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Competitive Strategic Advantage
Competitive Strategic Advantage
ASSIGNMENT
ON
COMPETITIVE/STRATEGIC
ADVANTAGE PROFILE OF FIRM
SUBJECT: - CORPORATE LEGAL
FRAMEWORK
SUBMITTED TO
MR. C. KUJUR
(LECTURER)
SUBMITTED BY
ABHAY SINGH
SHUBHANGI SHYINDILYA
SURENDRA KUMAR SAHU
PRATIMA BANJARE
SATYUSHA KANTA LAL
INDEX
INTRODUCTION
STRATEGIC INTENT
BENCHMARKING
10
SYNERGISTIC APPROACH
13
16
19
19
CONCLUSION
20
INTRODUCTION
A competitive advantage is an advantage over competitors gained by offering
consumers greater value, either by means of lower prices or by providing greater
benefits and service that justifies higher prices.
Competitive advantage is, in very basic words, how a firm manages to keep
making money and sustain its position against its competitors.
According to Michael Porter in his theory of generic strategies, the three methods for
creating a sustainable competitive advantage are through: 1. Cost leadership - Cost
advantage occurs when a firm delivers the same services as its competitors but at a
lower cost; 2. Differentiation - Differentiation advantage occurs when a firm delivers
greater services for the same price of its competitors. They are collectively known as
positional advantages because they denote the firm's position in its industry as a
leader in either superior services or cost; 3. Focus (economics) - A focused
approach requires the firm to concentrate on a narrow, exclusive competitive
segment (market niche), hoping to achieve a local rather than industry wide
competitive advantage. There are cost focus seekers, who aim to obtain a local cost
advantage over competition and differentiation focuser, who are looking for a local
difference.
Many forms of competitive advantage cannot be sustained indefinitely
because the promise of economic rents invites competitors to duplicate the
competitive advantage held by any one firm.
A firm possesses a sustainable competitive advantage when its value-creating
processes and position have not been able to be duplicated or imitated by other
firms. Sustainable competitive advantage results, according to the resource-based
view theory in the creation of above-normal (or supernormal) rents in the long run.
Analysis of competitive advantage is the subject of numerous theories of strategy,
including the five forces model pioneered by Michael Porter of the Harvard Business
School.
According to the Competitive Advantage model of Porter, a competitive
strategy takes offensive or defensive action to create a defendable position in an
industry, in order to cope successfully with competitive forces and generate a
superior Return on Investment. According to Michael Porter, the basis of aboveaverage performance within an industry is sustainable competitive advantage.
Volume
Volume of competitive advantage exists when an organisation has very few
advantages but these are quite large in volume. The nature of industry is such that
These approaches are not mutually exclusive or exist on either or basis but
may be adopted in combination of two or more. For example, benchmarking can be
combined with any of these approaches.
STRATEGIC INTENT
An alternative framework for generating and sustaining competitive
advantage is to focus on competitiveness as a function of the pace at which., a
company implants a new advantage deep within itself. This framework is based on
strategic intenTwhich implies ambition and bsession for winning. This approach of
winning is used as a tool for generating competitive advantage. Hamel and
Prahalad who have emphasised on strategic intent as a means of competitive
advantage view that competitive battles are shaped by more than pursuit of generic
strategies. They have given the examples of various companies showing how these
companies have gained advantage by disadvantaging their competitors through
competitive innovation which is "the art of containing competitive risks within
manageble proportions."9 They assert that "few competitive advantages are long
lasting. Keeping score of existing advantages is not the same as building new
advantages. The essence of strategy lies in creating tomorrow's competitive
advantages faster than competitors mimic the ones you possess today. An
organisation's capacity to improve existing skills and learn new ones is the most
defensible competitive advantage of all."10 Hamel and Prahalad have identified four
approaches for generating competitive advantage based on strategic intent. These
are as follows:
1. Building layers of advantage,
introduced in India, most of the players in the industry led by Hindustan Lever
concentrated on top-end of the market leaving large majority of the population.
These conpetitors developed market for detergent. Nirma introduced the concept of
low-cost detergent. In order to reduce its cost and, consequently price, it used lowcost polyethylene packaging materials instead of aesthetic but costly paper
packaging materials. At the initial stage, Nirma's product was not bracketed in
detergent category and the existing competitors did not pay any attention to this.
Gradually, it started eating the market share of major competitors including
Hindustan Lever. By the time Hindustan Lever became offensive, it was too late
and Nirma even established itself in top-end market enjoying number two position
with very low gap to the market leaderHindustan Lever.
Changing the Rules of Engagement
Every industry has certain critical success factors (CSFs), discussed later in
this chapter, which are observed by almost all existing competitors in the industry.
For a brief, a critical success factor is a condition in an industry which must be
adequately satisfied for success. These CSFs, however, are dynamic and change
over the time. Thus, a new CSF may be created which may generate advantage to
the company which has introduced it. For example, when Reliance entered
premium textile fabrics, there was lot of resistance from the then existing channel
intermediaries which was in the form of producer-wholesalers-retailers-customers.
Instead of going through this long channel, Reliance shortened the channel in the
form of producer-retailers-customers. Further, branding and advertising were not
popular concepts in textile business. Reliance initiated both by branding its textile
product of all categoriessuiting, shirting, saree, and dress materialin highly
positioned Vimal brand. In order to promote Vimal, the company took massive
advertising. All these created advantage to Reliance which other competitors could
not do.
Collaborating
Collaborating, as a source of competitive advantage, is based on the maxim
that if you cant compete on your own, collaborates with others.' In the context of
strategic intent, it refers to entering into collaboration with another which nas
competence in areas that can be used as a source of competitive advantage.
Hamel and Prahalad have extended their study on strategic intent further to include
more approaches through which competitive advantage can be developed. They
have identified four broad categories of resource leverage that managers can use
to achieve their aspirations. These are:
1. Concentrating resources on strategic goals via convergence and focus;
2. Accumulating resources via extracting and borrowing:
3. Contemplating one resource with another by blending and balancing: and
4. Conserving resources by recycling, coopting, and shielding.11
BENCHMARKING
Benchmarking is another tool which can be used to generate competitive
advantage. It is a process of identifying in a systematic way superior products,
services, processes, and practices that can be adopted in an organisation to
reduce costs, decrease operations cycle time, and provide greater customer
satisfaction. The concept of benchmarking has been derived from land surveying in
which it indicates a reference point called benchmark which is established as a
base for surveys. Webster Dictionary defines benchmark as "a survey's mark;
previously determined position used as a reference point; standard by which
something can be measured and judged." Sarah Cook has defined benchmarking
as follows:
"Benchmarking is a process of identifying, understanding, and adapting
outstanding practices from within the same organisation or from other businesses
to help improve performance."12
Based on the above description, various features of benchmarking can be
identified which are as follows:
1. Benchmarking is based on the theme "see what others do and try to
improve upon that." Therefore, this implies some kind of measurement which can
be accomplished in two forms: internal and external. Both internal and external
practices are compared and a statement of significant differences is prepared to
identify the gap which should be filled.
2. Benchmarking can be applied to all facets of a business; it includes
products, services, processes, and methods. It goes beyond the traditional
competitor analysis in the form of identifying strengths and weaknesses and
includes clear understanding of how the best practices are used.
3. Benchmarking is not aimed solely at direct product competitors but those
organisations and businesses that are recognized as best or industry leaders.
4. Benchmarking is a continuous process and not just one-shot action. It is
continuous because industry practices constantly change and a continuous
monitoring of these practices is required to bring suitable change in the
organisation.
Types of Benchmarking
There are different types of benchmarking. Since benchmarking is an
evolutionary process in an organisation, its application varies over the period of
time resulting into different types of benchmarking
At each subsequent stage, the complexity and sophistication increase
because emulation of practices becomes gradually more difficult. For example,
emulation of product features of a company is much easier as compared to its
competitive practices. The first generation of benchmarking is related to product
analysis which reveals what product features are valued by the customers most. At
the second level comes competitive benchmarking in which the performance of a
company is compared with either close competitor or industry leader depending on
the competitive position of the company in industry. At the third level, process
benchmarking is undertaken to make a comparative analysis of various processes
in relation to the companies chosen for benchmarking. Strategic benchmarking
involves a number of factors beyond processes which are taken for analysis.
Process of Benchmarking
Benchmarking is a process which involves a series of steps with each step
consisting of several activities. Figure 9.5 presents benchmarking process as
developed by Robert Camp.
Planning:
The first step in benchmarking is its planning which involves the determination
of three elements: what is to be benchmarked? to whom will be compared? and
how will data be collected? Determination of content of benchmarking comes first
and a careful analysis of what is to be compared should be made. It may be noted
that everything can be benchmarked but that requires comparable cost. In terms of
production and marketing functions, generally, the factors included are:
manufacturing process, inventory control, warehousing and delivery services,
quality systems, product development process, marketing techniques,
understanding of customer needs, and so on.
The second issue in planning for benchmarking is the determination of whom
to compare. There may be several companies both within an industry and outside it
which can be selected depending on the jsize and capability of the organisation
undertaking benchmarking. The third issue in planning for benchmarking is the
determination of who will collect data and how these will be collected; is it through
company's own team or consultants? Data can be collected through various
sourcesprimary data through opinion .surveys, examination and dismantling, trial
purchasing, customers and suppliers of benchmarked company, or even through
direct contact with the company concerned; secondary data through various
publications.
Analysis:
After collection of data, an analysis is made to determine current performance
gap and projected future performance level. Present performance gap indicates the
difference between disired state of affairs and actual state of affairs. This gap
provides the present status. However, since processes go on changing, future
projected performance level should also be measured. In order to the take the
latter, benchmarking has to be taken on continuous basis, so that performance is
constantly recalibrated to ensure superiority.
Integration:
Integration is the process of using benchmarking findings to set operational
targets for change involves careful planning to incorporate new practices and
implementing those practices. However, incorporating required changes is not easy
task to implement because there are chances that new moves will be resisted
specially when there is a departure between current and new practices and the
organisation is not innovative one.
Therefore, whole change programme must be communicated, rationality for
change explained, and commitment of people for change obtained. After this
process is over, the benchmarked practices should be introduced within the time
frame scheduled for the purpose.
Action:
Action step of benchmarking involves implementation of a specific action
and monitoring its results followed by recalibration of benchmarks. Implementation
of an action required under benchmarking may not produce the intended result
immediately because of learning period required for a new method. Therefore,
result evaluation should be performed on continuous basis. When an action is
completed and produces intended result, recalibration of benchmarks is required
which involves the updating of performance in the light of new data.
Maturity:
Maturity would be reached when desired best practices are incorporated in all
business processes and, thus, superiority is ensured. Impact of benchmarking
should be evaluated in terms of final objective achievement such as cost reduction,
customer satisfaction, etc. However, these are relative measurements and there is
a need for continuous improvement in the light of relevant environmental changes.
Competitive Advantage through Benchmarking
The above discussion shows that benchmarking is a good tool for generating
superior performance in an organisation. However, for generating competitive
advantage, the organisation has to define the factors on the basis of which it
competes in the market place because it is not possible for an organisation to excel
in all areas and all geographical locations because of resource constraints, both
physical and human. Therefore, it has to define its competitive postures in terms of
product features, customer segment, and technology usedthe three elements of
a business definition These three elements taken together will specify where
benchmark is required.
However, benchmarking as a means for competitive advantage has its own
limitations. Some of the more common limitations are as follows:
1. Organisations differ in terms of their culture and values around which
all organisational processes revolve. Therefore, a particular process may work well
in an organisation but may not be suitable for another organisation. If a
benchmarked process is adopted in the latter organisation, it is likely to create more
chaos rather than efficiency. However, this limitation can be overcome, to some
extent, by making benchmarking as a gradual process in which the organisation
learns to adapt.
2. There are some operational problems in implementing benchmarked
practices in the form of lack of focus, lack of leadership, lack of perseverance, etc.,
though these operational problems can be taken care off.
3.
A more serious and inherent limitation of benchmarking is that a
benchmarking organisation will always remain follower of benchmarked
organisation. With geographical * barriers operating, benchmarking organisation
may become leader in a limited area if it had adopted global benchmarking. But in
the present era of globalization of business, geographical barriers are losing their
relevance. Where fierce battle is on for capturing global market share, an
organisation looking for global competitive advantage cannot achieve its objectives
unless it improves upon benchmarked practices. This is the concept of present-day
strategy. Winners do the same thing differently or do different things.
SYNERGISTIC APPROACH
Synergistic approach can be used as a means for generating competitive
advantage to an organisation if the managers are sufficiently aware about how
synergistic effect is developed. Concept of synergy and its effect has been derived
from systems appro^h which deals with the phenomenon of putting various
elements of a system in such a way that each element contributes positively to
other elements. The net result is that the sum total of combined contribution is
greater than what the individual elements could have contributed independently.
Ansoff has made invaluable contribution by demonstrating how a company can
for
planning,
decision
making,
investment outlay as well as depreciation cost per annum. Second, having set up
manufacturing facilities for 5 lacs cars, its operating cost per car is the lowest.
Unless competitors bring some more efficient systems, Maruti will continue to enjoy
cost leadership.
4. Being the largest manufacturer, Maruti has developed a wide network of
dealers numbering about 300 covering the entire country. Other competitors will
take lot of time to develop such a network.
5. Maruti provides efficient after sales service with about 1700 workshops
covering^ 700 cities. Out of these, 300 workshops are attached to dealer outlets
while the rest are Maruti-authorised service stations. The after sales service of this
type has put Maruti in much advantageous position.
6.
For customer service, Maruti has provided financing service in two
forms. First, it is co-promoter of Citicorp Maruti Finance and Maruti
Countrywide Ventures with equity participation of 26 per cent. Both these
firms offer finance facilities to Maruti car buyers on attractive terms. Second, the
company has introduced the concept of integrated service with the help of financial
institutions which includes auto finance, car insurance, corporate lease, and fleet
management. Though both ideas are good, these can easily be emulated by
competitors and the advantage will not be significant.
CONCLUSION
A competitive advantage is an advantage over competitors gained by offering
consumers greater value, either by means of lower prices or by providing greater
benefits and service that justifies higher prices.
Competitive advantage, also known as strategic advantage, is essentially a
position of superiority on the part of an organization in relation to its competitors. We
have seen how organizational analysis leads to identify core and distinctive
competencies. However, these competencies are of no use unless these are related
to generate competitive advantage in the market place.