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