Strategy For Building Sustainable Competitive Advantage In Single / Dominant Product

SESSION VII Strategy for Building Sustainable Competitive Advantage in Single / Dominant Product Business becomes successful when it possesses some advantage relative to its competition Three most important comparative advantages are •Cost advantage ( cost leadership) •Ability to differentiate its products from those of competition ( USP’s) •Speed of decision making / rapid response to business needs •Business which offer all the three advantages, usually have the highest profitability, in most practical business situations, two favorable factors keep the business in good health, whereas presence of only one factor makes it vulnerable to uncertainties Competitive Advantage via Cost Leadership This is achieved by critically examining various key activities in the value chain of business mainly procuring raw material, processing then into products, marketing & promotion, distribution, supporting activities & achieving cost effectiveness better than the competitors, by bench marking against the best in the industry & working out a road map of achieving relative advantages in areas of core strength.examples are Deccan & Spice Airlines creating a revolution in the air travel industry, Big Bazaar of Sahara Mall offering household items of good quality at most competitive prices. Tata diesel cars gaining market share much faster than other competitors in other industry. Bajaj scooter maintaining leadership in scooter industry in the last 50 yrs. Hero Honda maintaining leadership in Motor bike industry 1

Factors Contributing to Competitive advantage thru’ Cost Leadership •Technical Development – continuous process improvement / innovation to reduce production cost, product redesign with lower cost, mass production & mass marketing (like in China ). •HRM –highly motivated manpower ( like Japan), compensation system ( like USA ), higher productivity, efficiency ( like Germany ) •General Administration – reduced level of Management, lower overheads, higher efficiency, computerized / integrated MIS to reduce administrative cost. Japanese use 3 to 4 levels of Management as against 8 to 10 levels in India in Engg industry which improves efficiency & cuts down costs •Procurement – Captive vendors with lifelong relationship to achieve optimum quality / reliability & efficient practice of JIT to achieve substantial cost reduction – example manufacturing of Honda cars in India & elsewhere in the world •Inbound Logistic - Online supply system with domestic & global suppliers to work on efficient & cost effective •Operations – economy of scale as per market needs, TQM & 6 Sigma quality standards to minimise cost of rejections •Outbound logistics - online distribution / inventory control system as per market needs •Marketing & Sales – 360 degrees services to customers •Service – efficient & low cost service system backed by customer satisfaction surveys 2

Competitive Advantage via Differentiation Opportunities Differentiation means to provide a product / service of higher perceived value to buyer at a cost which appears below value premium. In other words it gives a feeling to buyer that additional cost paid by him is well below compared to other alternatives, competitors examples are Mercedes car, Parker pen, Rolex Swiss watch, Tata diesel car. Factors contributing to competitive advantage via differentiation •Technology development – cutting edge of technology / product features to maintain distinct advantage of high quality / lifelong service / comfort & social status •HRM – all around culture of productivity , efficiency & smart service. Innovative sales & marketing policies like Maruti’s marketing policy of giving customer enormous choice of products at affordable price, with ready availability of related services like finance, Insurance, Warranty, Extended Warranty, Service & Spare, Sale/Purchase of used car & loyalty incentives •General Administration – online system, totally integrated & computerized, dealing with sales, distribution, inventory control, procurement, bill payments, sales proceeds, planning & scheduling at all stages of supply chain. •Procurement – classic example is of Maruti which achieved more than 30% reduction in cost thru’ rationalization of vendors, value analysis, value engg, process & product rationalization. •Inbound logistics- outsourcing of components into subassemblies, productivity, efficiency & quality improvement thru’ intensive rationalization, introduction of TQM / KAIZEN / 6 SIGMA concepts. Maruti’s output per man went up by 300% in 4 yrs. 3

•Operations – bench marking against best standards achieved globally to attain standards of quality, productivity & efficiency with thrust on continuous improvement •Outbound Logistics – JIT in purchase, production & sales. Maruti brought down total inventory levels from 120 days stock to about 30 days stock achieving a cost reduction of more than Rs 200 crores PA. •Marketing & Sales - in case of Maruti to meet the global competition in less than 3 yrs time they developed 80 varieties of models / variants in 4 basic frames, a remarkable achievement which helped them to regain not only in sales & profitability & a market share of above 50% •Service – again a market survey around 2000 – 01 showed Maruti’s poor perception of market backup including poor quality & high cost of spares. Maruti revamped total service system by creating 3 tier service agencies – franchises, co operated & master service center, they also set up true value / second hand sales & service centers to encourage low budget customers to buy second hand Maruti cars with co warranty, an innovative concept which nobody else is doing. COMPETITIVE ADVANTAGE THRU’ SPEED IN DECISION MAKING / RAPID RESPONSE TO CUSTOMERS •With spread of telecomm services, speed, rapid response to customers / market / technical changes has become major competitive advantage in todays highly competitive global economy •Speed involves quick response to customer needs ( Cisco’s 72 hrs supply system from Singapore / Malaysia warehouse) faster development of new product ( Nokia produces new models / features of mobile telephones every few hours), average life cycle of a expensive

Fast production cycle ( Honda City car in India can switch over from one model to another in less than 7 days ) Managers of tomorrow would need speed based competitive advantage to meet fast changes in business environment. Factors of speed which give competitive advantage •Technical Development- new, improved products, faster / flexible production cycles, user friendly products (Microsoft Windows & MS Office), electronic & mobile telephones, new product / models in few weeks / months •HRM – self managed work teams, few layers of management, employees empowered to take decisions at every level (paperless office – Cisco, work without ) •General Administration- Highly automated / integrated information system with or without line controls •Procurement – online suppliers, vendors, distributors, system integrated with production •Inbound Logistics- online supply system with minimum delivery, time & inventory levels •Operations – Quick changeover time from one product to another, in case of popular models of cars Japan has brought over the changeover time to seven hours as against USA’s 7 days, faster cycles are achieved thru’ CNC machine with pre set CAD softwares. •Outbound Logistics - JIT delivery system with online replenishment at distributor point based on customer bookings •Marketing & Sales – customer requirements are met thru’ a computerized network between dealer, distributor & factory warehouse. 5

•Service & Spares – toll free help line for emergency service, intensive network of service workshops, reasonable pricing of spares, periodic customer satisfaction surveys to assess quality of service & satisfaction levels. MARKET FOCUS AS COMPETITIVE ADVANTAGE Another point of focus used by many small & medium scale concerns to gain competitive advantage by special focus on a narrow segment called niche market. Examples are Zodiac ties, Maruti’s focus on A & B segment less on C&D & practically nil on E. Honda City on C&D, BMW, Mercedes on E & E plus. GRAND STRATEGY FOR GROWTH This depends on following two important factors, namely •Growth rate of market •Firms competitive position in the market (market share & profitability) •With these factors the business strategy can be categorized in following 4 quadrants Rapid Market Growth

Concentrated growth

Reformulation growth

Vertical growth

Horizontal integration

Strong competitive Concentric diversification Concentric diversification position Conglomerate diversification Joint venture

I IV

Weak competitive position Retrenchment, divest/ liquidation

II Divest/ liquidation III

Conglomerate, conc. diversification

Slow market growth

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•Quadrant I shows strong competitive position in rapidly growing market •Quadrant II shows weak competitive position in a rapidly growing market •Quadrant III shows weak competitive position in a slow growing market •Quadrant IV shows strong competitive position in a slow growing market •Firms in Qr I are in excellent strategic position – grand strategy for such firms is continued concentration on their current businesses due to strong competitive position as customer seems satisfied with firms current strategy, good examples are Maruti strength in A&B auto car segment, Mc Donald’s strength in burger market. In such firms because of high liquidity generally resources are more than demand of concentrated growth. In that case firm can look for vertical integration & concentrated diversification. In case of Maruti they have diversified into manufacture of engines, gear boxes which were earlier imported & in marketing services diversified into financing of cars, insurance business & sale & purchase of used cars in the name of True Value •Firms in Qr II when they are competitively weak in a strong market – they should evaluate / analyze their weaknesses which could be in any of the major areas like product quality & cost, marketing strategy, distribution & service plans & choose reformulation of concentric strategy after removing above problems they could also look at horizontal integration. If the problems are such that they cannot be solved then final answer could be to divest or liquidation. Examples in Indian context are Standard Herald cars with UK collaboration, Premier cars with Fiat of Italy & recently launched electric car as Reva brand 7

•Firms in Qr III of weak competitive position & slow market growth – is the worst combination in a business strategy, in such cases business usually trim down their overheads & operation costs to become efficient & cost effective so as to become strong & in competitive position if not successful they divest investment to other businesses which are more promising. Final choice could be divest & sell off, examples are most of the power plants, electric supply co’s, textile mills 140 in no’s owned by NTC in the govt sector which are being sold to private sector for running them efficiently. •Firms in Qr IV strong competitive position in a slow growth market strategy – in such cases the firm should diversify in more promising market growth area either in concentric or in conglomerate businesses examples are Reliance Industries diversifying from petroleum refining to oil exploration, oil marketing or getting into new areas like power, telecom & now retail marketing & real estate- setting up SEZ in various parts of the country like China & Middle East

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