COMPETITIVE ADVANTAGE

Models Of Competitive Advantage

Models Of Competitive Advantage

Introduction

Michael E. Porter, Professor at the Harvard Business School, published his book Competitive Strategy was the product of five years working in industrial research at the time that marked a milestone in the conceptualization and practice in analyzing industries and competitors (Porter, 2004). Porter's competitive strategy described as offensive or defensive actions of a company to create a defensible position within an industry, actions that were the answer to the five competitive forces that the author said in determining the nature and degree of competition surrounding a company and as a result, sought to obtain a significant return on investment. Models Of Competitive Advantage

Although each company was looking for different ways to reach that end result, the issue was that the best strategy a company should reflect how well he understood and acted on the stage of the circumstances that corresponded. Porter identified three generic strategies that could be used individually or together, to create long-term defensible position that exceeded the performance of competitors in an industry (Montgomery & Porter, 1991). These three generic strategies were:

The Cost Leadership

The Differentiation

The Differentiation Focus

The Cost Leadership Model

This was a very popular strategy in the early 70's, due to a concept deeply rooted in the experience curve. Maintain the lowest cost compared to competitors and achieve a high volume of sales was the focus of the strategy. Therefore the quality, service, reducing costs through greater experience, the efficient construction of economies of scale, rigid cost control and more particularly to variable costs, were the subject of constant scrutiny and tight. Customers avoided marginal performance and minimize costs sought in the areas of research and development, sales force, advertising, and general staff in each area of operation of the company (Porter, 1990). If the company had a low cost position, this was expected to lead to the profit above the industry average and protect her from the five competitive forces. To the extent that competitors struggled through price cuts, eroded profits until those who remained on the level closest to the most efficient competitor was eliminated. Obviously, less efficient competitors were the first to suffer from competitive pressures.

Achieve a low total cost position often required high relative market share (referring to the market share of a company relative to its largest competitor) or other advantage, as might be access to materials bonuses. It may also require a product design to facilitate manufacture, maintain a wide range of related products to distribute to them the cost, as well as serving larger segments of customers to ensure sales. As consideration, implementing a low cost strategy might involve large capital investments in technology, aggressive pricing and lower profit margins to purchase a greater market share (Zott et al, 2011). At that time, the strategy of low cost leadership was the foundation of the success of companies like Briggs & Stratton Corp., Texas Instruments, Black & Decker and Du ...