Competitive Advantage
• Competitive Advantage over rivals when profitability is greater than the average of all companies in its industry.
• Distinctive competencies
– Distinctive strengths that allow a company to differentiate it products/services over rivals
– Based on resources and capabilities
• Resources
– Assets of a company
• Tangible and intangible
• Valuable when they enable a company to create strong demand for its products/services
• Barriers to imitation
• Capabilities
– Skills at productively coordinating its resources.
Dr Stephen Pratt
ICWS – PMM 1010 Strategy – Week 3
Slide 2 of 23
Building blocks of competitive advantage • Four factors contribute to the establishment and sustainability of a competitive advantage:
– Superior efficiency
– Quality
Quality
– Innovation
– Customer responsiveness
Superior
efficiency
Competitive
Advantage
-Low cost
-Differentiation
Customer responsiveness Innovation
Dr Stephen Pratt
ICWS – PMM 1010 Strategy – Week 3
Slide 3 of 23
Efficiency
• Business is a process which transforms inputs into outputs
– Inputs = Materials + Plant usage + Management + Investment + People etc
– Outputs = Goods and services
– Efficiency = Amount of inputs to produce a given output
– Employee productivity at lowest possible cost
Dr Stephen Pratt
ICWS – PMM 1010 Strategy – Week 3
Slide 4 of 23
Quality
• A product and/or service has a number of characteristics
– Features, reliability, form, style, performance, durability and design
• Customers perceive these characteristics as contributing to the quality of a product and/or service
• Design, style, and general aesthetic appeal excellence
• Durability and performance reliability
• Quality product + production processes + management
– Total Quality Management
Dr Stephen Pratt
ICWS – PMM 1010 Strategy – Week 3
Slide 5 of 23
Innovation
• Creation of new processes and/or products/services
• Product/service innovation development of new products/services that are either new or are enhanced versions of existing products/services
– Enhancement = Different/improved functionality or quality
• Process innovation development of new processes for producing and/or delivering products/services to the customer
Dr Stephen Pratt
ICWS – PMM 1010 Strategy – Week 3
Slide 6 of 23
Customer responsiveness
• Identifying, responding and satisfying customer needs
– Better utilisation and general experience of using the product and/or service • Designing products/services that address specific, unique, customer demands • Customer response time time taken to respond to the demand/needs of customers
• Addressing customer requirements superior design
– Linked to quality and innovation
• Build a brand loyalty
– Valued customer base
Dr Stephen Pratt
ICWS – PMM 1010 Strategy – Week 3
Slide 7 of 23
Value Creation
Company needs to develop a business model that capitalises on its strengths to differentiate its products/services & lower its costs
Company specific strengths /competencies that allow it to achieve superior efficiency, quality, innovation & customer responsiveness
Business
Model
Competitive
Advantage
Distinctive
Competencies
Dr Stephen Pratt
Strategies
ICWS – PMM 1010 Strategy – Week 3
Company implements a strategy(ies) to configure its value chain and create distinctiveness that will give it a competitive advantage. Slide 8 of 23
Value Chain
Businesses can add value through cooperation with their suppliers, customers and distributors. Upstream value
Downstream value
Value Chain
- Looks at an organisation’s resources.
- Determine its strengths and weaknesses.
- Competitive position
- Used to identify future strategic direction.
Value Chain Analysis
Activities/processes that contribute to making products/services.
Assess the value/contribution that an activity/process to the business.
Value or Margin
Amount of revenue earned.
Price of the product/service multiplied by the
