1.5 Competitive Advantage
In addition to understanding the value proposition, a manager should be aware of what sets his or her organization apart from the competition. This is the organization's competitive advantage, and it is essential for every successful organization. Every organization must have a core competitive strategy. There are three main competitive strategies. They are differentiation, cost-leadership, and niche/focus.
A differentiation strategy is one in which an organization sets its products or services apart by offering something new or different. It is often focused on service or quality or functionality. New products and new technologies fall under this category. For example, Apple Computer Corp has a differentiation strategy because they come out with new products and new services with new bells and whistles on those products and services on a routine basis. Toyota centers its strategy on quality and safety. Intel differentiates itself by always coming out with the latest and greatest processing chips in rapid succession.
Cost leadership is a strategy usually taken advantage of by companies with high volume. It is usually achieved through paying attention to processes within the organization. The most famous example of cost leadership would be Walmart. Their volume allows them to purchase at better prices but they also have an exceptional distribution system that allows them to distribute their goods at a much cheaper price and faster pace than their competitors. Cost leadership in a manufacturing facility is obtained by large investments in equipment. Under this scenario the per unit cost goes down as the volume goes up.
A niche/focus strategy is one where a firm focuses on a subset of a larger industry or a particular customer base of a larger industry. Most restaurants fall under the niche/focus category in the broader food service industry. There are no restaurants that serve every kind of food available, but rather their focus is narrow, such as Mexican, Chinese, barbecue, or sandwich shops. They become experts at their type of food rather than attempting the impossible task of being really good at all types of food. They all focus on a narrow segment of the food service industry. Other companies choose to focus on a narrow customer base. For example, an online pharmaceutical company that caters to the elderly.
Every organization must fall under one or more of these categories. Some may be hybrids, but a manager should understand the organization's competitive strategy and many of her decisions should be made with that strategy in mind.