Slide 1- COVERPAGE 

Slide 2 - INDEX 

Slide 3 (Introduction to Competitive Advantage)- 

 Large differences in economic performance across industries are common but understanding the

roots is essential for strategies. 
 Differences in industry structure can be one of the reasons for the economic difference.
(Steel and pharmaceutical) 
 The contrast in industry-level competitive forces is one of the reasons that the profit levels of
firms in different industries differ. 
 To have competitive advantage - wide wedge between willingness to pay and the cost incurred
by the firm amongst the rivals. 
 To create a competitive advantage, the firm must create do something unique and valuable. 
 Creating and sustaining competitive advantage are linked to each other. (e.g., Intuit software
launch) 
Slide 4- Generating Competitive Advantage 

There are two themes to generate Competitive Advantage  

1. A firm must do a value addition by adding some uniqueness and valuable feature to its, product
and service to gain competitive advantage  

Eg: i) Personal financial Software Company “Intuit” gained competitive advantage over its
competitor Microsoft by providing post-sale assistance over the telephone to its’s customer.  

2) Secondly a firm can gain competitive advantage over its competitors by utilizing its other activities
such as Production, finance, Logistics & Marketing in harmony. 

Eg: Accenture is claimed to be the leader in information technology because of its reinforcement in
R&D department, It’s network with Global Corporation leaders and trained employees and effective
resource utilization have kept Accenture ahead from its competitors. 
 
Slide 5- Concept of Added Value 

A firm’s added value  plays a large role in determining how much value it actually captures. The
added value of a firm is the maximal value created by all participants in a transaction minus the
maximal value that could be created without the firm. In essence, it is the value that would be lost to
the world if the firm disappeared.  

Under a condition known as unrestricted bargaining,  the amount of value a firm can claim cannot
exceed its added value. A firm establishes added value by making sure that it is unique in some
valuable way—that the network of suppliers, customers, and complementors within which it
operates is more productive with it than without it and that it is not readily replaced. 

From the figure, we have two for a crane manufacture which are Harnischfeger and kranco. When
there is no competition to Harnischfeger, then there would be no added value but they have a
created value 5.5 million but when kranco came into picture it will either get 5.5 million or 0. So get
to added value it is come up with adding post sales & services support. The Supplier Opportunity
Cost of Harnischfeger crane move from 2 million to 3 million and Willing To Pay move from 7.5
million to 9 million with added value of 0.5 million which would be 6 mm-5.5
mm. Therefore, Harnischfeger added value 0.5 million 
 
Slide 6- MISCONCEPTIONS 
 
There are types of Misconceptions we generally have  
links to industry analysis 

Wrong to conclude Industry analysis is unimportant Advantage gained by devising strategies

that neutralize competition. Industry condition has large impact on Advantage gained. 
creating vs sustaining advantage 

Choices that establish a firm's advantage also decide whether they will sustain or not. Despite
the connection between creating and sustaining advantage, both processes are separate. 
analysis vs creativity 

Great advantages come from entrepreneurial insights and not analysis Don't reduce the
importance of trial and error rather important to club both analysis and entrepreneurial
insights to improve 
 
Slide 7- WILLINGNESS TO PAY VS OPPORTUNITY COST 
 When we talk about willingness to pay, it simply means the maximum amount of money that a
customer is willing to pay for a product or a service that he buys 
 Supplier opportunity cost is the smallest amount that a supplier will accept for the services and
resources required to produce the good or service. 
 Total value created is the difference between the customer’s willingness to pay and the
supplier’s opportunity cost. In the figure, we can see the total value of  $ 5.5 million   created in
Harnischfeger and International Paper deal.

Slide 8- Added value  

 Now that we know what added value is, so, from the diagram, we can see that all these
factors like- customers' willingness to pay and supplier opportunity cost through which total
value is created gives us the added value to create a competitive advantage in the market 
 
Slide 9- Activity Analysis 
To determine the source of competitive advantage, strategists typically break down a firm into
discrete activities and then analyze each process to determine how each aspect impacts the
supplier’s cost and customer’s willingness to pay. 

By such an analysis, strategists help managers in: 

1. Determining the source of competitive advantage or the reasons for its absence. 
2. Determine opportunities to exploit sources to gain competitive advantage. 
3. Determine the changes in the competitive advantages of the company and competitors in the
future. 

To identify sources of widening the gap between customer willingness and supplier costs, a 4-step
analysis is undertaken. 
STEP 1: Catalog Activities  

The first step is to break down activities into 2 parts to form the value chain: 

1. Primary activities that generate goods or services – include inbound logistics, operations,
outbound logistics, marketing and sales, and after-sales service. 
2. Support activities that help/assist in making primary activities achieve their goal – include
procurement of inputs, development of technology and human resource, and general firm
infrastructure. 
One such catalog of activities is formed, they are analyzed with respect to competitive advantage
against competitors s i.e., in terms of willingness to pay minus costs. 

Slide 10 : 

STEP 2: Use Activities to Analyze Relative Costs 

Relative costs between competitors are a major source of deriving competitive advantage. For
commoditized goods, it is the MOST important factor as a low-cost strategy is employed when
consumers are unwilling to pay a premium for the finished goods. But, even in non-pure
commoditized goods, relative costs yield significant influence in profitability of firms. 

Cost analyses of each of the activities catalogued in the first step helps in determining the sources of
competitive advantage or the reasons for its absence. The next step is to determine the cost drivers,
factors that swing the cost, of all the activities. Finally, managers derive numerical relationship
between activity costs and drivers. 

Cost drivers help managers in estimating and analyzing competitor cost positions. For this, it is
important to focus on discrete activities and not just differences in total cost. Thus, good cost
analysis focuses on a subset of all of the firm’s activities. Activities taking a larger chunk of total costs
need to be analyzed and treated more seriously. If it is felt that a cost driver is constant across
different firms in the industry, then it need not be considered for deep analysis. The final step is to
provide sensitivity analysis keeping in mind key elastic assumptions 
 
Slide 11: Step-3 Relative willingness to pay (WTP) 

Activities generate costs that should generate a relatively higher willingness to pay  

Activities affect willingness to pay in ways that are not easy to be spotted. Product characteristics in
terms of Design, Functionality, Price and Training, Hiring & Promotions to people handling Customer
Services helps in Willingness to pay better. Every activity is a potential source! WTP is Extremely
difficult to Calculate because of Personal preferences & perceptions. 
 Still, Willingness To Pay can be estimated with Procedure 

1)Understand who is the real buyer: Children may want the snack cake but parents buy them as
decisions makers 

2)What the buyer wants: Cakes are chosen on the basis of price, design, product features or if it is
about supermarket they chose trade margins, reliability etc. 

3)Assessing how successful the company according to Customer needs. Betsy baking in customer

value, Collins in low price, Ontario in Branding by advertisements 
4)Finally Relate the difference with the competitors in meeting customers needs back in activities 

Challenges like differences in customer’s needs: 

Horizontal differentiation: Few needs novels vs few other need Business books 

Vertical differences: Mobile screen replacement from normal to Branded 

one product is better, but how are they willing to pay for a better product. But this leads to
Segmentation, Mass customization and sometimes deviating from customer needs. 

SLIDE 12: 

Step 4: Exploring Options and make Choices 

It is important to create a set of actions/decisions which would fulfill the goals set in the first
3 steps.  

Tradeoff Concept: Taking advantage of different elasticities in the two activities. Decrease in

Transportation and Decrease in Pricing. Betsy Baking understood that by adding the preservatives
can decrease transportations cost. Consequentially, the WTP went down but less than the drop in
transportation costs. This leads Competitors to react with strategies.Searching for gaps to find
Consumers needs in various categories like price, freshness, Delivery speed that they can see in the
Cake industry but then copying others will be costly for them when targeting a particular segment. 

Improvement concept:Managers tend to fixate on physical product characteristics.One way to avoid

a narrow focus is to draw out not only one’s own value chain, but also the value chains of one’s
customers and suppliers have the linkages between the chains. By shipping clothes on the proper
hangers and in certain containers, the manufacturers can greatly reduce the labour and time
required to get clothes from the department store loading dock to the sales floor. 

Diversify the offers: Special Attention to “bleeding edge” Customers. Exacting customers whose

demands presage the needs of the larger marketplace. Yahoo!, the Internet portal, releases test
versions of new services to sophisticated users to check the software and work on the possible utility
to the masses. Circus Circus, the casino operator, built much of its remarkable success in changing
the range of customers it serves or products it offers within an industry. 

Adjustment in Scope of Operation: Advantageous are Economies of Scale, Scope and Learning,

Uniform Customer needs, Price Discrimination and Disadvantageous are Discontinuities instead of
economies of scales, Willing to serve heterogeneous goods that could bring up difficulties 
 
Silde 13: 

LANDSCAPE METAPHOR – RESPONSIBILTIES 

The management team must work vigilantly to build a vision of the whole. After all, competitive
advantage comes from an integrated set of choices about activities. A firm whose choices are
internally inconsistent is unlikely to succeed.  

In conceptual terms, the managers of a firm operate in a high-dimensional space of decisions. Each
point in this space represents a different set of choices, a different configuration of activities. The
elevation corresponding to each point is the added value generated by that configuration.   The goal
of the senior management team is to guide its firm to a high point on this landscape—a set of
decisions that, together, generate a great deal of added value. The search for high ground is made
difficult by the fact that the different choices interact with one another: production decisions affect
marketing choices, distribution choices need to fit with operations decisions, compensation choices
influence a whole range of activities, and so forth. Each interaction implies that a choice made on
one dimension affects the cost and willingness-to-pay impact of another choice. 

To improve its long-run prospects, a firm may have to step down and tread through a valley. . There
is certainly only a limited number of viable positions, but when the interactions among choices are
rich, there is usually more than one high peak 

Slide 14: 
LANDSCAPE METAPHOR 

The landscape metaphor reminds us that the creation of competitive advantage involves choice. In
occupying one peak, a firm foregoes an alternative position. It also highlights the role of
competition: it is often more valuable to inhabit one’s own, separate peak than to crowd onto a
summit that is already heavily populated. Finally, it emphasizes the importance of internal
consistency. Peaks are coherent bundles of mutually reinforcing choices. 
 
Slide 15 -  
The Conclusion Provided in the case study is -  

 A successful firm does not simply participate in an attractive industry. It also strives to generate
more economic profits than the typical firm in its industry 

 The ability to generate and capture profits in an industry derives from added value. A firm has
added value when the network of customers, suppliers, and complementors in which it operates
is better off with the firm than without it; the firm offers something that is unique and valuable
in the marketplace 
 A firm usually can’t claim any value unless it adds some value 

 To have added value, a firm must drive a wedge between customer willingness to pay and
supplier opportunity cost—indeed a wider wedge than rivals achieve. A firm that attains a wider
wedge is said to have a competitive advantage 

 To establish a competitive advantage, a firm has to do different things than its rivals on a day- to-
day basis.  
 
Slide 16 -   
What we inferred from the case study is -  

To determine key strategies, we have broken the firm’s activities into different parts but when a final
strategy is chosen it is vital to develop a holistic view of complete operations end-to-end. After all, it
is the integrated set of choices which determines the competitive edge of the firm. 
 
 
Thank you!!