Professional Documents
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Strategic Management
Submitted By:
Group A5 – Section A
It is evident that some companies create greater profits than others. For companies belonging
to different industries, sectors or fields this may be due to differences in rivalry/competitors,
growth of industry, customer switch probability or labour union issues.
What strategists need to systematically analyze is the reason for the stark differences in profit
making for different companies in the same industry.
What becomes visible in this analysis is that certain companies generate more profits than its
competitors because it enjoys certain “Competitive Advantage”. Competitive advantage is
when a company has an edge over its competitors in earning higher profits from its
customers.
Research shows that there are 2 possible ways of generating competitive advantage:
(i) By creating, nurturing and sustaining irreplaceable, unique and valuable selling
points which set the company and its products apart from its competitors.
(ii) By analyzing holistically the integration of different activities of the firm to figure out
reasons and scope of generating competitive advantages.
The primary source of generating profits lies in the fundamental aspect of ‘value creation’.
What creates this value? How is it determined? These answers are found by analyzing the
division of value:
Differentiation Strategy:
Raise customer’s willingness to pay without a rise in corresponding supplier’s opportunity
costs.
Low Cost Strategy:
Devise a method of reducing supplier’s opportunity cost without a corresponding reduction in
customer’s willingness to pay.
Dual Competitive Advantage:
This is achieved when the company manages to cut supplier opportunity cost through better
supply-chain and inventory management and yet manages to increase customer’s willingness
to pay by providing unmatched value-added services.
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:
(a) Determining the source of competitive advantage or the reasons for its absence.
(b) Determine opportunities to exploit sources to gain competitive advantage.
(c) 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.
CONCLUSION
To determine key strategies we have broken the firm’s activities into different parts but when
a final strategy si 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.