COMPETITIVE ADVANTAGE - TOOLS &

TECHNIQUES

[ Mr.R.SATISH B.Tech., MBA., M.Phil., PGDPM&IR., DIS., [Ph.D.] &

Mr.S.MUTHUMANI MCS., MBA., M.Phil., [Ph.D.]

SATHYABAMA DEEMED UNIVERSITY , CHENNAI-119. ]

ABSTRACT :

There has been a fundamental change in the marketing scenario in

India – a change from the sellers market to the buyer’s market . There
is keen competition not only among Indian manufacturers but also
from foreign companies having manufacturing operations in India. As
your prices come down , you can place your products with in the reach
of ever expanding markets. Cost control is also necessary for
competing in export markets. Ratios provide standards of comparison
for appraising the performance of a business firm. They can be used
for cost control purposes in two ways. Effective Benchmarking is an
ever increasing management prerequisite for implementing
meaningful positive change . It is not the latest management fad. In
India there is not much evidence of concerned efforts by the firms to
take advantage of benchmarking. There is also need for conceptual
clarity amongst the managers. Training programmes , seminars and
other forums can provide opportunity for bringing managers together
for appreciating and sharing information on vital aspects of
benchmarking. This paper also highlights the new frontiers of the CRM
vision , which makes use of the latest business models based on state
of the art information technology framework [i.e., the internet ] ,
encompass a concept which is referred to as electronic customer
relationship management [eCRM]
 COMPETITIVE ADVANTAGE - TOOLS &
TECHNIQUES

[ Mr.R.SATISH B.Tech., MBA., M.Phil., PGDPM&IR., DIS., [Ph.D.] &

Mr.S.MUTHUMANI MCS., MBA., M.Phil., [Ph.D.]

SATHYABAMA DEEMED UNIVERSITY , CHENNAI-119 ]

INTRODUCTION

There has been a fundamental change in the marketing scenario in

India

– a change from the sellers market to the buyer’s market . There is

keen

competition not only among Indian manufacturers but also from

foreign

companies having manufacturing operations in India. Also due to

liberalized imports , Indian products have to compete with imported

products. In developed countries where incomes are high , firms can

employ non-price factors to beat their competitors but in India and

other

developing countries , where incomes are lower , price seems to be the

major determinant of demand. While the selling price is not within the

control of the firm, a reduction in costs is very much within the firm’s

control. As your prices come down , you can place your products with
in

the reach of ever expanding markets. Cost control is also necessary for

competing in export markets. Also you can effect more improvement

by

working on the big leaks. Again you have to evaluate your results in
order to determine the direction of your efforts.

Cost control has two aspects . [i] a reduction in specific expenses , and

[ii]a more efficient use of every rupee spent. For example , if sales can
be

increased with the same amount of expenditure , say on advertising

and

salesmen , the cost as a percentage of sales is cut down. In practice

,cost

control will ultimately be achieved by looking into both these aspects

and

it is impossible to assess the contribution which each has made to the

overall savings. Potential savings in individual businesses will ,

however ,

vary between wide extremes depending upon the levels of efficiency

already achieved before cost controls are introduced.

It is useful to bear in mind the following rules covering cost control

activities :

1. It is easier to keep costs down than it is to bring costs down.

2. The amount of effort put into cost control trends to increase

when

business is bad and decreases when business is good; and

3. There is more profit in cost control when business is good than

when business is bad. Therefore one should not be slack when

conditions are good.

One step that could lead to an improvement in costs is modernization

of
plants and equipment and the second step equally important is to

concentrate on what has come to be known as core competencies.

Firms

may examine to what extent they can vacate certain areas where they

have lost their cost advantage. Budgeting and standard costing are
two

methods that could be easily adopted for cost control.

The technique of standard costing has been developed to establish

standards of performance for producing goods and services . These

standards serve as goals for attainment and as bases of comparison

with

actual costs in checking performance.

The analysis of variance between actual and standard costs will :

 Help fix the responsibility for non-standard performance , and

 Focus attention on areas in which cost improvement should be

sought by pinpointing the source of loss and inefficiency.

The principle here is one of control by exception. Instead of attempting

to

follow a mass of cost data , the attention of those responsible for cost

control is concentrated on significant variances from the standard. If

effective action is to be taken ,the cause and responsibility of a

variance ,

as well as its amount must be established. The prime objective of

standard costs is to generate greater cost consciousness and help in

cost

control by directing attention to specific areas where action is needed.

RATIO ANALYSIS

Ratio is a statistical yardstick that provides a measure of the

relationship

between two figures. This relationship may be expressed as a rate

( costs

per rupee of sales ) , as a percent ( cost of sales as a percentage of

sales ),

or as a quotient ( sales as a certain number of times the inventory ).

Ratios are commonly used in the analysis of operations because the

use

of absolute figures might be misleading.

Ratios provide standards of comparison for appraising the

performance

of a business firm. They can be used for cost control purposes in two

ways.

1. A businessman may compare his firm’s ratios for the period

under

scrutiny with similar ratios of the previous periods. Such a

comparison would help him identify areas which need his

attention.

2. The businessman can compare his ratios with the standard ratios

in his industry. Standard ratios are averages of the results

achieved

by thousands of firms in the same line of business.

In these comparisons reveal any significant differences , the
management

can analyse the reasons for these differences and can take appropriate

action to remove the causes responsible for increases in costs. Some

of

the most commonly used ratios for cost comparisons are given below:

• Net Profits / Sales

• Gross Profits / Sales
• Net profits / Total assets
• Sales / Total assets
• Production costs / costs of sales
• Selling costs / costs of sales
• Sales / Inventory
• Material costs / Production costs
• Labour costs / Production costs
• Overheads / Production costs

POSSIBLE BUSINESS BENEFITS LEADING TO COMPETITIVE

ADVANTAGE ARE

• Improved material efficiency

• Improved product quality

• Improved community relations

• Improved media coverage

• Positive pressure group relations

• Assured present and future compliance ( the license to operate )

• Reduced risk exposure

• Lower insurance premium

• Cheaper finance & Increased staff commitment

A TOOL FOR COMPETITIVE ADVANTAGE : BENCH MARKING

American Productivity Quality Centre ( APQC ) defines benchmarking
as “

the process of identifying , understanding , and adapting outstanding

practices and processes from organizations anywhere in the world to

help

your organization improve its performance.

One can benchmark performance indicators or business processes

which

drive performance indicators. Performance indicators are usually

expressed in numbers (metrics) , such as :

• Profit margins
• Return on investment
• Cycle times
• Percentage defects
• Service response time
• Sales per employee
• Cost per unit of product or services

For benchmarking business processes , the study may include

subjects,

such as :

• How one develops a new product or service

• How one manages customer’s order or billing or respond to an

Enquiry

• How one produces or deliver a product or service

“ We took competitive analysis one step further and came up with

what

we now call competitive benchmarking. It’s an intense , in depth study

of
what we think is our best competition. It’s a continuing , never-ending

process , and it’s an integral part of our new and stronger emphasis on

quality. We look at how they make a product…. How much it costs

them

to make it … How they distribute it , market it , sell it and support it …

How their organization works…. What kind of technology they have”.

NEED FOR BENCHMARKING

• To achieve customer satisfaction

• To identify and adapt best practices

• To encourage creating thinking , “ get out of the box “

• To find and comprehend the practices that will help them reach
new standards of performance

• To empower their people to move forward to change existing

work practices

• To base their goals on an external orientation

• To focus the entire organization on the most critical business

goals.

BENCHMARKING SHOULD BE DONE WHEN

• More than incremental improvement is required

• The process is new to the organization

• The strategic needs require external analysis

• There is a large technology gap

• The performance of the organization is unsatisfactory

• Improvement seems to stagnate.

 Benchmarking is a valuable management tool because it provides a

disciplined , logical approach for objectively understanding and

assessing

an organization’s strengths and weakness in comparison to the best of

the best.

CLASSIFICATION OF BENCH MARKING

1. PARTNER [ AGAINST WHOM TO BENCHMARK ]

 Internal
 Competitive
 Functional
 Generic

2. SUBJECT- [ WHAT IS TO BE BENCHMARKED ]

 Performance
 Strategic
 Process

BENCHMARKING PROCESS

SL PHASE OBJECTIVES RELEVANT QUESTIONS

NO
1 PLANNING To prepare a plan for 1. What is the subject
benchmarking to be benchmarked?
2. Who are the best
competitors ?
3. What is the best data
collection method ?
2 ANALYSIS To understand 4. What is the current
competitor’s strengths competitive gap ?
and to assess their 5. What is the projected
performance against these competitive gap ?
strengths
3 INTEGRATION To use the data gathered 6. How are the results
to define the goals of the analysis
necessary to gain or communicated ?
maintain superiority and
to incorporate these goals
 into companies formal
planning processes
4 ACTION The strategies and action 7. What are the new
plans established through goals ?
the benchmarking process 8. What is the action
are implemented and plan ?
periodically assessed with
reports of companies
progress in achieving
them.
5 MATURITY To determine when the 9. Is the company
company has attained a achieving its plan ?
leadership position and to 10. What is the plan for
assess whether recalibration ?
benchmarking has
become an essential ,
ongoing element of its
management process

SUCCESS FACTORS FOR BENCHMARKING

SEVEN TIPS that can help make benchmarking teams more successful

are :

 Management commitment to benchmarking

 Openness and willingness to change

 Do the study quickly

 Choose a broad –and-shallow or narrow –and-deep scope

 Integrate critical success factors

 Do not fall for the best-in-class fallacy

 Manage the change from start

CRM : ANOTHER TOOL FOR COMPETITIVE ADVANTAGE

From ancient times , a phrase like “ Customer is God “ has been
around

in the business world . What your customers think about the product or

services you sell , the people who represent you or your company as a

whole , is the ultimate measure of your success at the market place. A

relatively new discipline called Customer Relationship Management

[CRM] is primarily concerned with improving the effectiveness and

efficiency of business operations. The new frontiers of the CRM vision ,

which makes use of the latest business models based on state of the
art

information technology framework [i.e., the internet ] , encompass a

concept which is referred to as electronic customer relationship

management [eCRM]

PRIMARY REASONS FOR ADOPTING CRM ARE

 Rising cost of sales

 Increased global competition

 Dwindling margins

 Constant need for more information

 Ineffective sales/Account management

 Productivity

 Customer Care

 Changing Paradigms
CONCLUSIONS

“ Our policy is to reduce the price , extend the operations, and

improve

the article. You will note that the reduction of price comes first. We
have

never considered any costs as fixed. Therefore , we reduce the price to

a

point where we believe more sales would result…. The new price forces

costs down (by forcing) everybody in the plant to the highest point of

efficiency”. Training programmes , seminars and other forums can

provide opportunity for bringing managers together for appreciating

and

sharing information on vital aspects of benchmarking.

In today’s increasingly complex environment , customer relationship

management is critical to corporate success. To be successful , a

business must fulfil the client-vendor relationship throughout the

customer life cycle to ensure that their customers as well as the

organization receive the benefits expected.

REFERENCES :

1. Zaire M [1998] , “ Effective Management of Benchmarking

Projects “ , Butterworth-Heinemann , Oxford.
2. Ajay Pandit & Khanna [1999], “ Benchmarking – A tool for
competitive advantage “ , productivity . Vol 40, No.2 , July 1999.
3. Ajay Pandit & Saini [2002], “ CRM – A tool for competitive
advantage “ , productivity . Vol 43, No.1 , Apr 2002.
4. R.L.Varshney [2003], “ cost control competitive advantage “ ,
productivity . Vol 52, No.24 , Jan 2003.