Competitive advantage

It is also known as strategic advantage, is essentially a position of superiority on the part of organization in relation to its competitors. It is externally focused while organizational competencies are internally focused.

Definition Competitive advantage

Competitive advantage exists when there is a match between the distinct competencies of a firm and the factors critical for success within its industry that permits the firm to outperform competitors. Competitive advantage of an organization is largely determined by the national competitive advantage.

Dynamics of national competitive advantage

Firm strategy, structure and rivalry

Factor conditions

Demand conditions

Related and Supporting industries

Determinants of national competitive advantage

Factor conditions
Can be grouped into five broad categories: Human resources, knowledge resources, physical resources, capital resources and infrastructure.

Demand conditions
Three characteristics of home demand are particularly important:
I)The composition of home demand II)The size and pattern of growth of home demand III)The means by which a nations home demand pulls the nations products and services into foreign markets.

Related and supporting industries

In the long run the relationship between main industry and related and supporting industries becomes reciprocal. If the main industry is developed the related industries will also developed.

Firm strategy, structure and rivalry

The aggregate of these determines national competitive advantage.

Approaches for competitive advantage

Generic competitive advantage Strategic intent Benchmarking Synergistic approach Critical success factors approach

Generic competitive advantage

It is a basic one which can be combined with other strategies. It is based on the principle that the achievement of competitive advantage is at the core of a superior marketing strategy. It considers two dimensions competitive base and competitive scope. By combining both these dimensions Porter has identified four competitive strategies

Generic competitive advantage

Competitive base Cost

Differentiation

Competitive scope

Broad

Overall cost leadership

Differentiation

Focused

Narrow

Cost focus

Differentiation

Generic competitive advantage

Overall cost leadership

It is based on a companys position as the industrys least cost producer. Two essential features: 1) The company pursuing overall cost leadership must aggressively pursue a position of cost leadership by constructing the most efficient scale facilities and must be good in engineering, manufacturing and physical distribution. 2) The company has a large market share so that its per unit cost is the lowest.

Cost focus
In this organization focuses on a narrow segment of the market and offers products at lower price that its competitors on the basis of its low cost.

Differentiation
The act of designing a set of meaningful differences to distinguish the companys offerings from competitors offerings. A product can be differentiated on several bases: Product characteristics: form, features, performance, quality, durability, reliability, style, design etc. Services: ordering, ease, delivery, installation, customer training, maintenance and repair etc. Personnel: competence, courtesy, credibility, reliability, responsiveness and communication. Channel: coverage, expertise and performance etc. Image: symbols, media, atmosphere etc.

Focused differentiation
It is undertaken to achieve advantage in a narrowly defined market/customer segment.

Strategic intent
The essence of strategy lies in creating tomorrows competitive advantage faster than competitors mimic the ones you possess today. Hamel and Prahalad have identified four approaches for generating competitive advantage based on strategic intent: Building layers of advantage Searching for loose bricks Changing the rules of engagement Collaborating

1) 2) 3) 4)

Building layers of advantage

It involves generating layers of advantages on top of another advantage. This is essentially based on moving up in value chain . This can be done through moving to upward value chain or downward value chain.

Loose bricks
It refers to creating advantage in those areas which have been let loose by the existing competitors, that is, the areas uncovered by them.

Changing the rules of engagement

New CSFs may be created which may generate advantage to the company which has introduced it.

Collaborating
It refers to entering into collaboration with another which has competence in areas that can be used as a source of competitive advantage.

Benchmarking
It is a process of identifying, understanding and adapting outstanding practices from within the same organizations or from other businesses to help improve performance.

Process of benchmarking
Planning, Analysis, Integration, Action, Maturity.
Planning: what is to be benchmarked, to whom will be compared, hw will data be collected? Analysis: to determine current performance gap and projected future performance level. Integration: process of using benchmarking findings to set operational targets for change. Action: implementation of specific action and monitoring its results followed by recalibration of benchmarks. Maturity: impact of benchmarking should be evaluated in terms of final objective achievement such as cost reduction, customer satisfaction etc.

Synergistic approach
It is the process of putting two or more elements together to achieve a sum total greater that the sum total of individual elements separately.

Areas of synergistic effect

Production synergy Marketing synergy Research and development synergy Financial synergy General management synergy

Critical success factors approach

Also referred as strategic factors or key factors for success are those characteristics, conditions or variables which when maintained and sustained can have significant impact on the success of an organization competing in a particular industry.

Identifying industry CSFs

Can be identified based on logic, intuition, judgment. Can also be identified internally by using creative techniques like brainstorming Can also be traced from other companies statements, expert opinions, organizational success stories etc.

Organizational critical success factors

structure
Strategy Systems

Shared values

Skills Staff Mckinsey 7-s framework

Style