The competitive edge

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The competitive edge

• Competences
• Resources
• Threshold or above (Core and Unique )

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Olympic relay (stafet) running team

• Customer value Number of (gold) medals
• Critical success factor To run faster, fast and
  safe baton (depeche) exchange.
• Threshold features Meet qualifying standard,
  pass drug test, be selected into national team
• Threshold resources Equipment, medical
  facilities, the right food
• Unique resources Exceptional body, heart and
  lungs, World-class coach

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Exercise

• State threshold features (also called hygiene
  factors) and CFSs for a car, a mobile phone
  operators service and a washing machine.
• Which CFSs are particularly valued?
• Which CFSs are used to distinguish between
  providers?

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Or scope !!
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Links between activities in the value chain
How to create a robust strategy?
Difficult to imitate
Keep it secret
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Exercise concerning resources and competences
Use MacDonalds, Microsoft, Your preferred
TV-channel or food-supplier as example.

• Undertake a resource audit of an organization
  with which you are familiar. Then identify which
  resources, if any, are unique in the sense that
  they are difficult to imitate (See Exhibit 4.2)
• Has the organization gained competitive advantage
  as a result of this uniqueness? Why/why not?
• Form groups of 5 persons. You have 15 minutes.
  Choose a spokesman to do the presentation.

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The Business Value System
A value driver is Anything either internal or
external to a business which directly or
indirectly contributes to cash inflows
A cost driver is Anything either internal or
external to a business which directly or
indirectly contributes to cash outflows
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Value driver (examples)

• Strength of customer loyalty and demand
• Quality of the product
• Perceived value seen from customer
• Service accompanying the product
• Complementary product range/mix
• Brand differentiation
• Volume and margins

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Cost driver (examples)

• Complexity of product range (lack of harmony)
• Lack of efficiency/effectiveness
• Demanding customers
• Lack of product quality

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Value creation and destruction
Customer value
Customers bargaining power gives customer surplus
Creation of value
Price
Operating cost
Lack of buyers power and lack of efficiency
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The product Hygiene factors and motivators

• Hygiene factors Quality and features that must
  be met because they are expected by the customer
  as minimum.
• Motivators Better quality and unique features
  that make our products better than competitors
  products.

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Value creation and destruction

• The value will be destroyed if hygiene factors
  are not met (Lack of basic elements or features).
• High competitive pressure increase consumers
  surplus
• Differentiation can be a motivator (Superior
  resale value). Motivator activities excite
  customers and create value more than cost.

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Hygiene factors and motivators (critical
factors) in a supermarket chain

• To achieve measurable superior service compared
  to competitors through staff training and
  resulting behavioural change.
• To achieve one-stop shopping through store
  location, product range
• Extended opening hours
• To secure lower-cost supplies through
  computerised logistic systems
• Home deliveries

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The value driver

• The number of customers who defect from
  competitors in seeing us as their preferred
  shopping destination.
• The effect will be bigger turnover and/or better
  margins

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Destruction of valueThe mobile phone example
100 for buying a new
- 10 for trade-in of old model for a new and
better model assuming that the customer is going
to use the telephone operator for at least 6 month
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The value-adding corporate parent

• Improving efficiency
• Providing expertise and services
• Providing investments and fostering innovations
• Mitigating risk which smaller units run
• Give external image
• Setting standards and assessing performance
• Creating synergies in acquisition

Very often the small unit is better off without a
parent !!!!
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Virgin founded by Richard Branson
Virgin Corporate level
Virgin Travel
Virgin Rail
Virgin Cinemas
Virgin Media
Virgin Hotels
Virgin Direct ..Net ..Money ..Mobile
Virgin Music
Virgin Trading
www.Virginmoney.com Business level
Group presentation page 83 to 89
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Income statement divided into businesses (SBUs,
products or segments)
In what business is it very difficult to make
money? Where should we increase investments or
reduce assets? Time? Short-term or long-term
returns?
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Break-even, contribution and value analysis,
Ronnies Garage page 77-78

Sales
Total costs
Fixed costs
Sales
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Exercise

• Fixed costs 1.000.000
• Contribution margin 30
• Actual sales equal to 4.000.000
• What is Break-even point?
• By how per cent can sales fall before we reach
  break-even? (Security margin)

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Strategic financial accounting
Annual reports is an annual must do not
designed for strategic analysis. Strategic and
financial analysis of annual reports is still
embryonic. Never the less we will do a
step-by-step analysis of strategic health and
financial performance based on annual reports.
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The steps (Strategic financial accounting)

• Do an overall review of the five-year record
• Do a quick review of current years and last
  years profits
• Do a quick review of directors review and
  highlights
• Do a review of profit and loss accounts
• Find patterns in performance
• Probing the balance sheet for financial health
• Financial strength
• The cash flow statement
• How are the financial position and prospects
  interrelated what are the key business drivers?
• What future strategic and financial prospects
  exist?
• Summarise and conclude

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The corporate rationale besides being the owner
and money-provider

• To act as portfolio manager (Pretty Woman)
• To be the one to do restructuring
• To be synergy manager
• To be parental developer

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Creating synergies at Manchester United Plc. by
adding mutual supportive activities

• Gate receipts when the game is played
• Merchandising, especially replica strips and
  fashion items like T-shirts
• Sponsorships
• Television rights
• Magazines (also in Thai-language)
• Conferencing and catering

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From www.manutd.com
Gate receipts only about 30 of turnover.
Merchandising is more.
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