Chapter 3 competitive advantage the value chain and your p&l
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Transcript of Chapter 3 competitive advantage the value chain and your p&l
Chapter 3!COMPETITIVE ADVANTAGE : !THE VALUE CHAIN AND YOUR P&L
Operate at lower relative cost
Competitive Advantage
Commanded premium relative price
Competitive Advantage
Pharmacia & UpjohnAverage in industry
NucorAverage in Industry
• Porter’s framework • Five forces • Value chain
• The analysis focuses on • Drivers of industry profitability • Differences in activities
• The analysis explains • Industry average price and cost • Relative price and cost
INDUSTRY STRUCTURE RELATIVE POSITION
Why are some companies more profitable than others?
RELATIVE PRICE
Offer unique & Valuable to customers
Create more buyer value raise “WTP”
RELATIVE COST
Resulting from operating cost or capital cost or both
Cost come from create, produce, deliver, sell and support product/service
The Value Chain
• The sequence of activities that firm perform to design, produce, sell and support product/ service !
• Each of activities can contribute to a firm relative cost and relative price
Key Step In Value Chain Analysis
1.Start by laying out the industry value chain.
R&D Supply chain management Operation Marketing &
salesPost-sales
service
Key Step In Value Chain Analysis
2.Compare firm value chain to the industry.
Chair design DistributionOperation Provision/
fittingAfter-sales
repairsDonated wheelchairs : A value chain example
Key Step In Value Chain Analysis
3.Zero in on price drivers, those activities that have a high current.
4.Zero in on cost drivers, paying special attention to activities that represent a large or growing percentage of cost
Competitive advantage arises from the activities in a company’s value chain
• Activities • Perform SAME activities as rivals, execute better • Perform DIFFERENT activities from rivals
• Value created • Meet same needs at lower cost• Meet DIFFERENT needs and/or same
needs at lower cost
• advantage • Cost advantage, but hard to sustain • Sustain higher prices and/or lower costs
• competition • Be the BEST, compete on EXECUTE • Be UNIQUE, compete on STRATEGY
Thank you