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The Competitive
Advantage model
of Porter learns that competitive strategy is about taking
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 above-average performance within an industry is
sustainable competitive advantage.
There are
2 basics types of CA:
- cost leadership
(low cost), and
- differentiation.
Both can be more
broadly approached or narrow, which results in the third viable competitive strategy: focus.
Approach 1 to Competitive
advantage: Cost leadership.
= a firm sets out to become the low cost producer in its industry.
Note: a cost leader must achieve parity or at least proximity in the
bases of differentiation, even though it relies on cost leadership for
its CA.
Note: if more than one company aim for cost leadership, usually this is
disastrous.
Often achieved by economies of scale
Competitive
advantage model 2: Differentiation.
= a firm seeks to be unique in its industry along some dimensions that
are widely valued by buyers.
Note: a differentiator cannot ignore its cost position. In all areas
that do not affect its differentiation it should try to decrease cost; in
the differentiation area the costs should at least be lower than the price
premium it receives from the buyers.
Areas of differentiation can be: product, distribution, sales,
marketing, service, image, etc.
Competitive
advantage 3: Focus.
= a firm sets out to be best in a segment or group of segments.
2 variants: cost focus and differentiation focus.
Stuck in
the middle:
Usually a recipe for below-average profitability compared to the
industry
Still attractive profits are possible if and as long as the industry as
a whole is very attractive
Manifestation of lack of choice
Especially risky for focusers that have been successful and then to
loose their focus. They must seek for other niches rather then compromise
their focus strategy.
From a Value Based Management point of
view, the CA approach to strategy helps to build a relative
competitive advantage, together with Porter's
Value Chain framework. Taken
together, they can be seen as one of two dimensions in maximizing
corporate value creation. The other value creation dimension is the Market/Industry Attractiveness for which another model from Porter is
often used: the Competitive Forces
model.
Compare with Competitive Advantage:
Parenting Advantage |
Positioning |
Prahalad |
Delta Model
|
BCG Matrix
|
Greiner
|
Kay |
M&A
| Diamond Model
| Experience Curve |
Twelve
Principles of the Network Economy |
Blue Ocean Strategy
| Relative Value of
Growth
More management models
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