Creating Competitive Advantage though Asset Architecture
This work tries to figure-out the role of ‘Asset Architecture’, which is judiciously created over a period of time, in creating sustainable competitive advantage for manufacturing set-up, and emphasizes the need of looking at the aspect of ‘Asset Architecture’ differently than scale economies.
At the start, this work, which is done on Cement Industry identifies strategic issues and raises following strategic questions –
- What could be the reasons for a distinctly higher valuation of a firm compared to other players in the industry? Does the firm enjoy any competitive advantage? If yes, from where does this advantage come?
- Is this competitive advantage sustainable? For how long can a firm continue reaping the benefits?
- If this advantage is location/asset specific how could the firm successfully leverage this to grow the business further?
In the subsequent two parts – Part 1 & Part 2, this work tries to find out answers to the strategic questions. Both the parts are structured as below –
Part 1: External Strategic Context
This part sets external strategic context through ‘External Factor Analysis’, & ‘Industry Level Analysis’, to take the discussion forward.
- External Factor Analysis
This section covers Market, Economic, Social, and Technological factors.
- Industry Level Analysis
This section touches upon industry structure.
At the end of this part, work raises the question for further discussion – How should one look at the maturity level of the industry? Generally, commodities are considered mature businesses, but rather than looking at the maturity level from a technological development point of view one should look at it from a demand growth perspective. An industry which is growing at a pace of GDP growth rate – long term average, cannot be called matured. In commodities, technological developments help to improve processes, specific consumption and economic size of plants rather than changing attributes of the final products.
Part 2: Business Model
This part discusses in detail how value is being created and captured by the firm and tries to answer all the 3 strategic questions raised above. It has following sections –
- Value Creation
This section discusses in detail about how judiciously ‘Asset Architecture’ is created over a period of time and how it creates value for the firm.
- Value Capture
The Indian cement market is ‘bagged’ driven. In such a market Brand creation pays, despite the fact that cement is a commodity and globally brands are not created. This section briefly talks about the role of having multiple brands in capturing value and issues related with brand creep.
- Superiority of Resources
This section answers the first 2 strategic questions raised in the beginning of the work.
- Sustainability of Business Model
This section analyzes the sustainability of the firm’s business model and how it could tackle the growth challenges going forward. This section answers the 3rd and last strategic question.
Competitive strategy is about developing sustainable competitive advantage but when it comes to competitive advantage there are different views. Without getting into debate whether competitive advantage exists or not this work tries to establish the role of ‘Asset Architecture’ in creating such an advantage, which is not only sustainable in the long run but also can be leveraged to further expand the business.
Hope you like the work, looking forward to your valuable comments and suggestions.
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