The Building Blocks of Competitive Advantage

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The building blocks of competitive advantage are efficiency, quality, innovation, and customer responsiveness. These building blocks are generic in that they provide four basic ways to lower cost and achieve differentiation. Any firm can adopt these no matter what industry it is in or what product or service it provides. Efficiency is based on the cost of inputs required to produce a given output. The more efficient a firm, the lower the cost of its inputs required to produce a given output. Efficiency helps a firm attain a low-cost competitive advantage. Employee productivity can be the key to efficiency. The impact of high product quality on competitive advantage is the creation of a brand name reputation, greater efficiency and, thus, lower costs. This enhanced reputation allows the firm to charge a higher price. At the same time the costs are down so profits are much higher, thus a higher competitive advantage. Quality has become imperative for survival in some firms. Innovation is defined as anything new or novel about a firm's operation or product. Innovation gives a firm something unique. When a firm is the pioneer in its industry it can charge a higher price because of a lack of competition. Later, when there is competition, newcomers must deal with the pioneer's reputation. To achieve customer responsiveness a firm must deliver exactly what the customer wants when the customer wants it. A firm must do everything it can to identify and satisfy customer needs. Steps taken to improve quality and efficiency are consistent with the goal of high customer responsiveness. There may be a need to customize goods and services to meet the demands of individual customers. Customer response time has become a big factor in increasing customer responsiveness. Other areas that aid in achieving higher customer responsiveness are superior design, superior service, and superior after-sales service and support.
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