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markets and to gain advantage over the competition; generally, it is an activity that a firm performs better than its competition. To define a firm's distinctive competence, management must complete an assessment of both internal and external corporate environments. When management finds an internal strength that both meets market needs and gives the firm a comparative advantage in the marketplace, that strength is the firm's distinctive competence. Taking advantage of an existing distinctive competence is essential to business strategy development. Firms can possess distinctive competence in a wide variety of areas, including technology, marketing, and management.
DEFINING AND BUILDING DISTINCTIVE COMPETENCE To define a company's distinctive competence, managers often follow a particular process. First, they identify the strengths and weaknesses of their firm. Next, they determine the strategic importance of these strengths and weaknesses in the given marketplace. Then, they analyze specific market needs and look for comparative advantages that they have over the competition. Importantly, while managers generally follow this process, they often undertake more than one step simultaneously. Distinctive competence can be built in a number of ways. Firms can hire more qualified professionals than those employed by competitors; they can find and exploit previously neglected market niches; and they can be especially innovative or can gain advantage over competitors through sheer strength of
There are numerous areas in which a firm can have a distinctive competence. They should also look to new markets and evaluate the potential use of their distinctive competencies in those markets. the challenge for strategists is to maintain the firm's distinctive competence. PREDICTING FUTURE DISTINCTIVE COMPETENCE Since business environments and marketplaces are always changing. It follows that if the environment changes such that numerous rivals have obtained competencies identical to those characterizing a particular firm. firms must continuously assess their surrounding environments. Future strategic success requires that firms keep their distinct advantages over their rivals. For example. or creative advertising. Thus. a firm's advantage comes largely from the fact that it has differentiated itself from its competition. Still other firms have advantages in low-cost production. Other firms excel in technological innovation. . Some companies have distinctive competence because they manufacture a product with superior quality. They must be aware of potential shifts in industrial standings and must realistically evaluate whether the distinctive competency continues to yield an advantage. As defined earlier.management. or new product introduction. research and development. the firm is in a very poor position and would do well to reconsider its strategy. distinctive competencies are distinctive skills and capabilities firms can use to achieve an unusual market position or to gain an advantage over the competition. McDonald's distinctive competence is its system of controls for operating its fast-food restaurant franchises. Thus. which gives the company an unusually high profit margin. customer support.
and will buy strictly on the basis of price. Commodity items are mass-produced at such volume that they utilize a continuous process. PRICE/COST. as long as it is a mwajor brand of gasoline and location is not a factor.g. thus deriving tremendous economies of scale and very low prices . while others will be eliminated. DISTINCTIVE COMPETENCIES Details relative to each distinctive competency are provided. the firm must be able to produce the product at a lesser cost or be willing to accept a smaller profit margin. along with the implications of each and some examples.Consumers purchasing commodity-type products are usually not greatly aware of brand difference. Success in these changing conditions can only come from taking advantage of opportunities highlighted by close scrutiny of a firm's internal and external environment. Through strategic planning and leadership. Firms with this competency are generally in a position to mass produce the product or service. The most successful firms will be those that are able to locate and use distinctive competencies found in these assessments. management will be able to determine how the basis for competition may be changing and whether the firm's distinctive competencies need to be realigned.. Wal- .As business conditions and markets change. Indeed. some vulnerabilities and strengths will be exaggerated. e. consumers will opt for the lowest price. many of the strengths and weaknesses that characterize a firm will also change. In order to compete on a price basis. thereby giving the firm economies of scale that drive the production cost per unit down considerably. A firm competing on a price/cost basis is able to provide consumers with an in-demand product at a price that is competitively lower than that offered by firms producing the same or similar good/service.
split screens or inset screens. a smooth ride or good gas mileage. sound quality or number of channels it can receive. slow-motion capability. pickled. When a manufacturer utilizing coils of steel receives a shipment from the mill. and 365-day programming ability. stereo or surround sound. Performance refers to a product's primary operating characteristics. For an automobile this could mean fast acceleration. QUALITY. Services may have conformance requirements when it comes to repair. For a television it could mean bright color. processing. easy handling. but not absolutely necessary. Receiving inspection will also check to see if specified characteristics are met (e. hot-rolled. In other words. and puts a sample on a Rockwell hardness tester to check to ensure that the specified hardness has been provided. characteristics that supplement the basic function of the product or service. clarity. the gauge (thickness) of the steel. Service examples include free drinks on an airline flight or free delivery of flowers. Desirable. it checks the width of the coil. Features are the bells and whistles of a product or service. accuracy.g. Their tremendous volume more than makes up for the lower profit margin. the weight of the coil.Mart is able to offer low prices by accepting a lower profit margin per unit sold.. features on a VCR include four heads. David Garvin lists eight dimensions of quality as follows: Performance. Conformance is the degree to which a product's design and operating characteristics meet predetermined standards. and errors. and oiled). Conformance. . Features. timeliness. For a service this could merely mean attention to details or prompt service.
making the product easily and quickly serviceable. courtesy. Serviceability. such as light bulbs. This is can be an extremely important characteristic as witnessed by the proliferation of toll-free hot lines for customer service. a major television manufacturer advertised that its product had its "works in a box. how long does the product last before it is worn out or has to be replaced because repair is impossible? For some items. Durability may be had by use of longer life materials or improved technology processes in manufacturing. In other words. Durability is defined as mean time until replacement. Serviceability is defined by speed. Businesses depend on this characteristic for items such as delivery trucks and vans. This is an important feature for products that have expensive downtime and maintenance. the time until a product breaks down and has to be repaired. Reliability refers to a product's mean time until failure or between failures." This meant that the television set was assembled out of modular units. One would also hope that a product that represents a significant investment. Reliability. competence and ease of repair. farm equipment and copy machines since their failure could conceivably shut down the business altogether. In other words. such as an automobile. Whenever there were problems with the set. Durability. repair is impossible and replacement is the only available option. and vacuum cleaners to last for many years. A number of years ago. but not replaced. One would expect home appliances such as refrigerators. . a repairman making a house call simply had to replace the problem module. washer and dryers. would have durability as a primary characteristic of quality.
Aesthetics. Perceived quality is usually inferred from various tangible and intangible aspects of the product. This would be prohibitively expensive. and there are some limitations imposed by trade-offs that must be made due to the nature of the product. sound. For example. This can also apply to services. feel. it is virtually impossible to please everyone on this dimension. whereas 50 years ago. or taste are its aesthetic qualities. SERVICE. the perception was the complete opposite. it would be undesirable if not impossible for firms to compete on all eight dimensions of quality at once. Perceived Quality. smell. Superior service can be characterized by the term customer service or it could mean rapid delivery. FLEXIBILITY. or convenient location. Firms that can easily accept engineering changes (changes in the product) offer a strategic advantage to their customers. a firm may sacrifice reliability in order to achieve maximum speed. a well-known fast food restaurant advertised . Other characteristics such as high price or pleasing aesthetics may imply quality. A number of years ago. Obviously. Since these characteristics are strictly subjective and captive to preference. Firms may compete on their ability to provide either flexibility of the product or volume. Many consumers assume products made in Japan are inherently of high quality due to the reputation of Japanese manufacturers. on-time delivery. Firms competing on this basis offer products or services that are superior to the competition on one or more of the eight dimensions. A product's looks. Service can be defined in a number of ways.
The expense of this inventory could preclude the parts house from offering prices competitive with other similar firms not choosing to provide this level of service. However. Also. The customer may have to wait a few days to get the desired part. some firms are able to absorb wide fluctuations in volume allowing customers with erratic demand the luxury of not holding excessive inventories in anticipation of change in demand. Firms usually focus on one distinctive competency (rarely more than two). one parts house is competing on the basis of service (but not cost/price) while the other is competing of the basis of cost/price (but not service). hold the lettuce. An automotive parts house would like to keep their customers happy by offering the lowest prices possible. An order . if the automotive parts house also wants to be able to fill almost every single order from walk-in customers. TRADEOFFS." which meant that ordering a non-standardized version of the product would not slow down the delivery process."hold the pickles. For some competencies there are tradeoffs involved. if the customer cannot wait. real wood trim. special orders don't upset us. An automobile manufacturer producing a product that is considered to be of high quality (leather seats. it must maintain an extensive inventory. ORDER WINNERS/QUALIFIERS Operations strategist and author Terry Hill introduced the terms qualifier and order winner (1989). he or she can pay more and purchase the part immediately from the competitor. A qualifier is a competitive characteristic a firm or product must be able to exhibit to be a viable competitor in the marketplace. and an outstanding service package) will not be able to compete on a cost/price basis as the cost of manufacture prohibits it. Therefore.
from the Communist Party to the Tennessee Valley Authority. Philip Selznick studied vastly differing organizations. He found that top managers had a wide variation in perception of their own organization's strengths and weaknesses. he coined the term "distinctive competence" in 1957. From this point the consumer. Therefore. THEORETICAL ORIGINS From 1949 to 1957. For example. Thus. say a consumer in the market for a new automobile has a predetermined level of quality that the automobile must possess before being considered for purchase.winner is a competitive characteristic of a product or service that causes a customer to choose this firm's product or service rather than that of a competitor (distinctive competence). with all else being equal. Andrews elaborated on this concept in 1971. in their distinctive competencies as well. In his view. Howard H. He noticed that as these institutions developed. and not surprisingly. In 1976. The consumer has narrowed his or her choice down to five models of automobile that all meet this minimum quality requirement. . there was a gradual emergence of special strengths and weaknesses in each one of them. quality is the qualifier (must be present to be considered) and cost/price is the order winner (basis for the final choice). Stevenson released a study that examined the strategic planning of six companies. will probably purchase the automobile that he or she can get for the least cost. Kenneth R. when he posited that distinctive competence included more than just the strengths of an organization. distinctive competence was the set of activities that an organization could perform especially well in relation to its competitors.
management must analyze the given situation. Strategic planning is often closely tied to the development and use of distinctive competencies. The assessment must include an evaluation of current and projected market needs and an evaluation of any existing comparative advantage over competitors. A firm's internal strengths and weaknesses make it better suited to pursue some strategic paths than others. To devise corporate strategy. managers must realistically assess their own firm's status. When assessing the external business environment. it must devise strategies at both the corporate and business levels.FORMULATING STRATEGY Strategy can be defined as the tool managers use to adjust their firms to ever-changing environmental conditions. and having an area of distinctive competence can present a major strategic advantage to any firm. When looking for a match between opportunities and capabilities. managers should examine potential . Moreover. Unless a firm produces only one type of merchandise or service. to determine the best strategy for their firm. managers must try to build upon the strongest qualities of the firm and avoid activities that rely on more vulnerable areas or are adverse to the firm's existing corporate culture. it is important for managers to account for potential problems involved in carrying out a strategy before they embark upon it. Corporate strategy defines the underlying businesses and determines the best methods of coordinating them. and either try to change the situation or adapt to it. At the business level. strategy outlines the ways that a business will compete in a given market. firm managers must consider a host of influences in their surrounding environment that can affect the firm's ongoing operations as well as the internal strengths and weaknesses that characterize the firm. forecast potential changes to it. Further. Thus.
utilize a strategy difficult for them to imitate. they will have a very difficult time remaining competitive.strategies. Logically. it must devise its overall strategy to build upon its strengths and best use its resources. Having a distinctive competence can allow a firm to follow a different path than rival firms. strengthening a competitive position is made a great deal easier for a firm with one or more distinctive competencies. a firm will have a competitive advantage over its rivals. and its basic proficiencies. its culture and experiences. Obviously. Once this assessment is complete. To truly succeed. . and end up in a better position over the long term. management must decide which opportunities in the business environment to pursue and which ones to pass up. If other firms in the marketplace do not have a similar or countervailing competence. while keeping in mind their firm's history. many successful business strategies are built around a determined distinctive competence. as is the case for many. Even if a firm does not have a distinctive competence. giving it some sort of strategic advantage.