Competitive Advantage. Part 2

In 1993, John Kay expressed the value chain concept in financial terms, claiming “Adding value is the central purpose of business activity”, where the value added is the difference between the market value of outputs and the cost of inputs including capital, all divided by the firm's net output. Borrowing from Hamel and Porter, Kay claimed that the role of strategic management is to identify core competencies, and then assemble assets that will increase value added and provide a competitive advantage. He claimed that there are 3 types of capabilities that can do this; innovation, reputation and organizational structure.

The 1980s also saw the widespread acceptance of positioning theory. Although the theory originated with Jack Trout in 1969, it didn’t gain wide acceptance until Al Ries and Jack Trout wrote their classic book “Positioning: The Battle For Your Mind” (1979). The basic premise is that a strategy should not be judged by internal company factors but by the way customers see it relative to the competition. Crafting and implementing a strategy involves creating a position in the mind of the collective consumer. Several techniques enabled the practical use of positioning theory. Perceptual mapping for example, creates visual displays of the relationships between positions. Multidimensional scaling, discriminant analysis, factor analysis and conjoint analysis are mathematical techniques used to determine the most relevant characteristics (called dimensions or factors) upon which positions should be based. Preference regression can be used to determine vectors of ideal positions and cluster analysis can identify clusters of positions.

In 1992, Jay Barney saw strategy as assembling the optimum mix of resources, including human, technology and suppliers, and then configuring them in unique and sustainable ways.

Michael HammerandJames Champyfelt that these resources needed to be restructured. In a process that they labeledreengineering, firm's reorganized their assets around whole processes rather than tasks. In this way a team of people saw a project through, from inception to completion. This avoided functional silos where isolated departments seldom talked to each other. It also eliminated waste due to functional overlap and interdepartmental communications.