Competitive Advantage

Competitive Advantage

Back in 1990, Michael Porter published a book called “The Competitive Advantage of Nations”. It explored how countries have become dominant in certain industries and have failed abjectly in others. For project managers, such macro-level considerations rarely have any effect on our day-to-day work; however, an understanding of competitiveness will help to make some decisions clearer for us.

In many large companies, projects are initiated to explore different approaches. An aircraft manufacturer may have a goal of reducing the fuel consumption of its products. It might approve a project to investigate light-weight structural materials, as well as one to explore engine efficiencies. If one project reports tremendous potential, the other may be shelved, while resources are diverted to the one with better results.

If you work in such an environment, how can you give your project the competitive edge? The Project Management Institute’s Guide to the Project Management Body of Knowledge (PMBOK® Guide) provides little or no guidance, so a review of Michael Porter’s work might help focus your efforts in a more competitive direction.

So what is a competitive advantage? In Porter’s book, it is either lower costs or a differentiated product that can command premium prices. For a project manager, lowering costs does not just mean paying attention to the project budget (the Estimate Costs process if you have been through PMP® training). It would involve a similar exercise to quality planning. Remember from your PMP® course that it is better to design quality in, rather than inspecting it in. Similarly, placing the emphasis on efficient manufacturing and maintenance in your product design will reduce both the unit cost of making the product and the overall cost of ownership by making it more maintainable.

If it is a complex product and you cannot find any way of reducing the manufacturing costs, then how can it be differentiated and placed in a premium sector? Toyota, for instance, set up its Lexus division to command higher prices than meat and potatoes Toyotas. But the company was successful because it produced an incredibly refined product. Similarly, companies like Netflix succeed by offering the latest movies and unique TV series. While movies are available on YouTube for free, they tend to be old, obscure or straight to DVD commercial failures.

A heart breaking event in any project manager’s career is the termination of a project. This often happens if the product or service being developed is suddenly obsolete. The development of the fax machine spelled the end of telex; the development of the personal computer destroyed the typewriter market. Wise organizations cut their loses straight away and redirect their efforts more productively. Wise project managers will keep a close eye on the marketplace and try to steer the project in a more competitive direction. As any PMP® will tell you, all projects should have robust change control procedures. Instead of being reluctant to change, the project manager should be encouraging the team and the project stakeholders to contribute suggestions for improvement throughout the project. It might be inconvenient to redesign the product or service late in the project, but such a change might mean the difference between selling it and seeing it gather dust on the shelves.

Government ministers are always telling us that competition is good; that it drives prices down. What generally happens though is the big players declare a price war and sustain heavy loses until the weaker players go out of business and then the prices creep back up. Some time back petrol stations offered “price promises” where no station within a mile would have cheaper fuel. When a competitor dropped its prices, the “price promise” matched them – they never went lower. So how could you compete on cost, when every price cut was matched? Soon the small players let their prices drift up and the “price promises” went up to match them.

But competition does influence the marketplace. According to Porter, the threat of new entrants to the market requires attention. For instance, Sony’s Diskman product was severely affected by the launch of the Apple iPod. Although your PMP® training is unlikely to focus on this, any project manager needs to be alert to the marketplace. Flagging a new entrant and adapting to suit can make your project a success despite the threat.

Another factor, that is currently affecting the pharmaceutical sector, is the availability of substitute products and services. Generic drugs are flooding the market, now that high-ticket drugs, such as Lipitor, have gone off patent. Eastman Kodak finally went bust because the cameras supplied with smart phones destroyed the holiday-snap camera market. These examples show the variety of threats under this heading. While the pharmaceutical companies knew their patents were due to expire, the threat from a totally different product can happen without warning. As another example, fewer young people are buying wristwatches, again because they make use of their phones’ clocks.

Competition also dictates what suppliers will charge you for components and services, as well as what we can ask for in the marketplace. During the PC boom at the turn of the century, German car manufacturers had to slow production because the steel used for computer chassis was the same gauge as that needed for certain car body pressings. The suppliers got better prices from the PC manufacturers, so diverted the steel. Similarly, in tight economic times, people spend less on luxury. This explains why attractive car finance deals are being offered today. Few people can afford a new car, but they can afford a low monthly lease fee.

Rivalry also exerts tremendous competitive pressure. Why are there so many supercar manufacturers in northern Italy? Why are there so many high-tech companies in Silicon Valley? Intense rivalry means that companies have to compete hard to survive in that industry. By co-locating, they enjoy similar infrastructure costs, access the same resource pool and create a critical mass that encourages local schools and universities to offer courses in that particular industry. As an example, the Cork Institute of Technology is offering cloud computing courses, stimulated by the presence of Dell and VMware in the neighbourhood.

So competition can be good and it can be bad. The important thing to remember is that it exists. While most PMPs® can relax and let program and portfolio managers worry about the strategic direction of the company, being aware of where your project fits in the marketplace and tuning into developments in that marketplace can give you the early warnings needed to adjust your project to a brighter future.

Intense competition among Registered Education Providers has honed Velopi’s courses into the ideal preparation for achieving the Project Management Professional (PMP)® certificate in project management. We run PMP® Exam preparation courses regularly online in our virtual classroom. For more details, please visit our training page, or contact us directly.

By Velopi Seamus Collins

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