Creating Competitive Advantage P. Ghemawat & J. Rivkin Cont’d. How does a firm identify opportunities to create competitive advantage Dumb (or smart) luck. Strategists Pankaj Ghemawat and Jan Rivkin appear in the HBR February edition. In it, they examine why large differences in economic performance exist, . Creating Competitive Advantage P. Ghemawat J. W. Rivkin December 22nd, Submitted By: Group A5 – Section A Ajay Bansal Alpesh Chaddha Aman.

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A particular driver should be modeled only if it is likely to vary across the competitors or the strategic options that will be considered.

In some industries e.

HBR: Creating Competitive Advantage

Free Press,Chapter 4 and D. Its stripped-down offering may competitivs slightly less willingness to pay than the offering of a full-service airline, but it incurs far lower costs than a full-service rival.

Edward Jones operates thousands of one-broker offices in rural and suburban areas, handles only conservative securities, markets by means of door-to-door sales calls, produces none of its own investment vehicles, and focuses almost exclusively on individual 39 investors. Dumb luck also plays a role.

The snack cake-buying parent, for example, selects among brands on the basis of price, brand image, freshness, product 29 variety, and the number of servings per box. Now they are prepared to take the final step, the analysis of different strategic options. Despite the connections between creating and cokpetitive advantage, we find it important to discuss the two processes separately.

Porter, Competitive Advantage, New York: By shipping clothes on the creahing hangers and in certain containers, the manufacturers can greatly reduce the labor and time required to get clothes from the department store loading dock to the sales floor.

Consider the wrenching and far-reaching changes required to turn around IBM during the mids.


Creating Competitive Advantage P. Ghemawat & J. Rivkin

Some customers in a bookstore want novels while others look for business books. The total value created by a transaction is the difference from the willingness to pay and the opportunity cost. See the top half of Figure 4. Explore Options and Make Choices Some decisions affect both the opportunity cost and the willingness to pay e.

Second, industry conditions appear to have a large influence on whether competitive advantages 7 are even possible.

We say that a firm with a wider wedge has a competitive advantage in its industry. For Hilti, it represented an entirely new business model, which would substantially differentiate the company from its competitors. The key to success is differentiation. Porter, Competitive Strategy, New York: Second, the ruggedness implies that there crearing often more than one internally consistent way to do business within an industry. Marketing courses discuss ways to pinpoint such 30 customer needs and desires through formal or informal market research.

A firm establishes added value by making sure that it is unique in some valuable way—that the network of suppliers, customers, and complementors within which creatingg operates is more productive with it than without it and ghemawwat it is not readily replaced.

The note separates the challenge of creating competitive advantage at a point in time from the problem of sustaining advantage over time. In practice, however, managers often examine actual costs, not opportunity costs, because data on actual costs are concrete and available. By widening the gap between willingness to pay and supplier opportunity cost, Harnischfeger increases the amount of value than it can potentially claim.

About the Author Jan W. Activity Analysis Step 1: To use this website, you must agree to our Privacy Policyincluding cookie policy. When we say that a firm has differentiated itself, we mean that it has boosted the willingness of customers to pay for its output—that it can command a price premium.


The elevation corresponding to each point is the added value generated by that configuration. And even when broader is better, there tend to be a variety of ways in which a firm can expand its reach, some of which such as licensing, franchises, or strategic alliances fall short of an outright expansion of scope.

Such contrasts in industry-level competitive forces are one reason that the profit levels of firms in different industries differ. Free Press,Chapter 2, and M. The supermarket or convenience store executive chooses a snack cake on the basis of trade margins, turnover, reliability of delivery, consumer recognition, merchandising support, and so forth.

Of course, this is a general pattern that may or may not hold up in a particular setting. Creating Competitive Advantage industry. But even in industries that are not pure commodities, differences in cost often wield a large influence on differences in profitability.

Some decisions affect both the opportunity cost creatinng the willingness to pay e. The firm must ensure that, were it to disappear, someone in its network of suppliers, customers, and complementors would miss it and no one could replace it 5 perfectly.

A number of pitfalls commonly snare newcomers to cost analysis. The typical pharmaceutical maker is 2 far more profitable than the typical steel producer.

In the final step of exploring options, however, the management team must work vigilantly to build a vision of the whole. Savory Pastries delivers the freshest product, reflected in its high manufacturing and raw materials cost. We do not mean simply that the company is different from its competitors.