The Sources and Dimensions of

Competitive Advantage

Grant (2013)
Slides prepared by Atik Aprianingsih, DBA
 The Emergence of Competitive
Advantage
How does competitive
advantage emerge

External source of change e.g., Internal source

• Changing customer demand of change
• Changing prices
• Technological change

Resource heterogeneity Some firms faster and Some firms have

among firms means more effective in greater creative and
differential impact exploiting change innovative capability
 Sustaining Competitive Advantage:
Types of Isolating Mechanism
REQUIREMENT FOR ISOLATING MECHANISM
INNOVATION
Identification • Obscure superior performance

Incentives for imitation • Deterrence: signal aggressive intention to imitators

• Preemptions: exploit all available investment
opportunities

Diagnosis • Rely on multiple sources of competitive advantage to

create “causal ambiguity”

Resource acquisition • Base competitive advantage on resources and

capabilities that are immobile and difficult to replicate
 Sources of Competitive Advantage

COST
ADVANTAGE
Similar product at a
lower cost

COMPETITIVE
ADVANTAGE

Price premium from a

unique product
DIFFERERENTIA
TION
ADVANTAGE
Porter’s Generic Strategy
The Drivers of Cost Advantage
• Technical input-output relationships
ECONOMIES OF SCALE • Indivisibilities
• Specialization

ECONOMIES OF LEARNING • Increased individual skills

• Improved organization routines

• Process innovation
PRODUCTION
• Re-engineering of business process
TECHNIQUES
• Standardization of design and
PRODUCT DESIGN components
• Design for manufacture

• Location advantage
• Ownership of low-cost inputs
INPUT COSTS • Nonunion labor
• Bargaining power

• Ratio of fixed to variable cost

CAPACITY • Fast and flexible capacity adjustment
UTILIZATION
• Organizational slack/X-inefficiency
RESIDUAL EFFICIENCY • Motivation and organizational culture
• Managerial effectiveness
Cost Leadership and the Five Forces
Rivalry against existing competitors: Rivals
hesitate to compete on the basis of price

Bargaining Power of Buyers (Customers)

Bargaining Power of Suppliers

Potential Entrants

Product Substitutes
 Stages of Value Chain Analysis
1. Disaggregate the firm into separate activities

2. Establish the relative importance of different

activities in the total costs of the product.

3. Identify cost drivers

4. Identify linkages

5. Identify opportunities for reducing costs

Nature of Differentiation and
Differentiation Advantage
Differentiation Variable
◦ Constrained by technical and market factors
◦ Tangible vs. intangible differentiation

Differentiation and Segmentation

◦ How firm compete vs where a firm compete

TheSustainability of Differentiation
Advantage
 Analyzing Differentiation: The
Demand Side
Product Attributes and
Positioning
◦ Multidimensional
scaling
◦ Conjoint analysis
◦ Hedonic price analysis
◦ Value curve analysis
 Analyzing Differentiation: The
Demand Side
The Role of social and psychological factors
◦ Maslow’s Hierarchy of need
 Analyzing Differentiation: The
Demand Side
The Role of social
and psychological
factors

http://www.strategic
businessinsights.com
/vals/presurvey.shtm
l
 Differentiation and The 5 Forces
 Rivalry against existing competitors
◦ Customers are loyal purchasers of differentiated products

 Bargaining Power of Buyers (Customers)

◦ Inverse relationship between loyalty/product: As loyalty increases, price
sensitivity decreases

 Bargaining Power of Suppliers

◦ Provide high quality components, driving up firm’s costs
◦ Cost may be passed on to customer

 Potential Entrants
◦ Substantial barriers (see above) and would require significant resource
investment

 Product Substitutes
◦ Customer loyalty effectively positions firm against product substitutes
 Identifying differentiation potential:
The Demand Side
THE What needs What are key
PRODUCT does it satisfy? attributes?
FORMULATE
Relate patterns of DIFFERENTIATION
customer preference STRATEGY
By what
to product attributes •Select product positioning
criteria do they
in relation to product
choose?
What price premiums attributes
do product attributes •Select target consumer
THE command? group
CUSTOME •Ensure customer
R What are /product compatibility
demographic, •Evaluate costs and benefits
What motivates of differentiation
sociological,
them?
psychological
correlates of customer
behavior?
Analyzing Differentiation: The
Supply Side
The Drivers of Uniqueness
Product Integrity
Signaling and Reputation
Brands
The Cost of Differentiation
Bringing It All Together: The Value
Chain in Differentiation Analysis
Value chain analysis of producer goods
1. Construct a value chain for the firm and the
customer
2. Identify the drivers of uniqueness in each
activity
3. Select the most promising differentiation
variables for the firm
4. Locate linkages between the value chain of the
firm and that of the buyers

Value chain analysis of consumer goods

Implementing Cost Leadership and
Differentiation Strategy
Generic Strategy Key Strategy Elements Resource and organizational requirements

Cost leadership Scale-efficient plants Access to capital

Design for manufacture Process engineering skills

Control of overheads and Frequent reports

R&D
Process innovation Tight cost control

Outsourcing (especially Specialization of jobs and functions

overseas)
Avoidance of marginal Incentives linked to quantitative targets
customer accounts
Differentiation Emphasis on branding Marketing abilities
advertising, design, service,
quality, and new product Product engineering skills
development
Cross-functional coordination

Creativity

Research capability

Incentives linked to qualitative performance

Exercise
What are their strategy? Why?
1. https://www.youtube.com/watch?
v=u_RC9Cxjqig

2. https://www.youtube.com/watch?
v=6e9d8W9zFxA

3. https://www.youtube.com/watch?
v=mZiEmn3vpjg