Showing posts with label Cost Advantage. Show all posts
Showing posts with label Cost Advantage. Show all posts

January 4, 2008

Creating Competitive Advantage and Enterprise Architecture

Planning endeavors, such as enterprise architecture, typically help drive competitive advantage for the organization.

In the book, Making Change Happen, by Matejka and Murphy, the authors summarize Porter’s model for competitive advantage, developed at Harvard University.

To achieve competitive advantage, an organization typically follows one of five strategies based on differentiation or scale:
  1. Differentiate based on superior customer service—“provide such excellent customer service that it results in strong customer loyalty. These satisfied customers not only provide repeat business, but also enthusiastically refer your business to others.” The overall strategy is encapsulated by the slogan, “the customer is always right.” User-centric EA is an excellent enabler for customer service orientation, since the architecture captures lots of information on internal and external factors, analyzes, catalogues, and serves up this information to end-users to enhance decision-making and thereby provide superior customer service. For example, the EA can identify performance metrics such as customer satisfaction, quality, timeliness, and so on and apply business, information, and technology resources to achieve superior customer service.
  2. Differentiation based on superior products—“build a better mousetrap…make products and services that are clearly better than your competitors from a feature and function perspective.” The goal is to command a price premium through innovation, superior product and service design. EA supports the development of superior products through the use of emerging or specialized technologies that can give the enterprise’s products an edge in their design and development. The EA identifies that baseline and target architectures and transition plan, and can use these to direct innovation and superior product development.
  3. Differentiation based on niche market space—“identify and focus on smaller market segments and produce products and services that appeal to those unique markets…the goal to provide a more informed, personal touch that make customers feel special, because they identify with the image associated with the product or service.” The customers in essence feel special and become members of an affinity group. User-centric EA provides for strong requirements management capability, whereby the requirements of niche customers can be identified and business and technical solutions can be deployed to satisfy their unique needs.
  4. Scale based on cost orientation—“become the low cost producer!” Common strategies to achieve low cost include: “achieving economies of scale (volume production); installing efficient (and volume discounted) supply chain management; continually improving production processes (including lean production techniques that eliminate waste); and outsourcing non-core competencies.” Here, the strategy is to “pursue continuous improvement and new technology.” EA can facilitate the investment in new technologies or more efficient technologies that reduce cost or make possible mass production and the attainment of economies of scale.
  5. Scale based on market dominance—“be the 800-pound gorilla.” Strategies here include: “acquisitions, joint ventures, exclusive supplier relationships, new product development, new market entries, warranties or guarantees, integrated sales and IT structures.” The strategy here is to “keep growing market share.” EA is vital in identifying gaps that can be filled through strategic M&A, and in integrating disparate enterprises, consolidating redundant IT systems, developing interoperability between merging or partner organizations, and providing standards and governance for these large scale enterprises.
User-centric enterprise architecture is critical to achieving Porter’s vision of competitive advantage, driving organizational change, and achieving a winning business strategy.

September 19, 2007

Competitive Advantage and Enterprise Architecture

Competitive Advantage—“When a firm sustains profits that exceed the average for its industry, the firm is said to posses a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage.”

“Michael Porter identified two basic types of competitive advantage:

  • Cost advantage
  • Differentiation advantage”

“A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiating advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself.”

Cost and differentiation advantages are known as positional advantages since they describe the firm’s position in the industry as a leader in either cost or differentiation.” (

In User-centric EA, the target state and transition plan in a for-profit, private sector company should be one that develops competitive advantage for the organization and thereby superior profitability. This is done either through business process reengineering/improvement or through technological differentiation. In technological differentiation, information technology solutions are adopted that align to business needs and help it to create either cost or differentiation advantage. IT is used to create cost efficiencies through automation or to developing differentiation advantage through the development of products that are more technologically advanced than its competitors. In essence, the organization employs cutting-edge technology to leap over its competitors in terms of cost or product.

In not-for-profit organizations or government, EA target state and transition plan does not set the stage for competitive advantage in terms of delivering superior profits, but rather in terms of delivering superior value to its stakeholders. Again, either business process or technology enhancements can help the enterprise develop the superior value. Additionally, there is not the same notion (if any) of competition (i.e. so ‘competitive advantage’ should really be more just ‘advantage’—to the enterprise and stakeholders—without the ‘competitive’ in it).

In any case, competitive advantage in terms of continuous improvement vis-a-vis efficiency and effectiveness of mission execution, and performing better, faster, and cheaper on behalf of stakeholders is the end game.