Competitive Advantage

Knowledge Center

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:

3. 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

Forum New Topic Forum about Competitive Advantage. 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 (...) 14   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 bu (...) 11   1 comments 🔥 NEW Is Superior Value to Customers a Competitive Advantage? Could superior value to customers imply competitive advantage? Considering that competitive advantage is achieving super (...) 10   24 comments Knowledge Management is more important than CA An authentic - that means, in simple words: not easy to be copied - Competitive Advantage in the contemporary - that mea (...) 9   2 comments 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 (...) 2   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 con (...) 1   2 comments 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 (...) 0   The Role of AI in Competitive Advantage Do you think Artificial Intelligence (big data, self-learning software, digital networks, algorithms) represents an enti (...) 0   Start a new forum topic about Competitive Advantage. More info. Share your opinion, knowledge and experience or ask a question (sign up for free first)

Best Practices Sign up The top-rated topics about Competitive Advantage. Here you will find the most valuable ideas and practical suggestions. Quotes Competitive Advantage Do you know some deep, famous or funny quotes on Competitive Advantage? Quotations? Proverbs? Please share them as a rea (...) 76   4 comments 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 (...) 37   5 comments Case studies in "Cost Leadership" Are there any recent case studies to demonstrate how firms can compete on the basis of cost leadership? (...) 34   4 comments Stuck in the Middle? Why is getting stuck in the middle (=mixing the 3 types of competitive advantage) so problematic? Could an intelligent m (...) 30   8 comments How Can Logistics Help to Achieve a Competitive Advantage? How can logistics (transport, warehousing, customer service, inventory control) contribute to a Competitive Advantage (C (...) 29   37 comments 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. (...) 28   4 comments Competition versus Cooperation Porter has undermined society with his over-emphasis on competition. Co-operation should be the driver of business and p (...) 25   12 comments 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! (...) 23   2 comments What is Competitive Advantage? Is it in simple terms "to be better than your competitors"? Is this correct? (...) 22   8 comments 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 Competiti (...) 17   2 comments Competitive Advantage in a Monopolistic Market? Can Porter's competitive advantage work in monopolistic markets, such as utility companies where the product they sell i (...) 17   2 comments 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 abou (...) 16   1 comments What are the Risks of a Differentiation Strategy? What are the risks involved when using differentiation as a competitive strategy? Why? (...) 12   3 comments 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 (...) 10   3 comments 4 Stages of Hypercompetition D'Aveni argues sustainable competitive advantage is not really possible. He shows a mechanism that causes faster and fas (...) 9   3 comments

Expert Tips Sign up Advanced insights about Competitive Advantage. Here you will find professional advices by experts. Sustained Competitive Advantage Industry Competitiveness As claimed by M. Porter the only way to sustain a competitive advantage is to upgrade it over time – to move to more sop (...) Not Generic Strategies...: Pseudo Strategies! All the following categeories are NOT generic strategies according to Porter: - Build / Hold / Harvest / Liquidate / Qu (...) Differentiation and 5 Forces Influence of Differentiation A differentiation strategy usually requires consistent investments in operative marketing, particularly in communication (...) Low-Cost Strategy Pitfalls The main Risks of a Low-Cost Strategy are:The cost leadership is not sustained, because of: - competitors imitatating (...) Focus Strategy Pitfalls The main Risks of a Focus Strategy are: 1. The focus strategy is imitated 2. The target segment becomes structurally u (...) Differentiation Strategy When to apply Differentiation strategies tend to work best in following market circumstances: - The needs and uses of buyers are div (...) Extreme Customer Trust as a Source of Competitive Advantage Competitive Advantage, CRM, Customer Loyalty, Customer Intimacy Many companies are already highlighting the importance of trustworthiness by setting and sustaining honest prices and pr (...) The Key Role of Strategists in Creating Competitive Advantage Business Strategy, Corporate Strategy, Competitive Advantage, Strategy Education Most organizational performance theories assume that there are certain “best practices”, or “best ways” that are needed (...) Knowledge as Competitive Advantage The New Form of Advantange In an interview of Tomas Friedman to Hani Iskander, former CEO of Chevron Middle East Ltd who was negotiating a partners (...) Factors to Create a Sustainable Competitive Advantage Porter's SCA Factors In HBR article “What is strategy”, Nov-Dec 1996, M. Porter discusses the critical factors that help to create a sustaina (...)

Information Sources Sign up Various sources of information regarding Competitive Advantage. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops. How to Sustain Competitive Advantage? Business Strategy, Sustaining Competitive Advantage, Sustainable Competitive Advantage, This presentation is about the question how a competitive advantage can be sustained. The presentation begins with compe (...) The Role of Value Chain Functions, Quality Management and Innovation in Competitive Advantage Value Chain Management, Quality Management, Innovation, Operational Excellence This presentation firstly presents the role of functional strategies and the value chain in the achievement of competiti (...) How Businesses can Use Information Technology (IT) in Strategic Ways Strategic Management, Information Technology This presentation looks at Information Technology from a strategic point of view. In other words, it discusses in what w (...) Competitor Analysis External Strategic Analysis Presentation by G.M.H. Broekema about competitor analysis as part of external strategic analysis. Included: Steps to com (...) Introduction to Competitive Strategy: The 3 Circle Model Initial Understanding of Competitive Strategy Prof. Joe Urbany goes to the heart of Competitive Strategy by explaining the Three Circles of Competitive Strategy: 1. (...) Porter's Industrial Organization Versus Barney's Resource Based View Business Strategy, Value Chain Management This presentation compares Porter's competitive advantage thinking with Barney's Resource Based View, focusing on how co (...) Porter: Misconceptions about Strategy and Competitive Advantage Understanding Strategy and (Sustainable) Competitive Advantage Prof. M. Porter mentions some big mistakes when people are mixing up "strategy" with other kind of goals and objectives (...) Developing a (Sustainable) Competitive Advantage Competitive Advantage, Sustainable Competitive Advantage, SCA, CA This presentation outlines how to develop a business model for sustainable competitive advantage. The presentation inclu (...) Competitive Advantage Diagram Strategy Download and edit this 12manage PowerPoint graphic for limited personal, educational and business use. Republishing in (...)

Research Links Sign up Automatically jump to further useful sources regarding Competitive Advantage. News Videos Presentations Books More

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

Return to Management Hub: Marketing  |  Strategy  |  Supply Chain & Quality

More Management Methods, Models and Theory