Competitive Advantage in Strategy

What is Competitive Advantage ?

Michael Porter in his book, “Competitive Advantage” (1995) describes what companies need to do if they want to become a recognized force in their respective industries. According to Porter, competitive advantage lies in the ability of an organization to differentiate itself from other organizations.

In order to establish and maintain differentiation in the market place, a company must attend 8 factors described by Porter;

• Time
• Execution
• Maneuverability
• Knowledge
• Value
• Process
• Cost
• Differentiation

Time

• Organization’s need to balance swift action with cautious action is addressed by time. Companies should take time to evaluate costs and benefits of the opportunity
• And consider it from all possible angles when they’re confronted with opportunity.

Execution

How well and the company do things is indicated by execution. A Company has four options when executing a task:

• The company can do the wrong things wrong
• The company can do the wrong things right
• A company can do the right things wrong
• A company can do the right things right

Maneuverability

Maneuverability is about how effectively and how fast a company reacts to changing environment. These changes could be internal or external.

• It is helpful in circumstances when company realizes that expected results are not being produced by the strategy they are currently applying.
• Sometimes preferences of market changes. They could prefer new and exciting over old and trusted.
• New markets can suddenly open as trade barriers shift.
• Decline over long period can occur in established market. If a manager detects the signs of decline, he will re-invent existing product.

Knowledge

Knowledge is actually a competitive advantage not the degrees. It refers to:

• the knowledge of everyone in company about products and services they offer;
• the ability to find the right answers at the right time and how to handle situations;
• understanding that how changes will implicate in the competitive environment;
• identifying strengths and weaknesses of own and that of competitors;
• Knowing where to find the best possible solution or resources at any given time.

Value

Value refers to what a customer precept about of a company’s goods and services. To build competition based on value these points must be considered;

• Making access to services and products easier for the market.
• To accommodate diverse markets, offering different product mixes
• Adding additional services and products to an offering.
• Little and finer products are preferred than showy big things

Process

Hammer and Champy wrote their famous book Reengineering the Corporation: A Manifesto for Business Revolution in 1993.

• They noted that many companies aren’t willing to reconsider their processes and they fail. Between 1989 and 1993, Capability Maturity Model was introduced by Watts Humphrey. It spilled over the domain of business management. ‘Process’ says that strategic managers should consider:
• Processes are not monolithic. They must adapt to new situations as circumstances of business change.
• Processes should be usable in a crisis. Watts Humphrey believed a process that cannot be used in a crisis should not be used at all; and
• processes are not immune from audit and radical redesign

A company that understands the necessity of audit and redesigning of processes is a competitive company.

Cost

Businesses have to constantly monitor costs. Strategic manager should have a focus on costs. Cost has two important dimensions as a competitive advantage:

• Internally, the competitive company monitors where the money has spent and makes sure that there is a return on every penny spent.
• Externally, price a company charges for goods and services is related to cost.

Differentiation

Differentiation means more than just the difference in products, it also contains:

• Making it expensive for competitors to copy a product or service
• Improving the quality of products and services without increasing their cost and combining them in such a way that they are useful to the market
• Adding more functions or features without increasing costs
• Making sure that the delivery of products/services is better than that of competitors

It is not always possible to focus on all eight dimensions but prioritizing and focusing on few dimensions that are under control, a company can master perfections.