Competitive Advantage

Prof.Dr.Aung Tun Thet

Competitive Advantage

Prof.Dr.Aung Tun Thet

Competitive Advantage

• Being different• Choosing to perform activities differently• Perform different activities than rivals • Deliver unique value

Diamond Model

Firm Strategy, Structure and

Rivalry

DemandConditions

FactorConditions

Related andSupporting Industries

Chance

Government

4 Building Blocks of Competitive Advantage

• Low Cost• Differentiati

on

Competitive Advantage

Superior Quality

SuperiorCustomer

Responsiveness

SuperiorInnovation

SuperiorEfficiency

5 Forces That Shape Industry Competition

RivalryAmongExisting

Competitors

Threat ofNew Entrants

Threat ofSubstitute Products

Bargaining Power of

Suppliers

Bargaining Power of

Buyers

Competitive Advantage

Firm

Competitors

New Market Entrants

Suppliers Customers

SubstituteProducts

Competitive Advantage

Cost AdvantageDifferentiation

Advantage

(Similar products at lower price) (Price premium from unique product)

Generic StrategiesCompetitive Advantage

Low Cost Higher Cost

Competitive Scope

Broad

Narrow

Cost Focus

Cost Leadership Differentiation

Differentiation

Focus

Sustainable Competitive Advantage

19th Century

• “If a man make a better mouse-trap than his neighbour, • the world will make a beaten path to his door.”

21st Century

• Manage for uniqueness• Develop distinctive competence• Create competitive advantage

Three competitive hot spots

1. Product innovation: Competitors secure detailed information on 70% of all new products within year of development; Patenting do not deter imitation; Imitation costs 1/3rd less than innovation and 1/3rd quicker

2. Production: New processes harder to protect; 60% to 90% of all “learning” diffuse to competitors

3. Marketing: Rivals react by adjusting marketing mix

Sustainable Competitive Advantage

• Two key questions: 1. Which advantages sustainable?2. Why?

Sustainable Competitive Advantage

• Three categories1. Size in targeted market2. Superior access to resources or customers3. Restrictions on competitors’ options

1. Benefits of Size

Size Advantage

• Markets finite• Competitors resign themselves to remaining

smaller• Fear if they matched leader’s size• Supply exceed demand to make market

unprofitable for everyone

Size Advantage

• Commitment to being large - making durable, irreversible investments• Exploit opportunities• Preempt competitors• “First-movers”

Size Advantage

• Three bases: 1. Scale2. Experience3. Scope

Scale economies

• National, regional, or local level• Not confined to manufacturing• Wal-Mart

Experience effects

• Size over time• Not at particular point in time• Irreversible, market-specific investment

Scope Economies

• Milacron - largest U.S. machine tool manufacturer• R&D • Sales and service networks• Robotics• Activities coordinated • Contributions from one business to success of another• Hard to implement

2. Access Advantages

Preferred Access

• Resources or customers • Sustainable advantage independent of size

Preferred Access

• Two conditions: • Secured under better terms than competitors • Enforceable over long run

Enforceability

• Ownership• Binding contracts• Self-enforcing mechanisms

Know-how

• Cumulative investments in R&D• Hidden - what rivals don’t see• Kept secret to yield advantage

Inputs

• Supply bounded • Strictly limited supply

Markets

• Mirror image of preferred access to inputs• Self-enforcing mechanisms - reputation,

relationships, switching costs, and product complementarities• Sensitive to customer preferences

3. Exercising Options

Sustainability of Advantage

• Not on size or access• Competitors’ options differ fundamental• Inability to imitate

Sustainability of Advantage

• Rivals frozen into current positions:• Public policy • Defense• Response lags

Guidelines for Strategy

• 1. Managers cannot ignore contestable advantages• 2. Distinction between contestable and

sustainable advantages matter of degree• 3. Not all industries offer equal opportunities to

sustain advantage• 4. Blessed with competitors with restricted menu

of options or preempt them

Guidelines for Strategy

• Two things1. Commitment to competing particular way 2. Flexibility to compete effectively in other ways

People Are Competitive Advantage

Best way to get out in front

• High tech development• Access to financial assets• R & D• …..

Best way to get out in front

• Increasingly ineffective • Technologies merge• Regulations relaxed • Powerful strategic alliances

Savvy fast-growing companies

• Achieve competitive advantage through own people and organizational capabilities• Create value:• Differ from competitors’ approaches• Not easily copied

Competitors

• Obtain capital and technology• Match creative pricing strategies• Difficult to recreate culture, value system, operating principles, leadership style and management philosophy • People foundation of organizational capability

Organizational Capability

• Anticipate and adapt to changing customer needs and marketplace forces• Through people, culture, internal structures, policies and practices

Analogy

• Tree• Flowers, leaves and fruit - value it delivers• Roots represent organizational capability

Organizational Capability

• Hidden below surface• Contributes to success• Cannot be easily copied• Premier competitive advantage

Organizational Capability

• Intellectual capital• Minds and hearts of people – not buildings, tools,

financial capital • Differentiate and grow business – beat

competition

FINANCIAL REWARDSRapid Growth

Profits

CUSTOMER BENEFITSCustomer focused decision making

Customer satisfactionInnovative products

OPERATIONAL PERSPECTIVESroduct development

Quick to marketORGANIZATIONAL

CAPABILITYInnovative HR

practicesTeam culture

Effective Communication

Common ways of working

Employer of choice

Culture for Excellence

Employee Involvement• Authority .

Information/Communication • Company Knowledge . Recognition/Rewards• Individual Knowledge . Rewards/Performance

COMPETITIVE ADVANTAGE• Employee Morale• Turnover• Customer Satisfaction• Financial Performance

Quality of Work/Life• Balance• Work Load• Diversity• Job Security• Resources

Service Quality • Top

ManagementCommitment• Quality

emphasis• Improvement/Innovation• Teamwork

LEADERSHIPBUSINESS PRACTICES

Employee Involvement

• Make decisions and contribute (Authority)• Understand business and how organization

operates (Company Knowledge)• Learning and development opportunities (Individual Knowledge)

Employee Involvement

• Open and ongoing communication between management and employees (Information & Communication)• Recognition and rewards for contributions

(Recognition & Rewards)• Link between rewards and performance (Rewards-Performance Link)

Quality of Work Life

• Employees receive both personal and work-related support• Employees:• Balance work and personal demands effectively (Balance)• Challenging but reasonable work loads (Work Load)

Quality of Work Life

• Treated fairly regardless of demographic differences - gender and race (Diversity)• Reasonable level of job security (Job Security)• Tools, materials and equipment to perform jobs

effectively (Resources)

Thank You!