Why does the market leading company of today fall from grace tomorrow? The reasons will often be complex to define, but will always generally be a mixture – no one single factor leads to either success or failure. This page consists of the latest thinking of Ibis with an attempt to identify the components of the 11 dimensions of competitive advantage:
Production/ service delivery advantage;
New product/ service development advantage;
Information technology advantage;
Risk management advantage;
Readers can complete the on-line quiz to provide a quick (and subjective) assessment of the position of the enterprise against its peers. The question is always: “Are we best of breed ?” The answers are linked to the creation of key performance indicators and benchmarks within the relevant knowledge center as the development of the plan progresses.
Vision. A clearly defined, quantitative long term target, simply expressed will provide the enterprise with a focus for long term development.
Successes, failures, lessons learnt. The development and maintenance of a learning organisation is a vital part of leadership. Mistakes will be made, but should not be repeated (often time after time). Establishing a framework in which the enterprise can move forward and focus on building on success and minimising the potential for failure will be an essential part of the leadership role within the competitive organisation.
Expectation/ fulfillment gap. The E/FG commonly used in marketing, is also a key element in competitive advantage as it identifies whether leadership is competent at meeting commitments to stakeholders.
Decision making. Effective decision making by the senior management team will be an essential part of building and maintaining competitive advantage.
Balanced scorecard. The definition of specific short, medium and long term goals which are achievable and acceptable to all stakeholders will do much to improve the potential for achieving effective competitive advantage.
Diversity of management team. Leadership that ensures the maximum of talent from as diverse a background as possible is likely to improve both decision making and motivation within the enterprise.
Succession planning. Building and maintaining core competence within the management team will provide the depth of ability to drive the organisation forward.
MBWA. Visibility of management and their ability to understand the requirements of stakeholders will greatly improve the overall strength of the enterprise in responding to a continually changing pattern of demands.
Communication. Effective communication with stakeholders will build long term relationships and improve operational productivity.
Wages ratio. The maintenance of a reasonable balance between the rewards at the top and at the bottom of the enterprise will enhance the acceptance of leaders.
MBO. The more the enterprise converts tasks into projects, the better the level of achievement will be. This emphasis is dependent on leadership decisions to transfer authority and responsibility to those involved in task completion.
Knowledge centers. The creation and maintenance of operational units within the enterprise that are designed to improve knowledge management and implementation will greatly aid the improvement of competitive advantage.
Focus. An emphasis on Pareto's Law through a focus on key products, regions, customers, suppliers, and investors will reduce waste and drive competitive advantage.
Business model. A simple business model which drives operational performance will be central to building competitive advantage.
Strategy aligned with market drivers. The competitive enterprise accepts the market reality and attempts to control it rather than react to it.
Balanced portfolio. Those enterprises that balance income generating actions with investing activities are likely to be more competitive in the long term than those that deal erratically with investment opportunities.
Balanced implementation. An emphasis on high risk implementation, especially mergers and acquisitions may substantially reduce competitive advantage.
Labour productivity. Better labour productivity enables the enterprise to leverage any strategic advantage into cash flow and profitability, thereby generating competitive advantage.
Barriers to entry. Barriers to entry provide competitive advantage against existing competition in addition to substitutes and entrants. Generally, the stronger the barriers to entry, the better the competitive advantage.
Buyers. The clearer the understanding of buyers requirements and the closer the relationship that the enterprise has with key buyers, the better the chance of achieving continuing competitive exclusion to key sectors of the market.
Branding. Adding value through branding will add substantially to the competitive position of the enterprise in the market – with generally the stronger the brand the better the competitive position.
EG/MG. Higher rates of enterprise growth (EG) than the market average (MG) provides a valuable measure of competitive effectiveness.
Portfolio analysis. Better enterprise positions within the various portfolio analysis techniques will enable the organisation to more effectively exploit their market position than the competition.
Value chain. The higher up the value chain, the greater the potential to add value to products or services and use the resulting revenues to further build market dominance.
Customer satisfaction. The level of customer satisfaction is one of the most important components of building and maintaining competitive advantage as it will drive both the level of repeat purchase and overall profitability.
Complaints. The volume of complaints and the way in which they are dealt with will also be important in maintaining customer satisfaction and reducing the costs to the enterprise of lengthy disputes.
CLV. The better the ability of the enterprise to maximise average customer life value the greater the level of competitive advantage.
Average sale. The greater the average sale, the more effective and more competitive the management of sales and marketing.
Advertising recall. The higher the level of advertising recall, the greater the chances of achieving repeat purchase or new customer acquisition within the target audience.
Product/ service communicability. One of the six elements of product/service success. The better able the enterprise is to communicate the benefits of all of its products or services, the greater the level of competitive advantage.
Product/ service compatibility. One of the six elements of product/service success. The greater the compatibility with existing products or services the greater the sales potential, and therefore the greater the level of competitive advantage.
Product/ service complexity. One of the six elements of product/service success. The simpler the product or service to use and understand, the greater the level of competitive advantage.
Product/ service divisibility. One of the six elements of product/service success. The more easily that separate elements of the product or service can be used, the greater the chances of trial and acceptability and therefore the greater the level of competitive advantage.
Product/ service perceived risk. One of the six elements of product/service success. The lower the level of perceived risk, the more likely purchase will be with improved levels of competitive advantage.
Product/ service relative advantage. One of the six elements of product/service success. The greater the perception of relative advantage by the customer, the greater the chance of purchase and therefore the greater the level of competitive advantage.
Pricing power. The greater the ability of the enterprise to raise prices without major volume reduction (low price elasticity) the greater the competitive advantage.
Systems. Well structured recruitment, motivation, appraisal, training (induction, maintenance, development) and discipline will greatly improve the competitive performance of the enterprise. A useful measure of systems effectiveness will be the level of employee turnover.
Skills. Higher levels of skills will enable the enterprise will enable it to carry out more complex and demanding tasks. A useful measure of skills effectiveness will be the ability of the enterprise to successfully carry out complex strategies.
Style. The enterprise with the appropriate management style for the demands of the market will be more competitive than one that has chosen one that is inappropriate. A useful measure of style will be the level of individual employee disputes.
Shared values. The higher the level of shared values, the greater the ability to respond effectively and speedily to change. A useful measure of shared values will be the level of group employee disputes (industrial relations).
Support. Providing positive assistance to all staff to carry out their work (through improved working conditions, technology) will significantly enhance performance and productivity. A useful measure of support will be employee satisfaction.
Structure. Simple market responsive structures build competitive advantage, with an emphasis wherever possible of decentralisation and lack of special units. A useful measure of structure will be the administration expense ratio.
Staff. Adequate staffing, combined with a reduced reliance on temporary or contract staff, will provide the organisation with the necessary pool of skilled individuals. A useful measure of staffing will be the temporary employee ratio.
Production/ service delivery advantage
Capacity utilisation. Matching capacity requirements to market demands will be an important element in competitive advantage.
Flexibility. The more flexible the production/ service delivery the more likely it is that it will meet market demands more effectively than the competition.
Sophistication. The more sophisticated the production/ service delivery the more likely it is that it will meet market demands more effectively than the competition
TQM. Improvements in quality will lead to improvements in competitive advantage.
TPM. Maintaining plant and premises at a higher standard than the competition will improve competitive advantage.
Speed. Better rates of product/ service delivery turnaround will improve competitive advantage.
Suppliers. Building and maintaining effective relationships with the supply base will improve competitive advantage.
SCM. Effective control over the supply chain will lower costs and improve production efficiencies thereby driving competitive advantage.
New product/ service development advantage
Product age. The younger the product portfolio, the more likely it is that the enterprise will gain and maintain competitive advantage.
First mover. First mover advantage will add significantly to long term competitive advantage.
Numbers. Increasing the numbers of new product ideas will add to long term competitive advantage if effective management of the development programmes is in place.
Protocol. The accuracy with which the enterprise establishes the product or service benefit requirements in its product/ service development will significantly affect their ability to deliver customer requirements.
Project success. The measurement of project success in specification, time and budget will provide a vital component of competitive advantage.
IPR. The percentage of the product or service range that is covered by intellectual property will be an important measure of the value of the new product/service development output.
Information technology advantage
E- enablement. Companies with higher rates of e-enablement have higher rates of growth, and generally higher rates of profitability.
MIS. A co-ordinated and integrated management information system should provide data on opportunities, problems earlier than that of the competition and therefore provide competitive advantage.
Software alignment. The greater the effective linkage between operational units and information technology the greater the potential for improved productivity.
Information flow. The better the transparency of information within the enterprise, the better the long term growth and profitability prospects.
Security. The ability of the information technology to maintain effective security, the greater the long term competitive advantage.
BEV. The lower the break even value, the greater the generation of cash and potential profitability.
Gross profit. One of the most important measures of competitive advantage as it demonstrates, if it is higher than the competition, that the market is prepared to pay more for enterprise goods and services.
ROCE. Control over the return on assets will be a key determinate of cash flow and profitability.
DER. Debt levels will have a substantial effect on competitiveness as they restrain the enterprise from exploiting opportunities and reducing overall freedom of action.
Cost of finance. The cost of finance will also influence the ability of the enterprise to manage its environment.
Tax charge. The overall level of tax will also influence the ability of the enterprise to re-invest and manage its environment.
Financial headroom. The greater the financial headroom, the greater the flexibility the enterprise will have to take advantage of market opportunities.
FCF. Free cash flow will also provide the enterprise with significant freedom to take advantage of immediate opportunities in the market.
Dividend policy. Effectively managing the investor base through a structured dividend policy will improve perceptions of the enterprise and improve financial headroom.
Z score (manufacturing only) or quick ratio. High rates of liquidity ensure that the enterprise will maintain operational flexibility.
Comprehensive planning and monitoring systems. Enterprises that plan better grow more quickly and are more profitable. Realistic planning and control systems (ideally bottom up) will greatly add to competitive advantage.
Corporate governance. Effective corporate governance systems have been shown to improve performance.
Bonus systems. A broadly based bonus system which focuses achievement on a wide range of key performance indicators (ideally the balanced scorecard) and is spread throughout the enterprise rather than a limited group will improve competitive advantage.
Health and safety. Poorly defined and controlled health and safety systems can lead to massive reductions in competitive advantage as management struggle to cope with the consequences of earlier mistakes.
Industrial relations. Poorly designed and managed industrial relations systems may cause continuous and long term reductions in productivity and reduction in stakeholder motivation.
Risk management advantage
Risk profile. The better the understanding of the risk profile facing the enterprise, the better the identification and management of risk which will inherently improve competitive advantage in the longer term.
Contingency planning. The enterprise that has established plans to deal with both opportunities and problems will be able to achieve higher rates of return than one that continues to react to each event.
750+ : Perfection – but remember that false pride (hubris) is normally followed by retribution (nemesis)
600- 750: Solid competitive advantage, but there is always fine tuning and improvement
400 – 600: Major competitive weaknesses, with the need to start a step by step programme to improve enterprise position
< 400: Can you really achieve competitive advantage in this market? Should you be concentrating elsewhere?
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