Business and Value Creation - Tips For a Successful Competitive Advantage

Creating value together for Shareholders and stakeholders is becoming a mandatory must-do thing nowadays, by shareholders we just do not mean CEOs or the Board of Directors of an organization, it has to do also with the employees and customers. These two stake and shareholders value creation concept must be working together in a holistic way, never separately as it was recently, it has to be worked all like one if we want to have a sustainable competitive advantage in all levels. Creating value at an Internet business is not the exception, in spite of the so called virtual reality field as it was renown in the past we all know this is becoming more real than real, therefore Internet is beyond a fiction business management.

Three dimensions define the potential for value creation of a business, first is the Competitive Strength, the Attractivity of the industry and the Operational Efficiency. As we were mentioning above, the potential for value creation of a business is defined through internal and external factors either from the Customer or employee side that include Industry Attractivity, the Competitive Advantage/Operational Efficiency and the Competitive Position all these three pointing to one sole direction: Profit potential and Value Creation we must to understand as well that depending on the cost assets we will be able to understand the market volume and market share volume.

One of the most effective way we can boost up our Competitive Strength is by understanding the Experience Curve, and yes we must use it as the Law of Gravity of any strategic planning, With each doubling of the accumulated volume of a product the costs of value added fall by 20 to 30 per cent, this empirical law has been discovered by The Boston Consulting Group in the 60ies and empirically proofed in numerous and most diverse industries, Higher Volume leads to advantages in experience and costs within all the elements of a value chain. The Experience Curve defines the potential for cost savings within a business, the Scale Curve (Industry Experience Curve) defines the relative cost position between competitors of different size at a given point of time.

In each industry experience is transferred through via suppliers, new hires, conferences, publications, reverse Engineering and customers, Experience Curve and Scale Curve only show the potential of cost savings, this potential has to be realized, The main hurdles for that are, too many productions sites, post merger integration problems, Inefficient processes, regional disadvantages and Weaknesses in the organization and management, successful companies combine cost and differentiation strategies in order to clear way out the cost price trap.

Concerning the Industry Attractiveness we highly recommend Michael Porters way to analyse this, according to his theory we must take into account the Customers, the Substitution element, Suppliers and New Competitors. High and stable profits can be achieved within an industry if the companies: Can effectively handle new competitors and product substitutions, are able to neutralize the bargaining power of customers and suppliers, and are able to achieve a moderate competition. We have to remember here that the life cycle of an industry is an important factor for its attractiveness. A very good example on the internet field is back to 1970 techie terms such as: Computers, retail Software and automobil, 30 years later turned and metamorphosed into microelectronics, communication, internet and biotechnology terms.

When talking about the Operational Efficiency we are simply talking about Clear Goals, concrete Measures, straight consequences, say, who is the best (benchmarking, best practice sharing), how is value created (who does what until when,etc) at the end only success counts as that is what we want after all.

A successful business strategy needs the integration of all four dimensions: Right business definition, Competitive strength (Competition), Industry attractiveness (Customer) and Operational efficiency (Company). by doing so we will be able to achieve the optimum and ideal stage of any successful business no matter what type: win to win relationship, be aware of zero-sum or win loose anti values creation so the interests of the three groups must be traded off against one another.

© Copyright 2009 - Henry Alzamora