Gaining and Maintaining Competitive Advantage

May 31, 2007 0 comments

Key points

The seminal work of Michael Porter entitled “Gaining and Maintaining Competitive Advantage”

provides a model to help us understand the competitive environment affecting all firms.

 

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Sources of Innovation

According to Peter Drucker (1985) the majority of innovations are the result of concerted effort. There are of course exceptions to the rule that result from a flash of genius or serendipity but most innovations within entities originate from four areas:

  • Unexpected occurrences
  • Incongruities
  • Process needs
  • Industry and market changes

Unexpected occurrences

Examples were drawn from:

IBM designed accounting machines for banks, but banks didn’t buy them. Public libraries had money and did buy IBM’s machines.

The computer industry developed when businesses recognized that computers could be used for more than scientific purposes and could be adapted to payroll processing. Univac failed to recognize the opportunity but IBM did and adapted designed that led them into becoming industry leaders.

Ford Motors failure with the Edsel almost sunk the firm as the most highly researched model of its day did not meet customers requirements. Ford had to find a replacement quickly and imposed short deadlines on its design and manufacturing team. The result was the famous Mustang and Thunderbird models that were designed to meet the needs of the target customers life-styles.

 

Incongruities

Examples were drawn from:

Alcon Industries exploited an incongruity of medical technology used to treat eye cataracts. By developing a preservative for an enzyme that could dissolve the ligament that caused the problem Alcon were able to provide a new compound that could be stored. The resultant product grew in popularity and created a worldwide monopoly.

The development of ‘Roll-on’ ‘Roll-off’ ships and container vessels came about when ship builders realised that the major cost in shipping were incurred when ships were in port loading and unloading. This changed the thinking of designers who for the past 50 years had attempted to make bigger and more fuel efficient vessels to cut shipping costs. The shift in viewpoint and not technology was responsible for improving the economics of the shipping industry.

Process needs

Example was drawn from:

Federal Express and the core concept of the business being explained a switching process. Items for distribution are collected and delivered to a central sorting center and switched to carriers for redistribution. The speed of processing is critical as is the central switching operation.

Industry and market changes

Examples were drawn from:

The growth in direct services such as banking and insurance services and the growth of e-businesses.

External Sources

Sources of opportunity from outside entities can be found through:

  • Demographic changes
  • Changes in perception
  • New knowledge

Demographic changes

Changes in the population offer opportunities. For example the Americans have recognized the growth in the wealthy aged population who need and want labor saving equipment to suit their life-styles and failing health.

Changes in perception

Global improvements in the communications and media industries are constantly enlightening people and therefore changing their perceptions and expectations. Products that were acceptable 10 or 20 years ago are no longer acceptable for a whole range of reasons that are affected by personal attitudes through changing social acceptability.

New knowledge

New knowledge emerges all the time bringing with it both opportunities and threats.

External environmental factors

The external factors affecting all businesses must be analyzed to identify opportunities and threats. These factors are often known as PEST or SPELT factors the latter means.

Social, political, economic, legal, and technological factors.

When carrying out a SWOT analysis it is important to recognize that the Strengths and Weaknesses are internal to the business and therefore with the control of the business. While on the other hand Opportunities and Threats come from the environment and are therefore out with the control of the business. Innovation can emanate from an understanding of both.

Posted by Lisa
Categories: Business Entrepreneurship Product Innovation

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