Competitive Advantage

• Difference in performance between firms, relative to the industry average
• Measured on a business unit (not firm or conglomerate) level
• Cause or related to Differentiation of product and services allowing it to increase customers Willingness to Pay (WTP)
• Ultimately, affected by higher relative profits
  • Relative Profits (or performance) = Relative Price - Relative Cost
• Thus, increased Competitive Advantage by
  • Increase Relative Price (Eg. product diff, more value creation)
  • Decrease Relative Cost (Eg. Econs of scale, vertical integration)
• About creating superior value and sustainable profits. Eg. ROIC

Value System

• Entire set of activities (and value chains) regardless of who performs them
• Is a superset of value chain (Value System > Value Chain(s))

Value Chain

• Sequence of activities company performs to design, produce, sell, deliver and support its products

Value Chain Analysis

1. Lay out industry value chain
   • Eg. R&D > Supply Chain M'gmt > Ops > Marketing > Post-sales service
2. Compare your value chain to industry's
3. Zero in on price drivers