THE NATURE AND SOURCES OF
COMPETITIVE ADVANTAGE
FOUNDATIONS
John Beddington
Scott Bearden
Patrick Lewis
Lauren Frick
Trevor McDonald
OF
STRATEGY
THE EMERGENCE OF COMPETITIVE
ADVANTAGE
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Competitive Advantage: when two or more firms compete within
the same market, one firm posses a competitive advantage over
its rivals when it earns a persistently higher rate of profit
Creating a competitive advantage
External sources of change: change must have differential effects on
companies because of their different resources and capabilities or strategic
positioning
 Internal sources of change: some firms have greater creative and
innovative capability
 Responsiveness to change: firms must respond rapidly to changes to
maximize profits or opportunity
 From innovation:
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New industries
New customer segments
New sources of competitive advantage
SUSTAINING COMPETITIVE ADVANTAGE
Obscuring Superior Performance: mask success
so that other firms can’t identify success until it’s
too late
 Deterrence of competition:

Proliferation
 Large investments in production capacity
 Patents
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Diagnosing competitive advantage


Causal ambiguity and uncertain imitability
Acquiring resources and capabilities

First mover advantage
TYPES OF COMPETITIVE ADVANTAGE:
COST AND DIFFERENTIATION

Cost: Similar product at a lower cost


Wal-Mart
Differentiation: Price premium from unique
product

Luxury car companies
STRATEGY AND COST ADVANTAGE

Cost Drivers:
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Economies of scale
Economies of learning
Production techniques
Product design
Input costs
Capacity Utilization
Residual efficiency
THE PRINCIPAL STAGES OF VALUE CHAIN
ANALYSIS FOR COST ADVANTAGE
1) Break down the firm into separate activities
 2) Establish the relative importance of different
activities in the total cost of the product
 3) Compare costs by activity
 4) Identify cost drivers
 5) Identify linkages
 6) Identify opportunities for reducing costs

PRINCIPAL STAGES OF VALUE CHAIN ANALYSIS
FOR DIFFERENTIATION ADVANTAGE
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 buyer

AMAZON AND COMPETITIVE ADVANTAGE

Amazon gained competitive advantage by
implementing value-added services
Best-seller lists
 Reviews of books
 Customized recommendations based on past
purchases

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Created new customer segment with same
products (books) by appealing to technology era
customers

Able to purchase books online
TAKEAWAYS
Competitive advantage
 Recognize how resources can offer opportunities
for competitive advantage
 Distinguish between cost advantage and
differentiation advantage
 Value chain analysis for cost and differentiation
advantage opportunities
 Understand the dangers of being ‘stuck in the
middle’ of the competition
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