THE NATURE AND SOURCES OF COMPETITIVE ADVANTAGEFOUNDATIONS OF STRATEGYJohn Beddington

Scott Bearden

Patrick Lewis

Lauren Frick

Trevor McDonald

THE EMERGENCE OF COMPETITIVE ADVANTAGE Competitive Advantage: when two or more firms compete

within the same market, one firm posses a competitive advantage over its rivals when it earns a persistently higher rate of profit

Creating a competitive advantage External sources of change: change must have differential effects on

companies because of their different resources and capabilities or strategic positioning

Internal sources of change: some firms have greater creative and innovative capability

Responsiveness to change: firms must respond rapidly to changes to maximize profits or opportunity

From innovation: New industries New customer segments New sources of competitive advantage

SUSTAINING COMPETITIVE ADVANTAGE

Obscuring Superior Performance: mask success so that other firms can’t identify success until it’s too late

Deterrence of competition: Proliferation Large investments in production capacity Patents

Diagnosing competitive advantage Causal ambiguity and uncertain imitability

Acquiring resources and capabilities First mover advantage

TYPES OF COMPETITIVE ADVANTAGE: COST AND DIFFERENTIATION

Cost: Similar product at a lower cost Wal-Mart

Differentiation: Price premium from unique product Luxury car companies

STRATEGY AND COST ADVANTAGE

Cost Drivers: Economies of scale Economies of learning Production techniques Product design Input costs Capacity Utilization Residual efficiency

THE PRINCIPAL STAGES OF VALUE CHAIN ANALYSIS FOR COST ADVANTAGE

1) Break down the firm into separate activities

2) Establish the relative importance of different activities in the total cost of the product

3) Compare costs by activity 4) Identify cost drivers 5) Identify linkages 6) Identify opportunities for reducing costs

PRINCIPAL STAGES OF VALUE CHAIN ANALYSIS FOR DIFFERENTIATION ADVANTAGE

1) Construct a value chain for the firm and the customer

2) Identify the drivers of uniqueness in each activity

3) Select the most promising differentiation variables for the firm

4) Locate linkages between the value chain of the firm and that of the buyer

AMAZON AND COMPETITIVE ADVANTAGE

Amazon gained competitive advantage by implementing value-added services Best-seller lists Reviews of books Customized recommendations based on past

purchases Created new customer segment with same

products (books) by appealing to technology era customers Able to purchase books online

TAKEAWAYS

Competitive advantage Recognize how resources can offer

opportunities for competitive advantage Distinguish between cost advantage and

differentiation advantage Value chain analysis for cost and

differentiation advantage opportunities Understand the dangers of being ‘stuck in

the middle’ of the competition