Competitive Strategic Advantage

MBA - III Semester (2009-10)

ASSIGNMENT ON

“COMPETITIVE/STRATEGIC ADVANTAGE PROFILE OF FIRM” SUBJECT: - “CORPORATE LEGAL FRAMEWORK” SUBMITTED TO MR. C. KUJUR (LECTURER)

SUBMITTED BY ABHAY SINGH SHUBHANGI SHYINDILYA SURENDRA KUMAR SAHU PRATIMA BANJARE SATYUSHA KANTA LAL

GURU GHASIDAS UNIVERSITY BILASPUR C.G

INDEX

INTRODUCTION

1

CONCEPT OF COMPETITIVE ADVANTAGE

2

DYNAMICS OF NATIONAL COMPETITIVE ADVANTAGE

3

TYPES OF COMPETITIVE ADVANTAGE

4

APPROACHES FOR COMPETITIVE ADVANTAGE

5

GENERIC COMPETITIVE STRATEGY

6

STRATEGIC INTENT

8

BENCHMARKING

10

SYNERGISTIC APPROACH

13

CRITICAL SUCCESS FACTORS APPROACH

16

COMPETITIVE ADVANTAGE PROFILE

19

COMPETITIVE ADVANTAGE PROFILE OF MARUTI UDYOG

19

CONCLUSION

20

INTRODUCTION A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Competitive advantage is, in very basic words, how a firm manages to keep making money and sustain its position against its competitors. According to Michael Porter in his theory of generic strategies, the three methods for creating a sustainable competitive advantage are through: 1. Cost leadership - Cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost; 2. Differentiation - Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they denote the firm's position in its industry as a leader in either superior services or cost; 3. Focus (economics) - A focused approach requires the firm to concentrate on a narrow, exclusive competitive segment (market niche), hoping to achieve a local rather than industry wide competitive advantage. There are cost focus seekers, who aim to obtain a local cost advantage over competition and differentiation focuser, who are looking for a local difference. Many forms of competitive advantage cannot be sustained indefinitely because the promise of economic rents invites competitors to duplicate the competitive advantage held by any one firm. A firm possesses a sustainable competitive advantage when its value-creating processes and position have not been able to be duplicated or imitated by other firms. Sustainable competitive advantage results, according to the resource-based view theory in the creation of above-normal (or supernormal) rents in the long run. Analysis of competitive advantage is the subject of numerous theories of strategy, including the five forces model pioneered by Michael Porter of the Harvard Business School. According to the Competitive Advantage model of Porter, a competitive strategy takes offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces and generate a superior Return on Investment. According to Michael Porter, the basis of aboveaverage performance within an industry is sustainable competitive advantage.

CONCEPT OF COMPETITIVE ADVANTAGE Competitive advantage, also known as strategic advantage, is essentially a position of superiority on the part of an organisation in relation to its competitors. This superiority exists because the organisation has developed some competencies which meet the environmental requirements in a better way as compared to its competitors. A more formal definition of competitive advantage is as follows: "Competitive advantage exists when there is a match between the distinctive competencies of a firm and the factors critical for success within its industry that permits the firm to outperform competitors." It concludes, then, that competitive advantage is externally focused while organisational competence is internally focused. Therefore, an organisation's competence does not automatically lead to competitive advantage. This phenomenon can be explained by two situations: 1. The core competence of the organisation may not be of any importance to the industry in which the organisation is operating. There are numerous examples of this phenomenon; organisations diversifying into non-core competence areas, failing therein and divesting such business. For example, L&T having core competence in engineering and cement, diversified in shipping (non-core competence area) sustained losses and divested it. Metal Box, having core competence in packaging materials, diversified into bearing and had to divest it, and so on. 2. Even if core competence has relevance in the industry segment, other competitors may have the same strength and the particular organization may not have any competitive advantage. What becomes, then, important for the organization is to have relatively greater strength in that important factor than its competitor, For example, two competitors may enjoy low manufacturing costs; but one with the lower manufacturing costs has a competitive advantage. In the present-day globalised economy, an organization’s competitive advantage should not be looked at merely in the context 'of internal competition but at the global level - because if an organisation has competitive advantage against domestic competitors, it cannot be put in safe territory as it has to generate that advantage against global players in the industry concerned. However, at the global level, the competitive advantage of an organisation is largely determined by the national competitive advantage. Therefore, before focusing on individual organisations' competitive advantage, let us have a brief look at the dynamics of national competitive advantage.

DYNAMICS OF NATIONAL COMPETITIVE ADVANTAGE Like each organization, each country is known in terms of its competitive advantage, for example, USA for computers, credit cards, and movies: .Japan for consumer electronics and automobiles; Germany for printing presses, chemicals, and luxury cars; Switzerland for pharmaceutical s and confectionaries; and India for software professionals. The question is ; what factors have contributed to generate advantage to these countries in specific areas? The answer of this question is important for the purpose of generating competitive advantage at the global level. Porter has categorized various national attributes in four groups that contribute to, or detract from, the creation of competitive advantage for the firms of that nation. These attributes form what is known as the national diamond. Factor Conditions The first basic attribute of national competitive advantage is in the form of various factors that provide base for undertaking various business activities. These resources can be grouped into five broad categories: human resources, knowledge resources, physical resources, capital resources, and infrastructure: Of special importance are resources that are created within a country, as distinguished from those that are inherited. If the resources are created, that shows the - creative power of the country. Competitive advantage accrues to country's industry if the mix of the factors available to the industry is such that it facilitates pursuit of .a. generic, strategy: low-cost production or the production of highly differentiated product or service. Demand Conditions The nature of demand conditions for an organisation's or industry's products and services in the country is important because it determines the rate bf and nature of improvement and innovation by the organisations. These factors either train organisations for world-class competition, or fail to adequately prepare them to compete in the global market place. Three characteristics of home demand are particularly important to competitive advantage: the composition of home demand, the size and pattern of growth of home demand, and the means by which a nation's home demand pulls the nation's products and services into foreign markets. The interplay of these demand conditions determines the competitive advantage. Of special importance are those demand conditions that lead to initial and continuing incentives to invest and innovate, and to continuing competition in increasingly sophisticated markets. Related and Supporting Industries Apart from the main industry in which context, competitive advantage is talked about, the conditions of related and supporting industries also determine industry's competitive advantage. However, in the long run, the relationship between main industry and related and supporting industries becomes reciprocal. For example, if the main industry is developed, the related industries will also develop with a time lag. In the same way, the related industries will provide support to the further development of the main industry. For example, when computer industry developed in the USA, it led to the development of computer software industry. However, development of software industry provided further impetus to computer industry in the form of increased sales of computers associated with software due to synergistic advantage, a phenomenon which will be discussed later in this chapter.

Firm Strategy, Structure and Rivalry Differences in strategy, structure, and rivalry create advantages or disadvantages to firms competing in different types of industries in a nation. The aggregate of these determines national competitive advantage. The way different firms shape their strategies— ranging from a broad outlook and long-term profitability to narrow range and short-term profitability—determines how the nation will be competitive. For example, US companies rank return on investment, share price increase, and market share in that order. As against this, Japanese companies rank market share, return on investment, and new product introduction in that order. This is the reason that Japanese companies have significant global market share as compared to their US counterparts. Further, Japanese companies introduce new products or their innovation more frequently. Besides strategy, organisation Structure of competing firms determines the process through which competitive advantage is generated. Structure dealing with such issues as who will make decisions, how decisions will be arrived at, how hierarchic will be arranged and so on determines firms' focus internally as well as externally. The last aspect in this group is nature of rivalry among competing firms. The degree of intensity of competition and the quality of competitors determine the" competitive advantage. If the degree of intensity of competitor is high, each competitor will try to put its best in the market place. This will also affect the quality of competitors. Apart from the above four groups of factors, the government is also considered as determinant of national competitive advantage. However, the role of government in determining national competitive advantage is indirect one. It is not a determinant but it has an important influence on various determinants, various governments’ policies affect the way the different determinants of competitive advantage will take shape. Various determinants of national competitive advantage act as interactive system in which each activity has impact on other activities and vice versa.

TYPES OF COMPETITIVE ADVANTAGE There are different types of competitive advantage based on the nature of industry and position of an organisation in that industry. Boston Consulting Group (BCG) has identified different types of competitive advantage based on the number of available competitive advantage and their size as shown

Volume Volume of competitive advantage exists when an organisation has very few advantages but these are quite large in volume. The nature of industry is such that

various organisations can adopt a particular approach for developing competitive advantage. The profitability is linked to the size of market share. An organisation can generate competitive advantage either on cost basis or differentiation basis and not on both. For example, in luxury car segnientrprociuct differentiation "in terms of style, comfort, design, etc. is used for generating competitive advantage and cost becomes secondaryn Rolls-Royce and Mercedes-Benz compete on this basis. Specialized Specialized competitive advantage exists when an organisation has the opportunity to adopt many approaches together to generate competitive advantage. Each of these approaches may have high payoff. For example, organisations manufacturing specialised machinery for selected market segment can combine both approaches-"low cost and product differentiation—to be competitive. Stalemated Stalemated competitive advantage exists when an organisation operates in an industry in which meaningful product differentiation is not possible and industry’s cost structure is quite rigld. For example, in the case of sugar industry, product differentiation does not exist. On the cost front, cost of sugarcane, the most significant part of total production cost, cannot be manoeuvred because price of sugarcane is fixed by government. Therefore, some insignificant competitive advantage can be generated by better management of finished-product inventory. In such an industry, profitability is not related to market share. Fragmented Fragmented competitive advantage exists when an organisation has many opportunities but each opportunity has limited payoff. For example, in restaurant business, each of the restaurants can differentiatejtself^in jnany ways but cannot have high market share. Both lar£e ancFsmall restaurants can be profitable or unprofitable, Milind Lele has observed that companies differ in -their potential manoeuvrability along five dimensions: traget market, product, place, promotion, and price. A company's freedom of manoeuvres is affected by the industry structure and the company's position in the industry. Those manoeuvres that promise the highest return define the company's strategic leverage.4

APPROACHES FOR COMPETITIVE ADVANTAGE There are many approaches which an organisation can adopt to generate competitive advantage against its competitors. These approaches are as follows: 1. Generic competitive strategy, 2. Strategic intent, 3. Benchmarking, 4. Synergistic approach, and 5. Critical success factors approach.

These approaches are not mutually exclusive or exist on either or basis but may be adopted in combination of two or more. For example, benchmarking can be combined with any of these approaches.

GENERIC COMPETITIVE STRATEGY A generic competitive strategy is a basic one which can be combined with other strategies. For example, overall cost leadership strategy may be followed for a single business, vertically integrated business, or diversified business. A generic competitive strategy is based on the principle that the achievement of competitive advantage is at the core of a superior marketing strategy. It considers two dimensions: competitive base and competitive scope. By combining both these dimensions, Porter has identified four competitive strategies Thus, there are following four generic competitive strategies: 1. 2. 3. 4.

Overall cost leadership, Cost focus, Differentiation, and Focused differentiation.

Overall Cost Leadership Overall cost leadership strategy is based on a company's position as the industry's least cost producer in broadly defined markets or a wide mix of products. There are two essential features of overall cost leadership: 1. The company pursuing overall cost leadership must aggressively pursue a position of cost leadership by constructing the rnost efficient Sc~ate" tacilities and must be godoTin engineering, manufacturing, and physical distribution. 2. The company has a large market share so that its per unit cost is the lowest. Overall cost leadership generates competitive advantage in the form of offering products to customers at lower prices which helps in achieving large market share. For example, Reliance Industries has created huge capacity in polyster, polymers, and fibre intermediaries and in all these segments, it is the lowest cost producer thereby capturing the largest market share. In fact, in the present competitive environment, most companies adopt cost as the basis of competition. Though many of them may be low cost producing companies, but everyone may not enjoy cost leadership. Those with the least cost enjoy cost leadership. For example, in detergent and toilet soap, Hindustan Lever and Nirma, both emphasize on low cost but Nirma enjoys the cost leadership position. While Nirma competes on price basis due to low cost, Hindustan Lever competes on product differentiation basis coupled with cost. A basic question in adopting overall cost leadership strategy without some kind of differentiation is: is it a sustainable source of competitive advantage? It can be sustained only if barriers exist that prevents competitors from achieving the same low cost. However, in an era of technological development, manufacturers constantly leapfrog over one other in pursuit of lower cost. With decreasing national and international barriers to entry, sustaining overall cost leadership strategy requires continuous efforts for being cost effective. Cost focus

In the cost focus strategy, an organisation focuses on a narrow segment of the market and offers product at lower price than its competitors on the basis of its low cost. According to Porter, those companies pursuing the same strategy directed to the same target market constitute a strategic group. The company which has clear strategy on cost dimension performs better than others. For example, Hero Cycles concentrates on functionally useful bicycles and offers these at the lowest price because of being least-cost producer and is more successful than other competitors Differentiation Apart from cost, generic strategies may be developed on the basis of differentiation. Kotler has defined differentiation as "the act of designing a set of meaningful differences to distinguish the company's offerings from competitors' offerings."7 Thus, the product offered by a company is perceived by customers as being different from other companies offering the similar product. The product, being perceived as distinct, may attract higher price which results into higher profitability. For example, shaving blades offered by Gillette India Limited command much higher prices as compared to its competitors' blades. In differentiation, perception of customers about a product being unique is important and not the officer’s perception. A product can be differentiated on several bases: product characteristics— form, features, performance quality, conformance quality, durability, reliability, reparability, style, design; services—ordering ease, delivery, installation, customer training, customer consulting, maintenance and repair, etc.; personnel—competence, courtesy, credibility, reliability, responsiveness and communication; channel—coverage, expertise, and performance; image—symbols, media, atmosphere, and events.8 Since there are serveral bases of differentiation, the question arises; which differences should be pronounced? The answer lies in the competitors' analysis which will reveal their competitive differentiation. A company can differentiate those areas which are weak points of the competitors, particularly the nearest one or the areas which have been left by them. Differentiation strategy is comparatively more sustainable as compared to overall cost leadership. However, it requires constant analysis of competitors and their likely moves for differentiation. Focused Differentiation While differentiation of general nature has width, focused differentiation is undertaken to achieve advantage in a narrowly defined market/customer segment. This strategy generates advantage based on the ability to create more customer value for a narrowly tareeted segment and results from a better understanding of customer neea^. For example, various types of hotels adopt focused differentiation strategies as each class of hotels has different customer segments. Further, depending on the class of hotels, each of them emphasizes on some specific but few bases of differentiation. Unlike toothpaste market or other personal products, customer segmentation for hotel industry is narrowly focused.

STRATEGIC INTENT An alternative framework for generating and sustaining competitive advantage is to focus on competitiveness as a function of the pace at which., a company implants a new advantage deep within itself. This framework is based on

strategic intenTwhich implies ambition and bsession for winning. This approach of winning is used as a tool for generating competitive advantage. Hamel and Prahalad who have emphasised on strategic intent as a means of competitive advantage view that competitive battles are shaped by more than pursuit of generic strategies. They have given the examples of various companies showing how these companies have gained advantage by disadvantaging their competitors through competitive innovation which is "the art of containing competitive risks within manageble proportions."9 They assert that "few competitive advantages are long lasting. Keeping score of existing advantages is not the same as building new advantages. The essence of strategy lies in creating tomorrow's competitive advantages faster than competitors mimic the ones you possess today. An organisation's capacity to improve existing skills and learn new ones is the most defensible competitive advantage of all."10 Hamel and Prahalad have identified four approaches for generating competitive advantage based on strategic intent. These are as follows: 1. Building layers of advantage,

.

2. Searching for loose bricks, 3. Changing the rules of engagement, and 4. Collaborating. Layers of Advantage Building layers of advantage involves generating layers of advantage on top of another advantage. Through this process, a company has" a wide portfolio of advantages. This is essentially based on moving up in value chain (concept discussed in the previous chapter). This can be done through moving to upward value chain or downward value chain. In upward value chain, either additional features are added to the existing product or additional product having some complementarily with existing product is added. For example, a TV tube manufacturer, presently competing on price basis for a given quality, can add the features of reliability and further quality improvement. Further, if the company is engaged in the business of black and white pictun ibe, it can add colour picture tube in its portfolio. In downward value chain, a company adds the advantage by taking some activities which are directly related to and support the existing product. For example, in the case of TV picture tube, moving to downward value chain may involve manufacturing of glass shells which are critical components for a TV picture tube. In both these cases, layers of advantage have been added. Thus, the company becomes more competitive as compared to its competitors who do not have the advantage of building layers. For example, Nirma Limited which operates in low-cost synthetic detergents saw the danger from numerous small-scale producers (Nirma also graduated from small scale) who were having the same strategy, went for backward integration by undertaking manufacturing of linear alkyl benzen (LAB) and soda ash, two principal raw materials for detergents, to offset the likely cost advantages to these producers. Loose Bricks Loose bricks concept is based on the maxim that 'if a wall has loose bricks, it can be broken easily.' In the context of strategic intent, it refers to creating advantage in those areas which have been let loose by the existing competitors, that is, the areas uncovered by them. Generally, this happens when the industry is in evolutionary phase. For example, when the concept of synthetic detergent was

introduced in India, most of the players in the industry led by Hindustan Lever concentrated on top-end of the market leaving large majority of the population. These conpetitors developed market for detergent. Nirma introduced the concept of low-cost detergent. In order to reduce its cost and, consequently price, it used lowcost polyethylene packaging materials instead of aesthetic but costly paper packaging materials. At the initial stage, Nirma's product was not bracketed in detergent category and the existing competitors did not pay any attention to this. Gradually, it started eating the market share of major competitors including Hindustan Lever. By the time Hindustan Lever became offensive, it was too late and Nirma even established itself in top-end market enjoying number two position with very low gap to the market leader—Hindustan Lever. Changing the Rules of Engagement Every industry has certain critical success factors (CSFs), discussed later in this chapter, which are observed by almost all existing competitors in the industry. For a brief, a critical success factor is a condition in an industry which must be adequately satisfied for success. These CSFs, however, are dynamic and change over the time. Thus, a new CSF may be created which may generate advantage to the company which has introduced it. For example, when Reliance entered premium textile fabrics, there was lot of resistance from the then existing channel intermediaries which was in the form of producer-wholesalers-retailers-customers. Instead of going through this long channel, Reliance shortened the channel in the form of producer-retailers-customers. Further, branding and advertising were not popular concepts in textile business. Reliance initiated both by branding its textile product of all categories—suiting, shirting, saree, and dress material—in highly positioned Vimal brand. In order to promote Vimal, the company took massive advertising. All these created advantage to Reliance which other competitors could not do. Collaborating Collaborating, as a source of competitive advantage, is based on the maxim that ‘if you can’t compete on your own, collaborates with others.' In the context of strategic intent, it refers to entering into collaboration with another which nas competence in areas that can be used as a source of competitive advantage. Hamel and Prahalad have extended their study on strategic intent further to include more approaches through which competitive advantage can be developed. They have identified four broad categories of resource leverage that managers can use to achieve their aspirations. These are: 1. Concentrating resources on strategic goals via convergence and focus; 2. Accumulating resources via extracting and borrowing: 3. Contemplating one resource with another by blending and balancing: and 4. Conserving resources by recycling, coopting, and shielding.11

BENCHMARKING Benchmarking is another tool which can be used to generate competitive advantage. It is a process of identifying in a systematic way superior products, services, processes, and practices that can be adopted in an organisation to reduce costs, decrease operations cycle time, and provide greater customer satisfaction. The concept of benchmarking has been derived from land surveying in which it indicates a reference point called benchmark which is established as a

base for surveys. Webster Dictionary defines benchmark as "a survey's mark; previously determined position used as a reference point; standard by which something can be measured and judged." Sarah Cook has defined benchmarking as follows: "Benchmarking is a process of identifying, understanding, and adapting outstanding practices from within the same organisation or from other businesses to help improve performance."12 Based on the above description, various features of benchmarking can be identified which are as follows: 1. Benchmarking is based on the theme "see what others do and try to improve upon that." Therefore, this implies some kind of measurement which can be accomplished in two forms: internal and external. Both internal and external practices are compared and a statement of significant differences is prepared to identify the gap which should be filled. 2. Benchmarking can be applied to all facets of a business; it includes products, services, processes, and methods. It goes beyond the traditional competitor analysis in the form of identifying strengths and weaknesses and includes clear understanding of how the best practices are used. 3. Benchmarking is not aimed solely at direct product competitors but those organisations and businesses that are recognized as best or industry leaders. 4. Benchmarking is a continuous process and not just one-shot action. It is continuous because industry practices constantly change and a continuous monitoring of these practices is required to bring suitable change in the organisation. Types of Benchmarking There are different types of benchmarking. Since benchmarking is an evolutionary process in an organisation, its application varies over the period of time resulting into different types of benchmarking At each subsequent stage, the complexity and sophistication increase because emulation of practices becomes gradually more difficult. For example, emulation of product features of a company is much easier as compared to its competitive practices. The first generation of benchmarking is related to product analysis which reveals what product features are valued by the customers most. At the second level comes competitive benchmarking in which the performance of a company is compared with either close competitor or industry leader depending on the competitive position of the company in industry. At the third level, process benchmarking is undertaken to make a comparative analysis of various processes in relation to the companies chosen for benchmarking. Strategic benchmarking involves a number of factors beyond processes which are taken for analysis. Process of Benchmarking Benchmarking is a process which involves a series of steps with each step consisting of several activities. Figure 9.5 presents benchmarking process as developed by Robert Camp. Planning:

The first step in benchmarking is its planning which involves the determination of three elements: what is to be benchmarked? to whom will be compared? and how will data be collected? Determination of content of benchmarking comes first and a careful analysis of what is to be compared should be made. It may be noted that everything can be benchmarked but that requires comparable cost. In terms of production and marketing functions, generally, the factors included are: manufacturing process, inventory control, warehousing and delivery services, quality systems, product development process, marketing techniques, understanding of customer needs, and so on. The second issue in planning for benchmarking is the determination of whom to compare. There may be several companies both within an industry and outside it which can be selected depending on the jsize and capability of the organisation undertaking benchmarking. The third issue in planning for benchmarking is the determination of who will collect data and how these will be collected; is it through company's own team or consultants? Data can be collected through various sources—primary data through opinion .surveys, examination and dismantling, trial purchasing, customers and suppliers of benchmarked company, or even through direct contact with the company concerned; secondary data through various publications. Analysis: After collection of data, an analysis is made to determine current performance gap and projected future performance level. Present performance gap indicates the difference between disired state of affairs and actual state of affairs. This gap provides the present status. However, since processes go on changing, future projected performance level should also be measured. In order to the take the latter, benchmarking has to be taken on continuous basis, so that performance is constantly recalibrated to ensure superiority. Integration: Integration is the process of using benchmarking findings to set operational targets for change involves careful planning to incorporate new practices and implementing those practices. However, incorporating required changes is not easy task to implement because there are chances that new moves will be resisted specially when there is a departure between current and new practices and the organisation is not innovative one. Therefore, whole change programme must be communicated, rationality for change explained, and commitment of people for change obtained. After this process is over, the benchmarked practices should be introduced within the time frame scheduled for the purpose. Action: Action step of benchmarking involves implementation of a specific action and monitoring its results followed by recalibration of benchmarks. Implementation of an action required under benchmarking may not produce the intended result immediately because of learning period required for a new method. Therefore, result evaluation should be performed on continuous basis. When an action is completed and produces intended result, recalibration of benchmarks is required which involves the updating of performance in the light of new data. Maturity:

Maturity would be reached when desired best practices are incorporated in all business processes and, thus, superiority is ensured. Impact of benchmarking should be evaluated in terms of final objective achievement such as cost reduction, customer satisfaction, etc. However, these are relative measurements and there is a need for continuous improvement in the light of relevant environmental changes. Competitive Advantage through Benchmarking The above discussion shows that benchmarking is a good tool for generating superior performance in an organisation. However, for generating competitive advantage, the organisation has to define the factors on the basis of which it competes in the market place because it is not possible for an organisation to excel in all areas and all geographical locations because of resource constraints, both physical and human. Therefore, it has to define its competitive postures in terms of product features, customer segment, and technology used—the three elements of a business definition These three elements taken together will specify where benchmark is required. However, benchmarking as a means for competitive advantage has its own limitations. Some of the more common limitations are as follows: 1. Organisations differ in terms of their culture and values around which all organisational processes revolve. Therefore, a particular process may work well in an organisation but may not be suitable for another organisation. If a benchmarked process is adopted in the latter organisation, it is likely to create more chaos rather than efficiency. However, this limitation can be overcome, to some extent, by making benchmarking as a gradual process in which the organisation learns to adapt. 2. There are some operational problems in implementing benchmarked practices in the form of lack of focus, lack of leadership, lack of perseverance, etc., though these operational problems can be taken care off. 3. A more serious and inherent limitation of benchmarking is that a benchmarking organisation will always remain follower of benchmarked organisation. With geographical * barriers operating, benchmarking organisation may become leader in a limited area if it had adopted global benchmarking. But in the present era of globalization of business, geographical barriers are losing their relevance. Where fierce battle is on for capturing global market share, an organisation looking for global competitive advantage cannot achieve its objectives unless it improves upon benchmarked practices. This is the concept of present-day strategy. Winners do the same thing differently or do different things.

SYNERGISTIC APPROACH Synergistic approach can be used as a means for generating competitive advantage to an organisation if the managers are sufficiently aware about how synergistic effect is developed. Concept of synergy and its effect has been derived from systems appro^h which deals with the phenomenon of putting various elements of a system in such a way that each element contributes positively to other elements. The net result is that the sum total of combined contribution is greater than what the individual elements could have contributed independently. Ansoff has made invaluable contribution by demonstrating how a company can

generate competitive advantage by creating synergistic effect.14 Synergy ^an be defined as follows: Synergy is the process of putting two or more elements together to achieve a sum total greater than the sum total of individual elements separately. This effect is described as 2 + 2 = 5 effect. Synergistic effect does not generate automatically by putting different elements together but depends on the complementarity of these elements. Thus, synergistic effect in the process of strategy formulation refers to the degree of complementarity between present skills and resources and the future skills and resources- which would be required for a strategy. The higher the degree of complementarity that exists between the present strategic posture and the contemplated posture, the greater is the opportunity for realising positive synergy. A simple example of synergistic effect may be of opening of a restaurant by motel owner in side-by area. In this case, the joint income of motel and restaurant may be much more than what they can earn individually if located at different places. Areas of Synergistic Effect There may be many possible areas of synergistic effect of an organisation depending on its strengths and weaknesses. Since the synergy depends on the complementarily of present and future strategic postures, this can best be understood by analyzing an organisation's strengths and taking suitable strategic actions in order to effect the result of the strengths. For this purpose, different types of synergistic effects in various functional areas of operations may be analyzed. 1. Production Synergy Production synergy can be achieved if the present production facilities, processes, and skills can be used to produce the contemplated products. In this situation, some existing excess capacity can obviously result in decreased unit production costs because factory overhead will be spread over a larger volume. Moreover, the quality and efficiency will not be hampered as the existing work-force is capable of handling new product because of transferability of skills from the existing product to new one. The production synergy may best be achieved by merging the firms manufacturing same or substantially similar products. For example, many textile units have merged other textile units in order to take advantages of production synergy. The merger of Sidhpur Textiles with Reliance Textiles is a case in this context. In the case of internal growth, production synergy will occur to the extent the new products developed are compatible with existing skills and resources. For example, production synergy can best be identified in the cere of Associated Cement Company which operates many cement plants in the country using similar technology which provides the company greater flexibility in using its present capabilities. On the other hand, there is little chance for production synergy, if the .organisation takes over dissimilar product because the present production strength does not contribute in any way in the future product. For example, taking up of production of bearings by Metal Box which was primarily known as metal packaging manufacturer could not generate any synergistic effect. The result is that the company has lost substantial amount in its bearing division. Thus, it can be emphasised that production synergy can occur only when some 'common thread' between two operations can be found regardless of the degree of market congruence in so far as end uses of products are concerned. For example, this is

reflected in the product range of an electronic manufacturing unit which produces electronic goods for entertainment as well as for commerical purpose. Though in botli these cases the end users are quite different and incomplementary, the company enjoys the common threads of production facilities. 2. Marketing Synergy Marketing synergy refers to the situation when the organisation can take the advantages of its present marketing facilities— sales force, distribution channel, physical'facilities, promotional techniques —for the ensuing product though the product may be substantially different from the present one. For example, a soap manufacturer may take the marketing of hair oil. In this case, the company can take the advantages of its present marketing facilities because, in both the cases, the same type of marketing facilities will be required although there is no production synergy if the production of hair oil is taken up because of the difference in production process and consequently the requirement of different production facilities. Thus, in this case, there is marketing synergy because of the overlap in marketing efforts but the same overlap is not available so far as production is concerned. In order to take the advantages of marketing synergy, Colgate Palmolive India Limited decided to enter the new field of toilet soap though it is better known for toothpaste, toothbrush, shaving cream, and shampoo. Since the company can utilise its present marketing facilities for soaps, it can take the advantage of its marketing, synergy. 3. Research and Development Synergy The research and\ development synergy will be achieved if the company's technologies supporting the development of both the present and the contemplated product lines are substantially similar. The potential in this area usually emanates either from similar research skills or from similar functional characteristics of the products. For example, the research and development at Hindustan Lever Limited offers unique synergy because it contributes to the development of chemical products of different types for different end users. It has discovered the raw materials from minor seed oils for synthetic detergent which is claimed to be much cheaper and effective than the present raw material linear alkyl benzene (LAB). In its research and development efforts, the company has undertaken simultaneous functions of developing hea\y chemicals also which has enabled the company to enter in this field too. Since the basic research and development facilities are common for bo minor seed oils and heavy chemicals, the company enjoys the research and development synergy. 4. Financial Synergy The financial synergy is virtually unrelated to the degree of similarity between the present and the contemplated strategic postures because the skills and techniques of financial management have a high degree of transferability across both industry and organisational lines. The possible synergy which lies in this area is the extent to which the organisation can raise the funds for investment througn larger capital base, increased borrowing power, and greater earning through the spreading of administration overheads over a larger volume of operations. In fact, this synergy has been used by several companies to take over other companies or diversify in those areas which were unknown to them. However, the success of such strategy may be doubtful if other considerations are not taken into account.

5. General Management Synergy General management synergy occurs when the skills, experience, and knowledge of managers are transferable from the present strategy to the contemplated one. The transferability of these elements of management depends on how these elements are acquired. Basically knowledge requirements for managers are twofold: (i) general knowledge of the processes and techniques of management which can be learned through management education; and (ii) technical knowledge about the specific industry or organisation which can be learned through experience in a particular industry or organisation. The first category of knowledge is easily transferable to all types of organisations and industries as these are methodological. The second type of knowledge, however, is not as freely transferable because it requires certain learning period on the part of the managers, Thus, while moving from one organisation to another or from one industry to another, managers have to devote time for learning the requirements of those which may be different from what they must have learned previously. Thus, if the movement is from one organisation to another which is similar, the knowledge can be transferred easily. However, if the movement is from one industry to another, the transferability is limited in that it requires more time in understanding the requirements of the new industry. Thus, further away a manager moves in terms of organisation and industry characteristics, the longer is the learning period and lower is the synergy. This aspect is very important for achieving growth through

CRITICAL SUCCESS FACTORS APPROACH In order to understand how critical success factors (CSFs) approach is applied to generate competitive advantage and the concept of CSFs, let us take few examples. A good academician can be successful in teaching and research and not necessarily, he succeeds as a business man. A player having high competence in a particular game, say lawn tennis, and is successful is unlikely to succeed in cricket. Even in the same game, a player cannot succeed in all positions, for example, a good wicket keeper cannot be a good bowler too. The question is: why does this happen? The answer is: each activity has unique requirement, and a single person cannot meet the requirement of all activities. He can be successful only in that for which he has competence to meet its requirement. {Success is defined in terms of objective achievement.) This social

phenomenon can be replicated in business situation where the question may be asked: why does a successful business organisation in one industry fails in another industry? Concept of Critical Success factors Critical success factors, also referred to as strategic factors or key factors for success, are those characteristics, conditions, or variables which when maintained and sustained can have significant impact on the success of an organisation competing in a particular industry. A CSF may be a characteristic such as product features, a condition such as high capital investment, or any other variable. A basic nature of CSFs is that they differ from industry to industry: consumer goods versus industrial goods, "Key success factors (CSFs) in an industry and business need to be identified to inject a concentration of resources into a particular area where the company sees an opportunity to gain significant strategic advantage (competitive advantage) over its competitors."15 Identifying Industry CSFs In order to generate competitive advantage along CSFs, it is necessary to identify these. Based on a study related to identifying strategic factors which are important to different businesses, Steiner views that "there are indeed strategic factors needed for a business and they can be identified."16 However, the question is : if CSFs differ from industry to industry, how can these be identified? In order to find out the answer of this question, managers can put another question: what do we need to do in order to be successful in a particular business? It is just like an individual putting a question: what does he/she need to do to be successful in studies, in career, etc. However, the answer of the question 'what needs to be done for success in a business' is not as simple as it prima facies appears. Therefore, managers need to generate as much information as possible by going through following ways: 1. CSFs can be identified based on logic, heuristics, or even a rule of thumb rather than through any theoretical model these are based on long year s of managerial experience which leads to the development of intuition, judgment, and hunch. 2. CSFs can also be identified internally in the organisation by using creative techniques like brainstorming. 3. CSFs can be deduced Trom other companies' statements, expert opinions, organisational success stones etc. Organizational Critical Success Factors The above discussion of CSFs is externally focused in the sense that it concentrates on what an organisation should do to be successful in a partioular industry. Researchers, both academicians and consultants have made attempt to find out the answer of the question: what are the characteristics of an organisation which make it successful in different industries or meeting the requirements of CSFs of these industries? Though the answer of this question is not precise because of interplay of different variables in determining success of an organisation, some clues can be derived from various prescriptions and research studies.

Various components of McKinsey 7-S framework are as follows: Strategy—a means to achieve objectives Structure—basic framework to designate responsibilities and functions Systems—management tools communication, and control.

for

planning,

decision

making,

Staffs—human resources of the organisation. Skills—organisational and individual capabilities. Style—how managers lead and motivate! Shared values—organisational values which govern behaviour of its members. Based the McKinsey 7-S framework, Peter and Waterman have identified eight characteristics of successful companies (called as excellent companies): 1. Bias for action, 2. Close to customers, 3. Autonomy and entrepreneurship, 4. Productivity through people, 5. Hands-on, value driven, 6. Stick to knitting, 7. Simple form, lean staff, and 8. Simultaneous loose-tight control. However, these characteristics should not be taken on static basis for generating competitive advantage. For example some of the companies such as Delta Airlines, Digital Equipment, IBM, included in the list of excellent companies started showing declining performance soon after the publication of the book.

COMPETITIVE ADVANTAGE PROFILE An organisation should prepare its competitive advantage profile (CAP), also known as strategic advantage profile (SAP) though the CAP is more commonly used in strategic management. CAP describes the organisation's competitive position in the market place. A comparison of CAP and OCP (organisational capability profile) as discussed in Chapter 8 shows that OCP indicates what the organisation can do based on its capabilities; CAP indicates what the organisation has done or is doing in comparison to its competitors to generate competitive advantage for itself. Thus, OCP is, basically, internal-oriented while CAP has external orientation. In preparing CAP, three factors are important. 1. The organisation should identify the factors which are relevant for determining success in the industry concerned. 2. At the next level, the organisation should measure its performance on these factors in comparison to its competiticrs. Based on the comparison, the organisation can firnd out whether it has advantage or disadvantage in terms of

various factors. An advantage is the situation which helps the organisation to do better than its competitors. A disadvantage is the situation which affects the competitive position of the organisation adversely. Further, advantages/disadvantages should be measured in terms of degree because all advantages/disadvantages may not be equal. 3. After identifying advantages, the next step is to measure their sustainability because any advantage may turn into disadvantage due to change in environmental factors. For example, many companies had competitive advantage in pre-liberalised era which turned into disadvantage because of entry of new competitors in post-liberalized era. In preparing CAP, either descriptive form can be used or matrix form can be adopted to focus more clearly the areas of advantage and their sustainability.

COMPETITIVE ADVANTAGE PROFILE OF MARUTI UDYOG Competitive advantage profile of Maruti Udyog Limited is presented to show how competitive advantage of a company can be identified. Though there are several companies which have generated competitive advantage and maintained it, the case of Maruti Udyog has been chosen because of two reasons. First, it entered the passenger car market in an era when entry barriers w rere created by the government in the form of licensing. Maruti created several ac ntages in preliberalised era. Second, car industry has attracted the maximum number of foreign players and as a result, almost every car manufacturer of the world level has entered India but Maruti has continued to sustain many of its advantages. Maruti Udyog is a 50:50 joint venture between Suzuki Motor Corporation (SMC) of Japan and Government of India (GOI); GOI has decided to reduce its stake to 25 per cent diluting the remaining 25 per cent in favour of Indian financial institutions after capital restructuring. Maruti started its operation by rolling its Maruti 800 cars in 1983. Afterwards, many more models in different segments have been added. At the time of its entry, there were two other car manufacturers— Premier Automobiles and Hindustan Motors. After liberalisation, a number of foreign players entered Indian car industry covering entire range. Prominent among them are General moters, Ford, Honda, Fiat, Daewoo, Hyundai, Peugeot, Fiat. Mercedez-Benz, and BMW. Besides, TELCO has also entered car segment with its Indica. In the light of this background, Maruti's competitive advantages/disadvantages and their sustainability are presented below: l. Maruti has the highest range of cars: Maruti 800—small-budget car, Omni —van segment, Gypsy—all-terrain vehicle segment, Zen—compact, car, Maruti 1000—semi-luxury car, Esteem—semi-luxury car, Wagon R and Baleno—luxury car. Thus, Maruti offers cars for all segments—those who are the first-time users as well as those who are moving up in value chain. However, in upper value chain, many competitors are offering cars perceived to be better than Maruti's. 2. Maruti has about 60 per cent market share in car industry with an annual industry turnover of about 7 lacs cars per annum (2000-01). This level of market share is unlikely to be sustained because Maruti faces aggressive competition from new entrants—in lower segment from TELCO and Hyundai and in upper segment from Ford and General Motors. 3. Maruti enjoys cost leadership because of two reasons. First, its plant was commissioned much earlier resulting into lower fixed cost in terms of

investment outlay as well as depreciation cost per annum. Second, having set up manufacturing facilities for 5 lacs cars, its operating cost per car is the lowest. Unless competitors bring some more efficient systems, Maruti will continue to enjoy cost leadership. 4. Being the largest manufacturer, Maruti has developed a wide network of dealers numbering about 300 covering the entire country. Other competitors will take lot of time to develop such a network. 5. Maruti provides efficient after sales service with about 1700 workshops covering^ 700 cities. Out of these, 300 workshops are attached to dealer outlets while the rest are Maruti-authorised service stations. The after sales service of this type has put Maruti in much advantageous position. 6. For customer service, Maruti has provided financing service in two forms. First, it is co-promoter of Citicorp Maruti Finance and Maruti Countrywide Ventures with equity participation of 26 per cent. Both these firms offer finance facilities to Maruti car buyers on attractive terms. Second, the company has introduced the concept of integrated service with the help of financial institutions which includes auto finance, car insurance, corporate lease, and fleet management. Though both ideas are good, these can easily be emulated by competitors and the advantage will not be significant.

CONCLUSION A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Competitive advantage, also known as strategic advantage, is essentially a position of superiority on the part of an organization in relation to its competitors. We have seen how organizational analysis leads to identify core and distinctive competencies. However, these competencies are of no use unless these are related to generate competitive advantage in the market place.

Competitive advantage exists when there is a match between the distinctive competencies of a firm and the factors critical for success within its industry that permits the firm to outperform competitors. An organization should prepare its competitive advantage profile (CAP), also known as strategic advantage profile (SAP) though the CAP is more commonly used in strategic management. CAP describes the organization’s competitive position in the market place. A comparison of CAP and OCP (organizational capability profile) as discussed in Chapter 8 shows that OCP indicates what the organization can do based on its capabilities; CAP indicates what the organization has done or is doing in comparison to its competitors to generate competitive advantage for itself.