What are the major sources of competitive advantages of an organization that can be effectively developed to support a cost leadership strategy for competing in the market?
©Partners Creating Growth 2013 Show (Click here to go to the Source of Competitive Advantage that intrigues you most) Competitive advantage comes from many places beyond simply the product and service and below I have outlined 14 possibilities for advantage. They are supported by considerable data, research and experience; the data sources are included in a bibliography below for your reference. Sources of competitive advantage lie all along the value chain based on Michael Porter’s seminal work, Competitive Advantage and famously depicted below. With so many options, how do you
know the right competitive advantage for your business? It needs to be unique and “to lower buyer cost or raise buyer performance through the impact of its value chain on the buyer’s value chain.”(1) Notice here the dollars and cents value impact on your customers. It is only real competitive advantage when it accomplishes this. Leadership: Sources of Competitive Advantage Here, I have replaced Michael Porter’s infrastructure with top management’s role, which inevitably cuts across departments or involves the external environment. We begin with examples of the company’s strategies and impact on the external environment. Externally-focused Strategies Implementing simultaneous strategies of localization and globalization in global market returned Panasonic to a profitable growth path. In 2000, the company suffered its first loss due to Chinese competitors effectively exporting to the US, Europe and South Asia. In response, Panasonic shifted from a US-based to a global view. It set up a center focused both on local Chinese market needs and on globally available and soon-to-be available Panasonic products. The center uncovered a need for narrower refrigerators, allowing fridge sales to increase ten-fold in one year. It also found a need to sterilize laundry. Panasonic was the first major player to bring this capability to market. As a result, the front-loaded washer market share in China increased from 3% to 15%. (3) 2. Strategic Alliance or Acquisition Strategic Alliances are an important source of capabilities a firm may not otherwise possess. Few firms have all the capabilities needed to compete effectively in our world of fast-paced change. “Despite the fact that an alliance is formed nearly every 90 seconds, failure rates appear to occur in nearly 60 percent of all alliances.(4) In most instances, failure is not a function of the alliance being a bad strategic option; rather, failure is attributable to managerial error.”(4) Consequently, successful strategic alliances can bring significant competitive advantage. Another option is to purchase the capability. At Sonoco Retail Packaging, we could see that our ability to pack retail products would be complemented by the ability to design, manufacture and pack out popular point-of-purchase displays. As a result, we acquired a premier POP display company, yielding an important capability that customers needed, and so generating additional sales and profits. 3. Competitive Actions Following an extensive study of competitive actions and responses in the airline industry, Ming-Jer Chen concludes that the more responses a company’s competitive action provokes, the more that company’s profits drop. (5) Highly visible attacks to the core of competitors will draw a lot of response, as confirmed by airline data. Competitive attacks that are difficult to respond to draw less reaction, as demonstrated by considerable airline data in the study. Attacks that are difficult to respond to include those that demand a costly response, significant organizational change, or sophisticated coordination among different departments. These are the competitive actions companies will want to make. Still, effective competitive actions can vary by environment. In nascent markets, plenty of ambiguity exists and investors prefer companies with more predictable and simple competitive moves. This encourages improved investor valuation and so offers competitive advantage. (6) 4. Customer Clusters Research has shown that firms located near customers cluster innovate more quickly. (7, 8) This is largely due to more customer participation and a real-time information flow. Far flung customers makes it more difficult to assess and maintain satisfaction. (7) Internal Leadership Role At a multi-million packaging company, I led the shift from a product to a market focus. Initially, the company produced the plethora of products the equipment could produce. As a result, the company was mediocre in most markets, and poorly performing in some, having suffered a significant loss the previous year. I coached the management team to explore market options, utilizing the extensive knowledge in Sales, Production and market analyst assistance. Given the company’s sophisticated capabilities, market trends and the high margins, we selected the high end market segment as an area of focus, shedding the high volume, low margin product lines. The company pulled together to pursue high quality packaging accounts and to move into a new, higher end product line. The new business added considerable profits to our bottom line, returning the company to profitability. 6. Strategic Fit between Marketing and Manufacturing “Organizing marketing activities in ways that fit a business’s strategy type can form a significant source of competitive advantage.” (10) The crux of this is to ensure the customer requirements of the company’s marketing strategy are met by the manufacturing strategy. Misalignments need to be identified and transformed into strategic fit. Strategic fit between marketing and manufacturing can drive such strong relationships of trust and reputation that “the potential exists for any organization to develop intimate relations with customers to the point that they may be relatively rare and difficult for rivals to replicate”(11). “The “best” products do not necessarily win. The best-networked ones usually do.” (10) This phrase highlights the necessary partnership of manufacturing and marketing. For manufacturing-focused companies, it is essential to note that “three organizational challenges at the heart of entrepreneurial strategy fall squarely in the bailiwick of marketing: (1) scanning and projecting current, emerging and potential environmental change; (2) Perceiving the outlines of potential opportunity lurking but rarely manifestly evident in such change; and (3) Translating (perceived) opportunity into (potential) solutions that generate value for some set of customers.” Effective marketing is essential to a successful company. (11). 7. Implementation of Strategy It is possible to compete successfully with superior implementation of strategy rather than superior strategy. (12) As markets become more mature, the environment becomes less dynamic and there are fewer opportunities to develop a better product or new strategy. Consequently, superior implementation can win the day. It is important to realize that “an implementation leader has an internal focus, possessing great organizational and motivational abilities” while a strategy of differentiation demands a leader with an external focus who is a “great strategist — brilliant, capable of seeing what others do not see” while (12) Human Resources: Sources of Competitive Advantage Many studies demonstrate that employee engagement can be a source of competitive advantage. One study, taking place in the labor-intensive hotel industry, found that the ‘highly satisfied, motivated, committed and fully engaged’ employees yielded a higher market share than their competitor. (18) Technology Development: Sources of Competitive Advantage In this time of great technological advances, there are many opportunities for gaining competitive advantage through technological innovation. However, a company needs to create a culture that is open to adopting new technology effectively. One study concerning adopting electronic data interchange (EDI) in the automotive industry notes that the company benefited from: “cost saving, time saving, increased efficiency, better communication, less error and delays. Consequently, customer satisfaction and performance level has been dramatically increased.” (19) However, the value is only achieved with the selection and effective implementation of the correct technology, which is not easy. 11. Business Analytics Recently, “58% of the more than 4,500 respondents to a survey conducted by MIT Sloan Management Review, in partnership with the IBM Institute for Business Value, said their companies were gaining competitive value from analytics — up from just 37% who said that last year.” (20) Data-oriented cultures implement analytics more effectively. However, creating this culture can be difficult. 44% of respondents considered organizational challenges difficult to resolve as compared to 21% who found them easy to handle. Those early in business analytic implementation find these issues most difficult. (20) Logistics and Operations: Sources of Competitive
Advantage Implementing an effective production system can bring companies competitive advantage. One study shows that industrial companies in Jordan who implemented Just-In-Time (JIT) attained positive and statistically significant advantages in costs, quality and financial results. (21) At an RR Donnelley facility I ran, we implemented JIT in a small run, quick turn pressroom. It yielded considerable customer satisfaction and maintained sales in a highly competitive market. 13. Business Processes Managing consistent business process seamlessly is another source of competitive advantage. For example, Toyota added product value due to the Six Sigma and product design processes. Business process improvement can be a cost-effective strategy as it can occur without technological change. However, it is critical that the processes are tied closely to the business strategy and objectives. (22) Government Programs: Sources of Competitive Advantage Conclusion Bibliography
Photo credits: Table of Contents Internally-Focused Leadership Role Human Resources Technology Development Logistics and Operations Government Programs Warning: count(): Parameter must be an array or an object that implements Countable in /home3/partneu4/public_html/partnerscreatinggrowth/wp-includes/class-wp-comment-query.php on line 399 What is the source of competitive advantage for an organization?Competitive advantages are attributed to a variety of factors including cost structure, branding, the quality of product offerings, the distribution network, intellectual property, and customer service.
What are the four sources of competitive advantage?The four primary methods of gaining a competitive advantage are cost leadership, differentiation, defensive strategies and strategic alliances.
What are the 5 competitive advantage strategies?Here are five types of competitive strategy and an example for each:. Cost leadership. ... . Product differentiation. ... . Customer relationship management (CRM) ... . Cost focus. ... . Commitment to customers strategy.. What are the sources of competitive advantage and superior profitability?Examples of Competitive Advantage
Highly skilled labor. Strong brand awareness. Access to new or proprietary technology. Price leadership.
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