTICS

MARKETING & SALES

SERVICE

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

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

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.

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

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.

Mind the Gap

At its most fundamental, Competitive Advantage means achieving a bigger gap than your competitors between the value your customers see in your product and the costs you incur in providing that product