Competitive Advantage

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The basis of performing above-average within an industry. Explanation of the CA (CA) model by Michael Porter.

Contents

  1. Summary
  2. Forum
  3. Best Practices
  4. Expert Tips
  5. Resources
  6. Print

According to the CA model of Porter, a competitive strategy takes 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 CA.


2 basic types of CA

  1. Cost Leadership (low cost)
  2. Differentiation

Both can be more broadly approached or narrow, which results in the third viable competitive strategy:

  1. Focus

CA type 1: Cost Leadership

  • Achieving Cost Leadership means that a firm sets out to become the low cost producer in its industry.
  • 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.
  • If more than one company try to achieve Cost Leadership, this is usually disastrous.
  • Often achieved by economies of scale.

CA type 2: Differentiation

  • Achieving of Differentiation means that a firm seeks to be unique in its industry along some dimensions that are widely appreciated  by buyers.
  • A differentiator can not 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.

CA type 3: Focus

  • Achieving Focus means that 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

  • This is 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 dangerous for Focusers that have been successful, and then start neglecting their focus. They must seek other Focus niches. Rather then compromise their focus strategy.

Overview of the Book "Competitive Strategy"

  • In Part I, Porter discusses the structural analysis of industries (with the five forces), the three generic competitive strategies (overall Cost Leadership, Focus, and Differentiation), offering an excellent framework for competitor analysis, competitive moves, strategy toward buyers and suppliers, structural analysis within industries (strategic groups, strategic mapping, mobility barriers), and industry evolution (life cycle, evolutionary processes).
  • In Part II, Porter discusses competitive strategy within various generic industry environments. Such as: fragmented industries (with no real market leader), emerging industries, mature industries, declining industries, and global industries.
  • In Part III, Porter discusses strategic decisions which businesses/firms can take. Such as: vertical integration (forward, backward, partnerships), capacity expansion, and entry into new industries/businesses.

Book: Michael E. Porter - Competitive Strategy -

Book: Michael E. Porter - Competitive Advantage -


Competitive Advantage Forum
  Why are Firms Different? Why Successful Firms Differ?
It is an obvious fact that firms differ. However, according to Carroll (1993) it is important to distinguish between the questions why firms differ from why successful firms differ from a sociological point of view.
Based on differ...
     
 
  What are the Risks of a Differentiation Strategy?
What are the risks involved when using differentiation as a competitive strategy? Why?...
     
 
  Successful Companies: Only Three Rules Needed?
Raynor and Ahmed did a statistical study of a large amount of companies and discovered that just 3 seemingly easy rules are consistent with successful companies and their strategic choices:

1. Better Before Cheaper. Companies can ch...
     
 
  Focus your Efforts in Building Competitive Advantage
In any given company, there are hundreds of fields where you can improve. The key thing to do is to determine the value of taking certain measures / developing certain strategies in various fields.
In other words: what to go for?
1. ...
     
 
  Cost and Value in Analysis of Competitive Advantage: 2 Sides of the Same Coin?
COST and VALUE are words used to identify the same quality, but from different viewpoints. The producer/manufacturer concentrates on cost, while the consumer/customer looks at value.
From this analysis comes the amazing range of products that ar...
     
 
  Competitive Advantage or Die?
To all the sharks out there who seem to have missed the point of cooperation, sharpen your swords and keep them so!...
     
 
  Case studies in "Cost Leadership"
Are there any recent case studies to demonstrate how firms can compete on the basis of cost leadership?...
     
 
  Competitive Advantage in a Monopolistic Market?
Can Porter's competitive advantage work in monopolistic markets, such as utility companies where the product they sell is unique (water or electricity) and can't be sold by other parties?...
     
 
  Life Cycle Approach to Competitive Advantage
Rita Gunther McGrath and Ian C. MacMillan in MITSloan Management Review Vol 50 No 3 mention the term Transient Competitive Advantage. I looked up the term "transient" and it means "valid for a limited time". The authors see Competitive Advanta...
     
 
  Health/Fitness Club Industry Analysis
I am the Marketing consultant of a Health & fitness club in Maseru, the capital city of Lesotho. Within a radius of about 10 kilomitres, there are two more fitness clubs. I would like to get the guidelines on how to conduct my analysis as I want my c...
     
 
  4 Stages of Hypercompetition
D'Aveni argues sustainable competitive advantage is not really possible. He shows a mechanism that causes faster and faster erosion of competitive positions. D'Aveni's four stages of hypercompetition:
1) Advantage based on differentiatio...
     
 
  Knowledge Management more important than CA
An authentic -that means, in simple words: not easy to be copied- Competitive Advantage in the contemporary -that means: complex and continously changing- environment can be only achieved by the continuous Development of Knowledge in every organizati...
     
 

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Best Practices - Competitive Advantage Premium
  Weaknesses of Porter's Three Basic Types of Competitive Advantage
Mouillot (2013) argues that although Porter's three basic types of Competitive Advantage are very useful with regard to research for competitive advantage, there are some limitations or disadvantages:
1. Missing Ethical Guidelines for S...
     
 
  How Can Logistics Help to Achieve a Competitive Advantage?
How can logistics (transport, warehousing, customer service, inventory control) contribute to a Competitive Advantage (CA) of an company? Thanks for your ideas......
     
 
  What is Competitive Advantage?
Is it in simple terms "to be better than your competitors"? Is this correct?...
     
 
  Changing from a Cost Leadership Strategy Into Differentiation
I'm wondering how enterprises which have a cost leadership strategy turn into a differentiation strategy. Please advise....
     
 
  10 Routes to Competitive Advantage
In todays lean, time starved world, competitive advantage is the way forward. I have produced the following 10 routes to competitive advantage to simplify the process especially for the small business owner. 1. People. 2. Method. 3.Pro...
     
 
  Competition versus Cooperation
Porter has undermined society with his over-emphasis on competition. Co-operation should be the driver of business and progressive companies are seeing this and ditching competition and Porter....
     
 
  Competitive Advantage in Tough Times
Does need to change, in tough times, imply that one has to do things different or different things? In times of tough business circumstances, the core of change mgt is best translated in a return to basics, to your USP’s: Make all co-workers aware of...
     
 
  Stuck in the Middle?
Why is getting stuck in the middle (=mixing the 3 types of competitive advantage) so problematic? Could an intelligent mix of these 3 be preferable?...
     
 

Expert Tips - Competitive Advantage Premium
 

Sustained Competitive Advantage

As claimed by M. Porter the only way to sustain a competitive advantage is to upgrade it over time – to move to more sophisticated types.
<...
Usage (application): Industry Competitiveness
 
 
 

Not Generic Strategies...:

All the following categeories are NOT generic strategies according to Porter:
- Build / Hold / Usage (application): Pseudo Strategies!
 
 
 

Differentiation and 5 Forces

A differentiation strategy usually requires consistent investments in operative marketing, particularly in communication. But also it has been discuss...
Usage (application): Influence of Differentiation
 
 
 

Low-Cost Strategy

The main Risks of a Low-Cost Strategy are:
The cost leadership is not sustained, because of:
- competitors imitatating
- technolog...
Usage (application): Pitfalls
 
 
 

Focus Strategy

The main Risks of a Focus Strategy are:
1. The focus strategy is imitated
2. The target segment becomes structurally unattractive, be...
Usage (application): Pitfalls
 
 
 

Differentiation Strategy

Differentiation strategies tend to work best in following market circumstances:
- The needs and uses of buyers are diverse: the more dive...
Usage (application): When to apply
 
 
 

Extreme Customer Trust as a Source of Competitive Advantage

Many companies are already highlighting the importance of trustworthiness by setting and sustaining honest prices and providing reasonable services. A...
Usage (application): Competitive Advantage, CRM, Customer Loyalty, Customer Intimacy
 
 
 

The Key Role of Strategists in Creating Competitive Advantage

Most organizational performance theories assume that there are certain “best practices”, or “best ways” that are needed to outperform your rivals.
...
Usage (application): Business Strategy, Corporate Strategy, Competitive Advantage, Strategy Education
 
 
 

Knowledge as Competitive Advantage

In an interview of Tomas Friedman to Hani Iskander, former CEO of Chevron Middle East Ltd who was negotiating a partnership with Kuwait government, th...
Usage (application): The New Form of Advantange
 
 
 

Factors to Create a Sustainable Competitive Advantage

In HBR article “What is strategy”, Nov-Dec 1996, M. Porter discusses the critical factors that help to create a sustainable competitive advantage Usage (application): Porter's SCA Factors
 
 

Resources - Competitive Advantage Premium

How to Sustain Competitive Advantage?

This presentation is about the question how a competitive advantage can be sustained. The presentation begins with competitive advantage and moves fro...
Usage (application): Business Strategy, Sustaining Competitive Advantage, Sustainable Competitive Advantage,
 

The Role of Value Chain Functions, Quality Management and Innovation in Competitive Advantage

This presentation firstly presents the role of functional strategies and the value chain in the achievement of competitive advantage by ...
Usage (application): Value Chain Management, Quality Management, Innovation, Operational Excellence
 

How Businesses can Use Information Technology (IT) in Strategic Ways

This presentation looks at Information Technology from a strategic point of view. In other words, it discusses in what ways IT can be used as a strate...
Usage (application): Strategic Management, Information Technology
 

Competitor Analysis

Presentation by G.M.H. Broekema about competitor analysis as part of external strategic analysis. Included: Steps to competitor analysis, identifying ...
Usage (application): External Strategic Analysis
 

Introduction to Competitive Strategy: The 3 Circle Model

Prof. Joe Urbany goes to the heart of Competitive Strategy by explaining the Three Circles of Competitive Strategy:
1. The Customer. What value d...
Usage (application): Initial Understanding of Competitive Strategy
 

Porter's Industrial Organization Versus Barney's Resource Based View

This presentation compares Porter's competitive advantage thinking with Barney's Resource Based View, focusing on how competitive advantage and sustai...
Usage (application): Business Strategy, Value Chain Management
 

Developing a (Sustainable) Competitive Advantage

This presentation outlines how to develop a business model for sustainable competitive advantage. The presentation includes the following sections: Usage (application): Competitive Advantage, Sustainable Competitive Advantage, SCA, CA
 

Porter: Misconceptions about Strategy and Competitive Advantage

Prof. M. Porter mentions some big mistakes when people are mixing up "strategy" with other kind of goals and objectives and issues that managers often...
Usage (application): Understanding Strategy and (Sustainable) Competitive Advantage
 

Competitive Advantage Diagram

Download and edit this 12manage PowerPoint graphic for limited personal, educational and business use. Republishing in intranets, websites, books, ma...
Usage (application): Strategy
 
 

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Compare with CA: Value Chain  |  Value Disciplines  |  Parenting Advantage  |  Positioning  |  Core Competence  |  Rule of Three  |  Strategic Types  |  Delta Model  |  BCG Matrix  |  Growth Phases  |  Distinctive Capabilities  |  Acquisition Integration Approaches  |  Diamond Model  |  Relative Value of Growth  |  Experience Curve  |  Twelve Principles of the Network Economy  |  Blue Ocean Strategy


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