Assignment-competitive Advantage % Principles 4e6l6n

INTRODUCTION Competitive advantage is a superiority gained by an organisation when it can provide the same value as its competitors but at a lower price, or can charge higher prices by providing greater value through differentiation. Competitive advantage results from matching core competencies to the opportunities. It is the favorable position an organisation seeks in order to be more profitable than its competitors. Competitive advantage involves communicating a greater perceived value to a target market than its competitors can provide. This can be achieved through many avenues including offering a better-quality product or service, lowering prices and increasing marketing efforts. Sustainable competitive advantage refers to maintaining a favorable position over the long term, which can help boost a company's image in the marketplace, its valuation and its future earning potential. According to Michael Porter, there are five major principles of competitive advantage which are;  value chain analysis  cost analysis  differentiation analysis  the relationship between technology and competitive advantage  competitor analysis For the sake of this discourse, the writer will use Econet Wireless in order to discuss the issues considered in creating a competitive advantage for that firm relative to the above mentioned principles. Econet Wireless is a telecommunications company in Zimbabwe that has been operating for the last fifteen years. It is the current market leader in the industry with about 65% market share. Econet as a mobile network provider has an array of products and services for its customers, such as voice, data bundles, broadband, Ecocash and Econet solar. Value Chain analysis

By definition, value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin.Michael Porter introduced the value chain analysis concept in his 1985 book ‘The Competitive Advantage’. Porter suggested that activities within an organisation add value to the service and products that the organisation produces, and all these activities should be run at optimum level if the organisation is to gain any real competitive advantage. If they are run efficiently the value obtained should exceed the costs of running them, that is, customers should return to the organisation and transact freely and willingly. Michael Porter suggested that the organisation is split into; a) primary activities b) and activities Primary activitiesare those that are directly concerned with creating and delivering a product e.g. component assembly. These consist of five elements detailed below; Inbound logistics: Refers to goods being obtained from the organisation's suppliers and to be used for producing the end product. Econet Wireless imports electrical and network specialised equipment from China and Sweden through its partners, ZTE, Huawei and Ericsson. These are the components used to construct base stations that provide mobile network and data to their customers. In order to create a competitive advantage, Econet has to sign contracts with the suppliers so that they can buy the equipment directly from them. Currently, they are sourcing the equipment through authorised dealers in South Africa and Europe. Buying directly from the suppliers means that Econet will reduce their buying costs of the equipment as they would have gotten rid of the ‘middle-man margin’. This ensures they can produce their base stations at a much cheaper price and therefore that lowered price to the end consumer. Econet Wireless also imports FG Wilson generators from China as backup power for their base stations during load shedding. This has improved their inbound logistics by cutting down on the cost of the generator. To import the generator directly from FG Wilson will cost approximately US$160 000 yet to buy it from China costs $120 000. This is because the Chinese import genuine FG Wilson engines from FG Wilson UK and assemble them in China and then sell to Econet. This reduction in the cost ensures Econet also competitively prices their products thus gaining a competitive advantage. Operations: Raw materials and goods are manufactured into the final product. Value is added to the product at this stage as it moves through the production line. For Econet, this involves the actual assembly of their

equipment into base stations that provide network to customers. There is need to ensure that the cost of assembling base stations is reduced by doing it at a large scale. The use of specialised expertise ensures the tasks are done in the shortest possible time and in the best of methods. This ultimately ensures Econet gives a quality product to its customers, in turn giving it an edge in the telecommunications industry. Outbound logistics: Once the products have been manufactured they are ready to be distributed to distribution centres, wholesalers, retailers or customers. Distribution of finished goods is known as outbound logistics. The equipment that Econet buys from its suppliers should be delivered to decentralised warehouses. This ensures that after the assembly of the equipment, minimal costs are incurred in transporting them to their intended areas of service. A centralised storage system will increase the transportation costs. If all the equipment is warehoused in Harare, it will mean that for base stations that are to be deployed in areas like Gweru and Masvingo, Econet will incur a heavy transport cost. However, if these are delivered initially to their respective towns of deployment, the transport cost is reduced tremendously. This will translate to reduced price in providing the service, hence lower market prices. These will then give an edge over their rivals in the telecoms market. Marketing and Sales: Marketing must make sure that the product is targeted towards the correct customer group. It is vital in making sure that brand awareness is created to the targeted market. With Econet, there is need for them to continue with their vigorous marketing that they have implemented. Everyone in most places is aware of the Econet brand because they market their products aggressively. An aggressive marketing scheme has a huge cash outflow but guarantees an equally or better huge cash inflow in the long run because of increased brand awareness. This has drawn the market to use Econet products despite the fact that some of them do not perform well. The marketing mix and strategy implemented has already given them an advantage over their competitors as evidenced by their subscriber base. Services: After the product/service has been sold the organisation has to offer services to its customers. This may come in the form of after sales training, guarantees and warranties. Econet has to consider offering such services in order for it to be better than its industry rivals. A call to a new subscriber, enquiring on quality of service rendered so far after they have just started using an Econet line will go a long way in giving the customer the comfort that Econet is concerned about them. For handset sales, guarantees of reasonable periods like one year are also good to introduce as these are non-existent at Telecel and Netone. The assurance that the customer gets if they know that their product, if damaged, will be

attended to in that period for free is vital in creating the competitive advantage. With the above activities, any or a combination of them are essential if the firm are to develop the "competitive advantage" which Porter talks about in his book. Activities activities assist the primary activities in helping the organisation achieve its competitive advantage. They are not directly involved in production, but may increase effectiveness or efficiency. They include: Procurement: This department must source raw materials for the business and obtain the best price for doing so. The challenge for procurement is to obtain the best possible quality available (on the market) for their budget. With this function, Econet must consider offering long term contracts to its suppliers. Long term contracts guarantee the suppliers of business over a certain period of time and volumes in of their supplies. Once large volumes are certain, Econet can then get discounts from its contracted suppliers and reduce its procurement costs. This will give them a considerable advantage over other industry players as they will be able to give end customers reduced prices for the products and services that they offer. Human resource management: The organisation will have to recruit, train and develop the correct people for the organisation to be successful. Staff will have to be motivated and paid the ‘market rate’ if they are to stay with the organisation and add value. Econet Wireless has to continue paying its employees the prevailing market rates in SADC region as it has been doing. This ensures very low staff turnover rate, which will then cut down on recruitment, training and development costs. The employees are the ones responsible for rendering the services. Once the Econet employees are happy and motivated, they will deliver a quality service to the customers, thus creating a competitive advantage. Firm infrastructure: Every organisations needs to ensure that their finances, legal structure and management structure work efficiently and helps drive the organisation forward. Inefficient infrastructure is waste resources, could affect the firm's reputation and even leave it open to fines and sanctions. Econet Wireless needs to invest their revenue in investments that have a high rate of return. Short term investment options can help the organisation ensure that it grows its revenue, which will in turn strengthen its financial base and structure. This will help Econet to be able to expand and offer more services to its customers as it will be able to fund these. As an organisation, they will be ahead of their competitors in of

implementing new innovative products into the market as they will have the finances to do so. Econet also needs to ensure that their legal department is always current with the development of laws that affect its operations in the industry. New laws always come into play as the telecoms industry is dynamic in nature. These are there to protect organisations and consumers in line with the new technologies that crop up daily. Being compliant at all times ensures the organisation’s daily operations will not be affected by any legal ‘walls’. Econet also needs to buy and not rent any of the offices that it uses. Using rented offices may disrupt business if at any given time the organisation is evicted from the operating premises. If Econet has the assurance that their premises are for permanence, their daily operations will go on without any disruptions, ensuring no wastages are incurred in of productive time. This will increase their labour efficiency and therefore put them in a better position compared to their rivals in the industry. As elaborated above, the value chain encomes the whole organisation. It looks at how primary and activities can work together to help the organisation create a superior competitive advantage. If an activity is performed well it is said to add value. Cost Analysis This principle is looking at the breaking down the costs of some operation and reporting on each factor separately. The telecommunications industry requires heavy capital investments to create wired, wireless, or broadband infrastructure and networks. It is a capital-intensive business with high fixed costs and lower variable or incremental costs. Customers pay for a share of the fixed costs apart from the variable costs in their fees. Companies in the industry are continuously looking for new customers so they can distribute these fixed costs among many payers. This helps companies remain competitive under price pressures and profitable in a fiercely competitive market. However, in order for Econet Wireless to reduce its costs, it can effectively manage its reverse logistics. Reverse logistics is defined as the process of planning, implementing, and controlling the efficient flow of materials, in-process inventory, finished goods, and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal (Rogers &Tibben-Lembke, 2001). With regards to reverse logistics, Econet Wireless can take advantage of this concept to reduce their costs. For their generators at base stations, they can drain and collect the used oil during services. This used oil can then be sold to other businesses that require it in their processes, thereby realising income from material that could have been thrown away without any income generated. The revenue generated from the sale of this oil can then be channelled back to development of the

network. This ensures Econet has lower costs incurred in developing their network as some of the cost chunk would have been covered by income realised from the sale of the used oil. Lower costs mean that Econet can lowly price their products thereby attaining a competitive advantage over their competitors. Econet must also dispose of the used oil in an environmentally friendly and legal way. Doing so ensures that their brand is not tarnished in the community and the political and legal framework in which it operates, thus boosting its corporate image, and ultimately a competitive advantage. Old cables, old parts of generators and base station equipment can also be recycled and used again in the deployment of new base stations. This also cuts down on the set up costs of the organisation and a lesser price is ed on to the consumer in offering the service. In cost analysis, network cost optimisation becomes paramount to create a competitive advantage.At times continually increasing the revenue of an organisation on a year-to-year basis may be a very difficult task after a certain number of years. However, in order for the organisation to increase its profit, there is need to implement cost cutting measures. The revenue remains constant but lowered costs mean that the net profit increases thus enabling the company to be competitive. Econet Wireless can optimize its costs by outsourcing some of the functions that it currently handles internally. The function of fuelling of generators at base stations and their servicing can be outsourced in order to reduce the costs associated with the tasks. Currently using internal personnel is costly as there is no routing and scheduling forrefuelling of generators. Generators are refueled in a haphazard manner that is costly to the organisation. An engineer can transport fuel to a base station in Kariba today and then the next day another person may need to go back to Kariba to refuel another base station that may have not been refueled. This becomes expensive on the mileage that the business has to pay. If it was being done by a contracted party, they would just go to Kariba once and refuel all base stations in that area in a well routed scheduling system. This reduces the costs that Econet incur thereby giving them a competitive advantage as they have the comfort of reducing their product prices without incurring any losses, but maintaining a healthy profit margin. The servicing of generators is currently being done as and when a generators has developed faults. This is because with the number of personnel available, it is difficult to service the generators regularly, say monthly considering Econet has more than 1 200 of these nationwide. The use of an outside partner will ensure generators are serviced regularly and therefore reducing the number of faults reported at generators. When faults are reduced to a minimum, it means network availability is increased thus offering a high quality product to the customer. This then gives Econet an edge in the market.

Differentiation analysis Differentiation analysis is an in-depth look at how an organisationor fi rms attempt to gain a competitive advantage by increasing the perceived value of their products and services relative to the perceived value of other firm's products and service(Charles W.L. Hill, Gareth R.Jones 2000). An organisation offers a product as unique in industry by proving that it provides a distinct advantage over other products by setting it apart from other competitors’ brands in some way or the other, besides price.Differentiation can be achieved through competitive pricing, enhancements to functional design or features, distribution timing, expanded distribution channels, distributor location, brand reputation, product customization, and enhanced customer. Econet Wireless has managed to achieve differentiation of its products and services in the following ways;  Timing Introducing a product at the right time can help create product differentiation.The key issue that has been achieved by Econet is to be the first mover to introduce a new product before all other firms. First moving is an important determinant of perceived differences in the quality of education. For instance, Econet recently introduced the Ecofarmer product towards the planting season as there is most likely to be high demand for it. This then sets apart Econet from the rest of the players in the industry as they will already be ahead of other competitors. If any other competitor then launches a similar product, they will need to first catch up with Econet before they can then start grappling for a better market.  Location / convenience Econet is conveniently located close to its customers. Itsmajor offices and service shops are located close to its customers. It has these in the central business districts, outskirt shopping centres like Westgate, Sam Levy’s Mall and Avondale shopping Centre. Even in small towns like Norton, Chegutu, Gokwe and Marondera to mention a few, Econet ensures that it has service shops and offices that bring convenience to its customers. Econet is always located at a place that is easy for customers to get the products, so that it may have a product differentiation advantage compared to the other firms.  Distribution channels Products have been differentiated on the basis of alternative distribution channels. For example, Econet Wireless now distributes its products and

services through a network of independent agent shops. These agent shops give it a competitive advantage in that they create product awareness and availability even in the most remote parts of the country. They have also created avenues for employment and income generation to most communities throughout the nation of Zimbabwe. This has boosted the corporate image of Econet and strengthened its brand in the market. People who have been afforded the opportunities of employment and income generation have become loyal to the Econet brand as they perceive it to have bettered their lives. Their competitors are not engaging any agents but only have shops that they run under the parent company.  Brand Reputation One of the most powerful bases of product differentiation is the reputation of a firm and of its products. Reputation is often very difficult to develop in the market but Econet Wireless has earned such a good reputation. Its ability to consistently be the first to launch new products in the telecoms industry has given it a good reputation of being highly innovative. Corporate social responsibility programs undertaken by Econet that include educational scholarships to orphans and sponsoring the cricket national team have also gone a long way in giving it a good reputation not only in the telecommunications industry, but across all industries in the Zimbabwean economy. Above all, its ability as an organisation to offer customers a wide range of products that satisfy the different market tastes has also strengthened its brand reputation. The relationship between technology and competitive advantage In this present age, technology is the driving force behind the genesis, growth and sustenance of any organisation across the globe. The use of technology to obtain a competitive advantage is very important in today’s technological driven environment. Technology can be used in many ways including production to reduce cost thus add value, research and development to develop new products and the internet so customers have 24/7 access to the firm. The business world has been turned into a seamless global village where there is need for constant interaction between organisation, suppliers, customers and all stakeholders in the business environment. Decision making is made easier and faster when information is availed at all times through various technologies. Without the technology that provides you with the vital information to make decisions in an organisation, the business becomes disadvantaged and will eventually collapse. With Econet Wireless, there have introduced the Oracle ERP solution which is an enterprise-wide IT system that integrates all facets of the business on one

platform. Any transactions carried out by the business, be it under procurement, HR, planning, finance and networks department are recorded through this system and updated in real time. This ERP solution is internet based and allows for interaction with suppliers and contractors of Econet Wireless. Introduction of this technology has given Econet a competitive advantage in that most of its processes are now automated. For procurement, it is no longer necessary for procurement personnel to phone suppliers to bring in any raw materials because the suppliers are now connected to Oracle ERP and receive auto-generated orders when the supplies have reached a pre-programmed reorder level. This ensures that Econet at any given times has all the supplies that they need for them to offer a high quality product to their customers. The supply chain is made smoother by eliminating bottlenecks of human error like forgetting to place orders on time, poor follow up on supplies ordered and even inaccurate inventory management. Just-in-time ordering has been smoothly implemented and this has cut down the storage costs of Econet thus giving them an edge over their competitors. Information for decision making is made readily available 24/7 as managers have access to the system at any given time and place where they have internet connection. Decisions can be made at home, thus ensuring the business is not hampered by geographical distance between the manager and the office. Econet Wireless has also taken advantage of technology by availing its products and services on Facebook. This enables it to get from customers in real time, which is very vital in making decision quickly. Facebook has also enabled Econet to reach a wider market for its products. It has enabled the organisation to market its products across the whole globe thereby having access to wider markets compared to its rivals. Another key technological advancement that has been taken abode by Econet is the Kentrox Fuel Management system. This system has been installed on all generators at base stations across the country and is used to monitor the fuel levels of these generators remotely from a central point. This technology has greatly reduced the costs of Econet as they now timeously refuel their generators after receiving low-fuel alarms via Kentrox. This eliminates the element of network downtime during load shedding, thus ensuring continued in flow of revenue and quality network signal to Econet subscribers. For Econet competitors, they have not implemented such a system and they only refuel base stations after they would have run out of fuel. This creates a lot of downtime and ultimately poor service to the customers. There has also been the use of technology by Econet for movement of money. The introduction of Ecocash has given Econet Wireless a competitive advantage over its rivals in Zimbabwe.

Competitor Analysis Competitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats. Profiling brings together all of the relevant sources of competitor analysis into one framework in the of efficient and effective strategy formulation, implementation, monitoring and adjustment. The strategic rationale of competitor profiling is powerfully simple. Superior knowledge of rivals offers a legitimate source of competitive advantage. The raw material of competitive advantage consists of offering superior customer value in the firm’s chosen market. The definitive characteristic of customer value is the adjective, superior. Customer value is defined relative to rival offerings making competitor knowledge an intrinsic component of corporate strategy. Profiling facilitates this strategic objective in three important ways. First, profiling can reveal strategic weaknesses in rivals that the firm may exploit. Second, the proactive stance of competitor profiling will allow the firm to anticipate the strategic response of their rivals to the firm’s planned strategies, the strategies of other competing firms, and changes in the environment. Third, this proactive knowledge will give the firms strategic agility. Offensive strategy can be implemented more quickly in order to exploit opportunities and capitalize on strengths. Similarly, defensive strategy can be employed more deftly in order to counter the threat of rival firms from exploiting the firm’s own weaknesses. For Econet Wireless, it is key to know exactly what their competitors are up to in the market. Econet must be able to know the products that Telecel and Netone are currently offering the market. This will enable them to make decisions on whether to improve their current products or launch completely new products. Knowing the products and services being offered by rivals, and how they are faring in the market will help Econet understand the preferences of the customers. If they were about to launch a certain product but discover that another rival is offering it and the market is not receptive of the product, this may be an indication for them to either postpone or cancel the launch of the product. This will save them the losses of giving the market a product or service that they do not want. Conducting competitor analysis is also key for Econet as this enables them to identify gaps in the market for products, services and initiatives. If they have all the information about the products that the other organisations are offering, and what their market is saying about the products, Econet will be able to come up with products that address the shortcomings of their rivals and thus create a competitive advantage for themselves. Competitive and strategic pricing of products and services can be effectively aided by having

in-depth knowledge on how rivals also price their goods and services. This will help Econet know prices being offered by their competitors and help them decide how to price their services so that they are at an advantage. If Econet also conduct their competitor analysis well, it can reveal to them the new technology and methodology that are being used by other organisations, hence it will give them ideas of the technologies and methodologies that could be applied. If the technologies and methodologies being used by Telecel are effective in cost containment, Econet can then adopt them but slightly customize them to be a perfect fit for Econet. In of convenience and distribution channels, an understanding of Telecel and Netone’s positioning in relation to these will help Econet know how to strategically locate their shops. They should be able to locate them where there are very few rival shops or where the rivals are enjoying a segment of the market. This will enable Econet to compete in those arenas and thus increase their customer base and ultimately create a competitive advantage. It is however imperative for Econet not to focus too much on the activities of competitors as this may lead them into becoming reactive instead of proactive. This results in a lack of innovation and a lack of unique identity in the market. Flawed analysis of competitors must also be avoided by Econet at all costs as this might result in making poor decisions in order to compete.

Conclusion It is imperative, from the above discourse, to understand that Potter’s five principles of competitive advantage have to be considered and articulated well for them to create a competitive advantage. Taking them one at a time may most probably yield better results that trying to look at them simultaneously. This may be more costly as each refinement needs some form of financial .These principles can also be exploited hand in hand to create better prospects of a competitive advantage.

REFERENCES 1. William E. Fruhan, Jr., "The NPV Model of Strategy—The Shareholder Value Model," in Financial Strategy: Studies in the Creation, Transfer, and Destruction of Shareholder Value (Homewood, IL: Richard D. Irwin, 1979) 2. Porter, M.E., "Competitive Strategy: Techniques for analyzing industries and competitors" New York: The Free Press (1980) 3. www.newworldofwork.com

4. "Demystifying Competitive Intelligence" Ivey Business Journal, Nov 1999 5. http://www.rachellegardner.com