The Business Book

216

IF YOU DON’T HAVE

A C O M P E T I T I V E

A D V A N T A G E ,

D O N ’ T C O M P E T E

THE VALUE CHAIN

T

he goal of every company

is to create and sustain a

competitive advantage so

that it can sell more products and

generate higher profits than its

rivals. As Jack Welch, CEO of US

multinational General Electric and

celebrated business guru, advised:

“If you don’t have a competitive

advantage, don’t compete.”

US professor Michael Porter’s

“generic strategies” consist of two

types of competitive advantage: cost

advantage and differentiation

The interconnected activities through which a company delivers

products or services can be viewed as a “value chain.”

The chain consists of primary and secondary

value activities.

Secondary value

activities include

procurement, HR,

technology, and

infrastructure.

Primary value

activities include inbound

logistics, manufacturing,

outbound logistics,

marketing and sales,

and after-sales service.

Through analysis of its value chain, a company can identify where

to achieve cost or differentiation advantage on its products.

IN CONTEXT

FOCUS

Competitive Advantage

KEY DATES

1933 US economist Edward

Chamberlin introduces the

concept of product

differentiation in Theory of

Monopolistic Competition.

1970s The idea of competitive

advantage takes hold as

Japanese companies begin

to outsell US and European

rivals. This is later attributed

to superior management.

1979 US marketing consultants

Al Ries and Jack Trout write

Positioning: the Battle for Your

Mind, outlining how companies

should build a strategy around

their competitors’ weaknesses.

1985 Michael Porter introduces

his theories of competitive

advantage and the value chain

in Competitive Advantage:

Creating and Sustaining

Superior Performance.