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Competition

All Competitors who persist and survive have a unique advantage over all others. If they did not, others would crowd them out. Gauss’s Principle of Mutual Exclusion.

The more similar competitors are to each other, the more severe their competition (Darwin).

If competitors are different and coexist, then each must have a distinct advantage over the other. Such an advantage exists only if differences in the competitor’s characteristics match differences in the environment that give those characteristics their relative value

Competitors that coexist over the long term must be in equilibrium. Such equilibrium can exist only if any change produces forces that tend to restore the conditions prior to the disturbance.

If competitors must each have an advantage, and each must match different environmental factors, there must be a point or series of points where the advantage shifts from one competitor to the other – the competitive segment boundary.

There must be as many significant variables or combinations of variables in the competitive environment as there are competitive survivors. If this were not true, it would be impossible for some competitor to find a combination of factors that would outweigh the advantages of any other and, therefore, permit survival.

“Millers magic number 7 +–2” “The rule of 4 or 5”

Since each pair of competitors acts as a constraint on each other, then the equilibrium point between then constitutes a segment boundary.

Failure to maintain a competitive segment and monopolize the advantage within that segment is failure to have an advantage over any competitor. The eventual consequence must be extinction.

Any change in the environment changes the factor weighting of environmental characteristics and, therefore, shifts the boundaries of competitive equilibrium. Competitors who can adapt best or fastest gain an advantage from environmental change.

Any change in the environment that affects any competitor will have consequences that require adaptation by all competitors merely to maintain relative position – “The Red Queen Syndrome”.

Harsh, severe environments have a limited number of characteristics which outweigh all others – and a limited number of interfacing competitors. The richer and more varied the environment, the greater the number of potential competitors and the smaller the potential for advantage – and the more severe the competition.

Competition begins with natural resources, converted to more specialized uses by successive trophic levels – the food chain.

Each level of a trophic resource chain is dependent upon those links below it, and limited by the continuity, stability, and abundance of each link below. No one preys on the top predator, but its supply line is the most fragile. Critical competition is horizontal, within a level.

Specialization of function is a prerequisite for effectiveness. Differentiation is a requirement for survival. Ecological roles are repeated in form but never in detail.

DFF (Darwinian Fitness Factor) = 1.0 for stability.

Sustainable Competitive Advantage

Key Success Factors

SOURCES OF ADVANTAGE

Superior SkillsSuperior Resources

POSITIONAL ADVANTAGE

Customer ValueLower Cost

PERFORMANCEOUTCOMES

Satisfaction, LoyaltyMarket Share, Profits

Tactics & Implementation

INVESTMENT

Operating Cash FlowExternal Sources

• Competitive Advantage1. Marketplace positions of competitive advantage lead to superior

financial performance.2. It is a comparative advantage in resources that leads to

marketplace positions of competitive advantage• Sustainable Competitive Advantage

1. Internal factors• Reinvest• Know thyself (causal ambiguity)• Adapt• Proactive innovation


2. External Factors• Consumers• Government• Competitors

a) Acquisition of same resourcesb) Imitation of resourcesc) Substitution of resourcesd) Major innovation in resources

3. Characteristics of offering• Offering Consumers (Causal Ambiguity)• Resources Offering (Causal Ambiguity)


4. Characteristics of resources– Mobility– Complexity– Interconnectedness– Mass efficiencies– Tacitness– Time compression diseconomies

RESOURCE-BASED STRATEGY

Financial (cash & access to financial markets)Physical (plant, equipment, raw materials)Legal (trademarks, licenses)Human (individual skills and knowledge)Organizational (routines, cultures, competences)Informational (knowledge about consumers, competitors, and technology)Relational (with customers, suppliers)

Example: Brand equity is a relational, legal resource

COMPETENCIESSocially complex, interconnected, packages of tangible basic resources (e.g., specific machinery) and intangible basic resources (e.g., skills, knowledge, organizational procedures) that fit coherently together to create comparative advantage.

• Graphs copied from:– www.value-based-marketing.com/uncategorized/

what-would-you-do-with-dell-computer/#more-21• What would you do with Dell computer?

Dell Computer

• ”Create a better way to buy a computer”• Reduced distribution costs: By cutting out the

middleman, distribution costs were reduced giving the company a competitive price position.– Improve the buying experience: Dell’s knowledgeable staff had expertise to

help customers who were frequently unknowing. In contrast, IBM, Apple and others were selling through resellers who were not necessarily knowledgeable about the product. Michael Dell surmised that customers would find value in talking to staff who had good product knowledge and could help guide purchase decisions to suit the customers’ needs.

– Guide future product development: The direct selling model gave Dell first-hand knowledge of customers’ needs.

Dell computer

• Improve core business• Shift portfolio to higher-margin offerings• Balance liquidity, profitability, and growth

How has Dell responded?