Chapter 6
BUILDING COMPETITIVE ADVANTAGE
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Outline
◦ Success and Strategy
◦ Building blocks of competitive advantage
◦ Company Value chain
◦ The Management Team and Developing a Team of Advisors
◦ Strategic Planning
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Production TRIAD
Objectives of Production Company:
➢ lower costs
➢ cost-optimised utilisation
Costs Customer:
➢ low prices / good value
white triangle:
until now
grey triangle:
future
Company:
Company:
➢ integration of production
➢ short development times
and quality checks
➢ short production and order
➢ reliable production
throughput times
processes
Quality Time
Customer:
Customer: ➢ short delivery times
➢ higher quality standards ➢ compliance with deadlines
➢ zero-defects delivery
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Competitive Advantage
Occurs when a company’s profitability is greater than the industry’s
average profitability
Competitive advantage over several years is considered Sustained
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Company Profitability
Two basic conditions:
Amount of Value that customers place on a good or
service
◦ Value creation is at the heart of competitive advantage
◦ The greater the value customers place on a product,
the more the company can charge.
◦ A product’s price is usually less than the value placed
on it by the average customer.
◦ Why? Impossible to segment market to the degree that one captures
each consumers reservation price
◦ This causes customers to capture consumer surplus.
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Company Profitability (cont’d)
The company’s cost of production
◦ A company will look for ways to increase productivity of capital and
labor through:
◦ Economies of Scale
◦ Spread fixed cost over large product volume
◦ Greater division of labor and specialization
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Value Creation
What 2 ways exist to create more value for the customer?
A company that has high profitability = competitive advantage, when it creates
more value for its customers than do rivals
How do you create value?
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Comparing Toyota and
General Motors
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Two Basic Strategies for
Creating Value
Low Cost- Drive down cost structure
Differentiation- Consumers value the product and are willing to pay a
premium price
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Building Competitive
Advantage
4 Factors – building blocks of competitive
advantage:
◦ Efficiency
◦ Quality
◦ Innovation
◦ Customer Responsiveness
These are the generic building blocks of
competitive advantage that any company in any
industry can adopt.
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Building Blocks of Competitive
Advantage
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Efficiency
Efficiency = outputs/inputs
Two of the most important component of efficiency
are:
◦ Employee Productivity: output per employee
◦ Capital Productivity: Output per unit of investment
capital
The concept of productivity is not limited to
employee and capital productivity, what are types
of productivity exist?
High Productivity = greater efficiency and low costs
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Quality as Excellence
Superior Quality: customers perceive attributes of a
product to be better than rival’s attributes
1° type of quality: Excellence: when excellence is built
into product offering, consumers have to pay more to
own or consume the product
◦ Design
◦ Style
◦ Aesthetic appeal
◦ Features and functions
◦ Level of service that comes with the product
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uality as Reliability
2° type of quality: reliability
A product is reliable if it:
◦ Consistently does the job it was designed for
◦ Does the job well
◦ Rarely, if ever, breaks down
Less time is spent of defective products and fixing
mistakes
Reliability increases the value a consumer gets
from the product and increases the price that the
company can charge
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A Quality Map for
Automobiles
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The Impact of Quality on Profits
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Innovation
The act of creating new products or processes
Product Innovation- The development of products that are
new to the world or have superior attributes to existing
products.
Process Innovation-The development of a new process for
producing products and delivering them. Example: Toyota
lean production system: JIT inventory systems, self-managing
teams, reduced set-up times for complex equipment)
Competition can be seen as a process driven by innovation
– Innovations give a company something unique that their competitors
lack : diving either differentiation or cost advantage
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“If you want truly to
understand something, try
to change it.” - Kurt Lewin
“There is nothing more difficult,
nor dangerous, nor doubtful of
success than to institute a- new
Machiavelli
order of things.”
© RoyaltyFree/ Stockdisc/ Getty Images 18
tomer Responsiveness
Superior customer responsiveness implies being better than
competitors at identifying and satisfying customers’ needs, thus;
If a customer’s need is satisfied better by a certain product, the
customer will attribute more value to the product. therefore:
More value creates a differentiation and ultimately a competitive
advantage
Why is this not the same as innovation and superior quality?
Other issues: customization, customer response times
Examples
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Building Blocks of Competitive
Advantage
Which? drive what?
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The Impact of Efficiency, Quality, Innovation, and Customer
Responsiveness on Unit Costs and Prices
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The Value Chain
Idea that a company is a chain of activities for
transforming inputs into outputs that customers value
Composed of functional groups, each of which
contribute to either driving down cost and/or increasing
the perception of value through differentiation
Consists of primary and support activities
Why do we need to understand the Value Chain?
Because it is somewhere there that we will be able to create
competitive advantage!
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The Value Chain
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Functional Level Strategies
Managers pursue improvement in business functions by:
◦ Increasing efficiency
◦ Increasing quality
◦ Increasing innovation
◦ Achieving superior customer responsiveness
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Distinctive Competencies
A unique firm-specific strength that allows a company to better
differentiate or achieve lower cost than rivals/competitors
Arise from Resources and Capabilities
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Resources
Financial, physical, social or human, technological, and organizational
factors that create value to customers.
Can be Tangible or Intangible
Example:
Tangible = land, building, equipment
Intangible = brand names, reputations, knowledge
The more firm specific and difficult to imitate a resource is, the more
likely it is to constitute grounds for a distinctive competency
Obviously needs to be valuable!
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Capabilities
A company’s skills at coordinating its resources and
putting them into productive use.
Where are they?
To have a distinctive competency, a company must at
least have:
◦ A firm-specific and valuable resource and the capabilities
(skills) necessary to take advantage of that resource, or
◦ A firm specific capability to manage resources
A company’s distinctive competency is strongest when it has
both!
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Distinctive Competencies, Resources,
and Capabilities
The roots of competitive advantage:
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The Management Team
Management team is the set of top executives collectively
takes on the role of providing strategic, operational, and
institutional leadership for the firm in order that it can meet
increasingly complex internal and external demands.
◦ MTs chosen by the firm’s CEO
Encouraging the managers to work as a team has been
suggested as a way of enhancing strategic leadership
effectiveness, particularly in complex firms. The
effectiveness of MTs is related to heterogeneity of
functional experience, i.e. diversity of skills and knowledge
improves the performance of these teams.
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Reasons for management team work
Environmental factors
◦ financiers or
◦ environmental changes
internal factors
◦ firm growth,
◦ Profitability and better firm performance
◦ or even a crisis
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Management team building and development
Most MT building interventions focus on team relationships and
cohesion, and are based on the mistaken assumption that
improvements in cohesion lead to improvements in team task
performance
◦ Composition of management teams
◦ Team selection
◦ Diversity in management teams:
◦ Big; Heterogeneity (dissimilarity) and
◦ Small; Homogeneity (similarity)
MT homogeneity has both positive (team harmony and cohesion) and negative
(strategic myopia, unfairness in promotion and difficulty of culture change)
consequences
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Team of Advisors
The Advisory Relationship and Services of all arrangements and
discussions are strictly confidential.
Business Advisory Team services include:
◦ Strategy
◦ Strategic Business Planning
◦ CEO Advisory Services
◦ Business Transformation and Change Platforms
◦ Sales
◦ Market and Business Development
◦ Sales Training and Coaching
◦ Strategic Sales Leadership – Building Your Sales Team
◦ Sales Compensation Strategy and Productivity
◦ Competitiveness Evaluation and Analysis
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Cont…
Mergers and Acquisitions
◦ M&A Outreach, Advisory and Post-Merger Integration
◦ Sale or Purchase of Business
◦ Succession Planning
◦ Partner Buyout
Financial Services
◦ Business Assessment
◦ Business Valuation
◦ Vital Metrics and Leading Indicators
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Business Advisory Board Member
Composition
•The Business Advisory Board is composed of representatives from the
community who can offer a comprehensive range of perspectives, experiences
and skills. This mix of individuals may include:
– Key faculty members
– Alumni of the team
– Government/public sector representatives
– Media/public relations representatives
– Private sector representatives
– Not-for-profit representatives
– Any other individuals (i.e. philanthropists, retired professionals)
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Cont…
Responsibilities
•Members of the Business Advisory Board (BAB) is
responsible for advising the team on issues of strategic
importance
–Overall strategic guidance
–Compliance
–Partnerships
–Succession
–Annual reports and statements
–Presentations
–Committees – Appointing committees
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Strategic Planning –
What is this?
•The “big picture” of what your agency is doing and where
it is going.
•Helps determine where your organization is going over
the next year or more.
•Why is this important?
Takes you outside the day-to-day activities of your organization or project and
helps give you clarity about what you actually want to achieve and how to go
about achieving it rather than a plan of action for day-to-day operations.
Cont…
In the recent years, governmental, nongovernmental, and educational
institutions have dedicated a large effort toward the promotion and
training of strategic thinking as well as actual strategic planning
activities for entrepreneurship.
formal document of Strategic plan in SMEs is called a business plan.
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Elements of Strategic Planning in
New Ventures and Young SMEs
•Visionary Strategy Conception
•Goals and Objectives
•Core Competencies
•Planning Horizons
•Formal Strategic Planning
•Strategic Techniques (Among the techniques that might be able to be used
in SMEs are the analysis of financial data, and the SWOT analysis)
•Control
Do SMEs Plan Strategically?
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Benefits of the introduction of strategic management
in small and medium-sized enterprises
help to understand the current situation in which the company is located,
give a clear view of the vision, mission of the company,
determine the strengths and weaknesses, emphasizing those that are
strategically important
for the company’s activities, contribute to setting the right goals of the
company,
allow the company to be more active,
prepare the organization to be able to deal with expected and unexpected
problems,
create a background for communication management in the organization,
evaluate environmental issues and its changes,
allow the introduction of ethics and corporate social responsibility in the
strategic process.
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