Four Methods of Competitive Advantages
If one company has gained VRIO resource, no other company can acquire it at least temporarily. The following resources have VRIO attributes:. Unique competences. Competence is an ability to perform tasks successfully and is a cluster of related skills, knowledge, capabilities and processes. A company that has developed a competence in producing miniaturized electronics would get at least temporary advantage as other companies would find it very hard to replicate the processes, skills, knowledge and capabilities needed for that competence.
Innovative capabilities. Most often, a company gains superiority through innovation.
Innovative products, processes or new business models provide strong competitive edge due to the first mover advantage. Porter has identified 2 basic types of competitive advantage: cost and differentiation advantage.
Meeting Sustainability Priorities in Competitive Operational Strategies
Cost advantage. Porter argued that a company could achieve superior performance by producing similar quality products or services but at lower costs. In this case, company sells products at the same price as competitors but reaps higher profit margins because of lower production costs. Based on their knowledge of their own cost structure, can they estimate what the impact of a product or marketing change will be on their plants, their distribution system, or their sales force?
If so, and if they do not plan for the business to grow beyond traditional limits, they may not need to set up an expensive planning apparatus. The complexities of most large enterprises, however, demand more explicit documentation of the implicitly understood strategies of Phase I. The number of products and markets served, the degree of technological sophistication required, and the complex economic systems involved far exceed the intellectual grasp of any one manager.
The shoe usually pinches first in financial planning. As treasurers struggle to estimate capital needs and trade off alternative financing plans, they and their staffs extrapolate past trends and try to foresee the future impact of political, economic, and social forces. Thus begins a second phase, forecast-based planning. Most long-range or strategic planning today is a Phase II system. At first, this planning differs from annual budgeting only in the length of its time frame.
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Very soon, however, the real world frustrates planners by perversely varying from their forecasts. In response, planners typically reach for more advanced forecasting tools, including trend analysis and regression models and, eventually, computer simulation models. They achieve some improvement, but not enough. Sooner or later plans based on predictive models fail to signal major environmental shifts that not only appear obvious after the fact, but also have a great and usually negative impact on corporate fortunes.
Nevertheless, Phase II improves the effectiveness of strategic decision making. It forces management to confront the long-term implications of decisions and to give thought to the potential business impact of discernible current trends, well before the effects are visible in current income statements. The issues that forecast-based plans address—e. One of the most fruitful by-products of Phase II is effective resource allocation.
Under the pressure of long-term resource constraints, planners learn how to set up a circulatory flow of capital and other resources among business units. As practiced by Phase II companies, however, portfolio analysis tends to be static and focused on current capabilities, rather than on the search for options.
Moreover, it is deterministic—i. And Phase II companies typically regard portfolio positioning as the end product of strategic planning, rather than as a starting point.
Phase II systems also do a good job of analyzing long-term trends and setting objectives for example, productivity improvement or better capital utilization. But instead of bringing key business issues to the surface, they often bury them under masses of data. Moreover, Phase II systems can motivate managers in the wrong direction; both the incentive compensation program and informal rewards and values are usually focused on short- or medium-term operating performance at the expense of long-term goals.
In an environment of rapid change, events can render market forecasts obsolete almost overnight. Having repeatedly experienced such frustrations, planners begin to lose their faith in forecasting and instead try to understand the basic marketplace phenomena driving change. The result is often a new grasp of the key determinants of business success and a new level of planning effectiveness, Phase III.
In this phase, resource allocation is both dynamic and creative. A Japanese conglomerate with an underutilized steel-fabricating capacity in its shipyard and a faltering high-rise concrete smokestack business combined them into a successful pollution control venture.
The team members discovered that design improvements had given the competitor such a commanding advantage in production cost that there was no point in trying to compete on price. Accordingly, the sales force was trained to sell life-cycle cost advantages. Another strategy, derived from an external perspective, was devised by a U. When sales in one of its major product lines declined swiftly following the introduction of a new, cheaper competitive product, it decided to find out the reason.
Through field interviewing with customers, it discovered that the sales slide was nearly over, something competitors had not realized. Since sales of the product had dropped off to a few core markets where no cost-effective alternative was available, it decided to put more support behind this product line, just as the competition was closing its plants. The manufacturer trained the sales force to service those distributors who continued to carry the line and revised prices to pick up competitive distribution through master distributor arrangements.
It even resisted the move of the trade association to reduce government-mandated safety requirements for handling the newer products. A distinguishing characteristic of Phase III planning in diversified companies is the formal grouping of related businesses into strategic business units SBUs or organizational entities large and homogeneous enough to exercise effective control over most factors affecting their businesses. The SBU concept recognizes two distinct strategic levels: corporate decisions that affect the shape and direction of the enterprise as a whole, and business-unit decisions that affect only the individual SBU operating in its own environment.
Strategic planning is thus packaged in pieces relevant to individual decision makers, and strategy development is linked to strategy implementation as the explicit responsibility of operating management. There are limitations to the SBU concept. In other situations, strategy may dictate a concerted thrust by several business units to meet the needs of a shared customer group, such as selling to the automotive industry or building a corporate position in Brazil. If your product is not differentiated, price is the main factor in making the buying decision.
Rita Gunther McGrath on the End of Competitive Advantage
Why Culture? It is hard to create and copy so a company that gets it right can create a relatively sustainable advantage. When customers came in to meet Randy, he indicated that if they could walk around and ask any employee what their top priority was, all employees would indicate customer satisfaction. Evidently, universally, employees gave the same answer, customer satisfaction is most important. So how did he create this culture? They tracked employee ability to solve problems and created a standard process based on the success they observed.
The process was:. Her company was also known for a very high level of service as well as innovation.
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The proof of success is in the level of customer retention and in the top and bottom line performance.