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Module 4: Competitive Advantage

Team HAGGS (Hardworking, Adaptable Group Guiding Strategy)

OGL355: Leading Organizational Innovation and Change

Bill Erwin

July 28, 2020

Arizona State University

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An Enduring Evolution

Competitive advantage is vital to an organization’s long-term success, and cannot

be achieved without effective strategic management. An organization must be able to

continuously and effectively assess (view), develop and implement strategy to sustain

competitive advantage within the market. There are three perspectives of view (POV)

that can be used to view an organization and gain insight on where they stand considering

the factors to assess within the perspective. Our team will define competitive advantage

and its importance within an organization, select one of the three perspectives of view to

analyze Amtrak’s competitive advantages, and explain the rationale behind our

perspective of view choice for each identified competitive advantage.

Competitive Advantage Is…

Competitive Advantage is the idea of a company having superior factors

(Producing cheaper goods, having cheaper labor, or better facilities and technology) that

gives them the upper hand over the competition within the market. As stated by Coulter,

“to understand the competitive environment, we first have to understand what

competition is and then look at who our competitors are,” (2013, p. 128). We can clearly

see competitive advantages displayed within the NFL. The NFL conducts the draft every

year, allowing each team to be rated and earn draft pick positions. The team must conduct

a thorough strategic analysis of the players considered for draft and determine if they are

willing to trade any of their current players to get a chance at a higher draft pick, which

could be the unique capability that team may have been missing. There is always risk

involved in making these decisions, but with thorough analysis and risk assessments,

these strategic decisions have the potential to secure success for the team that year,
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earning them competitive advantage over the competition and equating to increased

revenue for the entire organization.

An organization’s ability to utilize their resources and capabilities effectively or

obtain additional resources and capabilities to gain the edge over their competitors, is

achieving competitive advantage (Coulter, 2013). Seven of the most important factors

used to gain competitive advantage are: time, location, speed, service, price, quality, and

technology. Utilizing these factors in concert with a well-planned and executed strategy

allows organizations to influence the market, take the upper hand within the market, and

secure the sustained competitive advantage that allows them to determine whether they

want to stabilize or grow the organization. An organization cannot meet their full

potential without first achieving and sustaining competitive advantage.

Competitive Advantage and POV

Our team decided to use the resource-based view (RBV) to analyze Amtrak’s

competitive advantage. This point of view emphasizes exploiting organizational

resources to develop and maintain competitive advantage (Coulter, 2013). We believe

that one of Amtrak’s unique competitive advantages within the industry lies within their

existing presence of business assets in key intercity transportation markets of the United

States. The resource-based view we are using considers their ownership of certain high

traffic railway networks, stations, and parking, to be a major asset with sustained growth.

The revenues from this segment of Amtrak’s business grew by 4% year over year in 2019

(Eckstein, 2020). While Amtrak no longer has rights-of-way to many of their longer

cross-country rail routes, this allows them to focus infrastructure investments on the rail

lines they do own in exponentially growing urban markets. Given the difficulties of
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operating reliable and competitive nationwide service, Amtrak’s business model suggests

they will be focusing more on their smaller “string of pearls” network that allows for

direct trips between dozens of city combinations (Schwieterman, 2017). Their success in

the NEC shows the competitive advantage they have in serving smaller intercity markets.

Amtrak can run profitable routes that increase ridership year over year and maintain

competitive advantage by focusing on the markets that they have the organizational

capacity to offer the best and most reliable service in.

Another competitive advantage Amtrak has is the financial resources of the

United States government backing them. Formally known as the National Railroad

Passenger Corporation, Amtrak is a state-owned enterprise governed by a nine-member

board of directors appointed by the President of the United States and confirmed by the

U.S. Senate (Amtrak, 2020). Arguably this competitive advantage could be seen from

both the I/O or the resource-based view. We see that considering the government owns

most of the corporation’s stock and continues to provide the resources necessary for them

to operate, that the resource-based view is appropriate. Amtrak receives considerable

subsidies from both state and federal governments but is managed as a for-profit

company (Eckstein, 2020). The irony is that while Amtrak is a for profit company, they

have never earned a profit. This is where having the government as a major stakeholder

becomes a necessary asset in providing the resources it needs to operate. Given that

government administrations change and priorities shift, we will admit that this is a

double-edged sword. The current administration proposes to cut Amtrak’s subsidy by

more than half while calling to overhaul the passenger rail system to focus on more

profitable intercity routes (Lazo, 2020). While focusing on short term routes is the
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competitive strategy we have agreed is best for the organization, we would prefer to see

the reallocation of funding over budget cuts. Fortunately for Amtrak, the House is likely

to pass a bill increasing funding over cutting it, but it would pass under the stipulation

that they not cut long-haul routes. While political parties within the government have

different ideas of the ideal business strategy for the organization, both have remained

committed to the success of Amtrak.

Rationale of Ownership of Infrastructure Assets

One of the ways Amtrak is maintaining a competitive advantage is by leveraging

their assets. They do this by charging freight train and commuter train companies to use

its track, and by charging access to and/or development of its stations, platforms and

parking lots. Amtrak derives the remaining 24% of its revenue, $837 million, from an

assortment of business activities related to the infrastructure it owns. Amtrak owns 623

miles of NEC track as well as station structures, platforms and parking facilities near

some of the 526 stations it serves, (Amtrak, 2019). However, Amtrak does not own the

majority of its tracks and also has to pay other host railroads to use their tracks and this

creates an opportunity for Amtrak. To maintain their competitive advantage, Amtrak

should continue to invest in track ownership to increase revenue. This competitive

strategy aligns well with the RBV perspective as it relates to capitalizing on the

structural forces within the transportation industry. Rather than changing the industry

environment, Amtrak acquired assets needed to remain competitive.

Rationale of Shorter Routes

Another way that Amtrak is preserving its competitive advantage is to expand on

shorter routes, promoting city-to-city short-haul trips (Wisniewski, 2019). With traffic
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congestion growing in the U.S, and the need for less-polluting mode of transportation,

Amtrak provides a great alternative option for traveling customers. The company has

already started it’s plan to increase frequency on the East Coast, offering a non-stop

service from New York to Washington D.C., in two hours and 35 minutes. A trip that

could eliminate the option for air travel with cheaper tickets, ranging from $130 to $276

(Short, 2019). Additionally, there are already short train operations running from

Chicago to Detroit, Indianapolis, Cleveland, etc., with plans to expand their service

throughout the U.S. Since Amtrak already owns hundreds of miles of tracks, this makes

it easier for the company to operate more trains between cities. To keep Amtrak’s

competitive advantage, they would need cooperation from neighboring states in order to

run passenger rails from city to city. Their competitive strategy corresponds well with

the resource-based point of view, by using their assets to carry out their plans, they’re

able to provide valuable service to travelers.

Rationale of United States Government as a Stakeholder

Amtrak’s influential stakeholders create a significant feedback-loop as their

competitive advantage may become threatened. The United States government possesses

the power to alter the advantageous nature of Amtrak with their ability to grant financial

support. Having access to the amount of financial subsidies the US government can

provide is a huge asset as the competitive advantage of Amtrak is threatened by external

factors in regards to varying forms of alternative commuting methods. Subsidy reports

have been collected to analyze the impact federal aid has in comparison to alternative

methods of transportation. In the report conducted in the early 2000’s, there was evidence

that federal subsidies per passenger mile to public transit can be 3,200 times greater than
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federal subsidies provided to automobiles. The government’s economic support assists in

reinforcing the revenue infrastructure Amtrak established that is heavily rooted in local,

short distance ticket sales.

Reliable economic support is the rationale behind maintaining the growing

competitive advantage Amtrak is establishing. The US government’s role throughout this

advantage is largely financially motivated and plays in Amtrak’s favor as their own

financial outlook rises. Again the advantage of the local tracks bringing the strongest

revenue simultaneously leads to an increase in subsidies from the government. As more

local lines are utilized, more subsidies are granted to maintain those tracks. It becomes a

feedback-loop built on the appeal of well maintained short-term travel, reigning in $8.1

million from the federal government over the course of four years (Eckstein, 2020). The

increased usage of local routes and tracks sparked an over 80% shrink in Amtrak’s losses

simultaneously. The combination of the US federal government subsidies and Amtrak’s

own profits, illuminates the rationale behind the business connection that cultivates

profitability growth.

Viewing this rational alliance at large, there is logical integration of profitability

in terms of environmental factors and financial investments from stakeholders. As

Amtrak’s usage of tracks increases both locally and nationally, their competitive

advantage grows in the manor. This is a very sound and rational competitive advantage in

terms of Amtrak’s decision to utilize US government subsidies.

Conclusion

Throughout this study, our team worked together to define competitive advantage

and its importance, analyze Amtrak’s competitive advantage using the resource-based
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view, and provided rationale as to why this view is a viable means for strategic planning

and management in order to sustain competitive advantage. The team was able to identify

probable areas of competitive advantage for Amtrak including leveraging of

infrastructural assets, short-haul trips, and the United States government being a

stakeholder of Amtrak. We examined each of these competitive advantages using the

resource-based view to determine how to reach a sustained competitive advantage in each

of these areas.
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References

Amtrak. (2019). “Management’s Discussion and Analysis of Financial Condition and

Results of Operations and Consolidated Financial Statements With Report of

Independent Auditors - Fiscal Year 2019,” Page 5. Accessed 27 July 2020.

Amtrak. (2020). Amtrak Five-Year Service Line Plans (Fiscal Years 2020–2025

(Base + Five-Year Strategic Plan)).

https://www.amtrak.com/content/dam/projects/dotcom/english/public/documents/

corporate/businessplanning/Amtrak-Service-Line-Plans-FY21-25.pdf. Accessed

28 July 2020.

Coulter, M. (2013). Strategic management in action (6th ed.). New York, NY: Pearson.

Eckstein, J. (2020). How Amtrak Makes Money. Investopedia.

https://www.investopedia.com/articles/investing/072115/how-amtrak-works-

makes-money.asp. Accessed 28 July 2020.

Industry Analysis. ( November 30). https://www.inc.com/encyclopedia/industry-

analysis.html. Accessed 15 July 2020.

Lazo, L. (2020). Trump is again asking Congress to slash Amtrak funding. Washington

Post. https://www.washingtonpost.com/gdpr-consent/?next_url=https%3a%2f

%2fwww.washingtonpost.com%2ftransportation%2f2020%2f02%2f11%2ftrump-

again-asking-congress-slash-amtrak-funding%2f. Accessed 28 July 2020.

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Schwieterman, J. (2017). Amtrak and Express Coach Lines: What’s Competition Have

To Do With It? | Newgeography.com. New Geography.

https://www.newgeography.com/content/005636-amtrak-and-express-coach-lines-

what-s-competition-have-to-do-with-it#:%7E:text=3)%20Amtrak’s%20greatest

%20advantage%20lies,express%20between%20Chicago%20and%20St. Accessed

28 July 2020.

Short, A. (2019). Amtrak Wants to Compete with Planes and Roads.

https://mass.streetsblog.org/2019/11/12/amtrak-wants-to-compete-with-planes-

and-roads/. Accessed 28 July 2020.

Smith, K. (2019). Rethinking Amtrak. International Railway Journal.

https://www.railjournal.com/in_depth/rethinking-amtrak/ Accessed 28 July 2020.

Wisniewski, M. (2019). Amtrak Wants More Short-Distance, City-to-city Trains, But At

What Cost? https://www.chicagotribune.com/business/ct-biz-amtrak-short-routes-

getting-around-20190311-story.html. Accessed 28 July 2020.