The Creation and Management of

Competitive Advantage
NEXT 3 Weeks

We will cover the internal and external analysis and
apply to Aldi

You should read about the relevant
models/frameworks and apply them to Aldi

Key Models
Value Chain Analysis
Porters five force model
12 Ps
4Cs
Mix map Model
Plc/Bcgm
Pest
Swot/Tows
McKinsey Matrix
Ansoff
Achieving competitive advantage
How can the business continue to survive or grow ?
How do the resources deliver profits?
Which resources enable the organisation to compete
i.e. Value added &
Sustainable Competitive Advantage
Recognizing a firms core competences is
required if it is to make rational strategic
decisions
With an understanding of its external
environment it will drive the selection of
strategies
An inside- out approach.
Based on what we have got!
And. What we believe we can do.
Relative to competition
Pressures on marketing
Basic positioning options
Porters Generic Strategies
Cost/Price Leadership Differentiation
Differentiation Focus Cost/Price Focus
Sector of
Market
Whole Market
Distinct
Product
Lower Price
Strategic Advantage
Strategic
Target
Cost/Price Leadership
Lower prices than competition
Costs lower than competition
Often standardised commodity goods (hard to
differentiate)
Lower Costs enabled via economies of scale
Likely to require/result in large market share
Relies upon customers being price elastic
Normally used at latter stages of market/product
life cycle
Differentiation
Make products/services different to those of
competitors
Relies on customers perceiving and valuing their differences
Accepted by and recognised by whole market
Requires substantial investment in innovate
practices, R&D and marketing to inform the
customers of its differences.
Focus
Focus firms efforts on narrow sector of market-
niche/segment
Can be differentiated
Can be Cost/Price led (But can economies of scale
be developed?)
Example of strategic Group analysis
Firms
stuck in the middle
Winning
Cost Leader
Failing
Cost leader
Successful
Differentiators
Mixed Differentiation
Failing
Differentiators
Profitability
(Return on assets)
Cost Leadership
Generic Strategy
INTERNAL POSITIONING
Assumption - creating competitive advantage
- need for investment in physical and human
resources
- need to manage interface between internal
environment, technology and people
- opportunity through adaptability; lower costs;
product quality; enhanced service.
Components of Internal analysis leading to Competitive advantage,
Lynch 2000;Hitt 2001,
Resources
Tangible
Intangible
Capabilities
Strategic
Competitiveness
Competitive
Advantage
Discover Core
Competences
Competences
Value Chain
Analysis
7 Criteria of
Sustainable
Advantages
Tools
available
Capabilities
The firms ability to deploy resources effectively
Enable the firm to create and exploit external
opportunities and develop sustained advantages
when used with insight and adroitness.
Lengnick-Hall & Wolff 1999
Firms abilities are increasingly being
derived not from things:
But an ability to derive value from knowledge etc.
Increasingly about people

Resources

Critical -customers; competition; resources
Tangible - locations(city centre, airports) size and
facilities; technology (CRS); finance - supply &
quality; people
Intangible - Brand name; quality of people
Labour : capital ratio - productivity

Contribute to Adding value - inputs-process-
outputs
Core Competences
Manage current ones
Create new ones
current ones will be eroded
Not inherently valuable
Must manage and control to create value and
Competitive Advantage
Important to identify those that are core and those that
are not (just competences)
Establishing a Core Competence agenda
Premier plus 10
What new core
competencies will we need
to build to protect and
extend our franchise in
current markets?
Meg-opportunities
What new core
competencies will we need
to build to participate in
the most exciting markets
of the future?
Fill in the blanks
What is the opportunity to
improve our position in
existing markets by better
leveraging our existing
core competencies?
White Spaces
What new products or
services could we create
by creatively redeploying
or recombining our current
core competencies?
Existing
Existing
New
New
Market
Core
Competence
Source: Hill C. W., Jones G. R. (2002, pp354)
Sustainable Competitive Advantage
Is achieved when firms implement a value-
creating strategy that is grounded in their own
unique resources, capabilities and core
competencies. Vignali et al., (2008)
The key issue in strategy research-Rouse 1999
The basic notion behind strategy is that a
successful, high performing business requires a
distinctive (or core) competence or competitive
advantage. Hooley et al., (2011)
Continuous development of Competitive
advantage is required
CRITERIA OF SUSTAINABLE ADVANTAGES
Core competences are a firms source of
competitive advantage
Competitive Advantage is also a function of its
relative resource uniqueness (sustainability)
Acquired resources; innovative capability;
competitiveness; substitutability;
appropriability; durability; imitability
About creating value (perceived or real)
Value- The creation and management of..
Performance characteristics and attributes for which
customers are willing to pay
Created by exploiting core competences
Firms use strategy to create value for customers
Continuously
Throughout the firm
Value will be duplicated over time
Must continually seek new value
A relative concept

Adding Value?
The key goal of strategy
The outputs are considered to be worth more than
the cost of the inputs to operationalise the delivery.
Value management is about maximising value
addition, which results in profit maximisation.
Identifying Value/Potential Value
The value chain - an attempt to identify key
activities within the organisation, their
relationships and how the creation of core
competence's (skills/knowledge) deliver
synergistic benefits.
The flow of products and services within the
organisation - the chain or links between primary
and secondary activities.
Add it as cheaply as possible and capture the value
The Value Chain
Before the service establishment - the supply
chain- control, sourcing, frills or not.
Inside the service establishment - stocks, labour,
culture, work in progress,
Delivery process- scheduling, labour costs,
overheads, techniques/procedures, repair &
maintenance
Service delivery and after - finished experience,
complaint handling, relationship marketing.
Use to determine where the firm has the potential
to create and capture value
Firm infrastructure
Human resource management
Technology development
Procurement
Inbound
logistics
Operation Outbound
logistics
Marketing &
sales
Service
margin
Primary Activities
Support
Activities
The Value Chain
Adopted from
Porter M. 1985
R&D
Production
Outputs
Summary


Operations take time to plan/build and change can be
difficult.
Analysis is often around how to add value, internally (value
chain) and externally (supply chain)
influenced by identification of CSFs, resource utilisation, core
competences, technologies, global behaviour, cost
management.
Adapt products/services to customer needs
deliver better services than competitors
enhance performance or quality
cut costs
But - will service quality rely on humans - training/dev!



Workshop Activity 1 :Choose an organization of your
choice and answer the following (35mins)

1. Core Competences identify the organization's
core competences ?
2. Why are they core ?
3. How can their advantage be preserved?
4. What are the Critical Success Factors?
5. What evidence is there of unique resource
utilisation (7 elements Lynch pp280-282)
6. What impact do these have on the Value chain
and value system ?


Workshop Activity 2 :Read the assessment case and
apply the following to Lidl (40mins)

1. Core Competences identify the organization's
core competences ?
2. Why are they core ?
3. How can their advantage be preserved?
4. What are the Critical Success Factors?
5. What evidence is there of unique resource
utilisation (7 elements Lynch pp280-282)
6. What impact do these have on the Value chain
and value system ?


Workshop Activity 3 (30mins)


1. Read the chapter on Value Chain Analysis which
has been applied to Zara. Now apply the value
chain to Lidl

For Next Week
Complete workshop tasks 2 & 3 using information
from published sources. Each group should prepare
2 PowerPoint slides to present this information
ready for discussion next week