Better, Cheaper, Faster

1. The Competitive Advantage
Better, Cheaper, Faster
1Michel A. Vachon

2. Context
• “Better, cheaper, and/or faster” are
comparative words. Without context they are
meaningless.
• In the business world, the expression ‘better,
cheaper, faster’ relates to concept of
competitive advantage.
• Competitive advantage is a matter of strategy.
2Michel A. Vachon

3. Common Language
• “Strategy is the means to create economic value
by gaining competitive advantage through a
unique value proposition”. [National Association of
Corporate Directors – Blue Ribbon Commission on Strategy
Development]
• “Strategy deals with one critical dimension of
performance: competition. Dealing with that reality
is strategy’s job”. [Why Business Models matter, Joan
Magretta, https//hbr.org/2002/05/why-business-models-
matter]
• Your competitive advantage derives from your strategy.
3Michel A. Vachon

4. What is Not a Competitive Advantage
• Competitive Advantage is NOT:
– High customer satisfaction rating
– A superb product
– A dynamic and innovative team
– A unique name recognition
– Other product/service enviable features
4Michel A. Vachon

5. What Is a Competitive Advantage
• Corporate features tell, customer benefits sell.
– It’s not about what you think of your product or
service, it’s all about what the customer gets out
of it
• Competitive advantage refers to a superior
value. The customer is the only one
authorized to decide on value.
5Michel A. Vachon

6. Apples and Oranges
• A lead pencil is cheaper than a Mont Blanc
fountain pen. A formula One Ferrari is faster
than a 6-cylnder Chevrolet sedan. A diamond
from Tiffany is better than an emerald stone
from the Jewelry Exchange.
• True… but only in the context of the intended
customer in a given industry for a given
market
6Michel A. Vachon

7. Better: Value
Product Customer Industry Marketplace
Pencil Carpenter Construction USA
Fountain Pen CEO Construction USA
Ferrari Formula One Racer Transportation USA
Chevrolet Commuter Transportation USA
Tiffany Diamond
Upper Class
Shopper
Jewelry USA
Jewelry Exchange
Emerald
Middle Class
Shopper
Jewelry USA
What is better?
 A pencil or a fountain pen?
 A Ferrari or a 6-cylinder Chevrolet?
 A Tiffany diamond or a Jewelry Exchange emerald stone?
7Michel A. Vachon

8. Three Steps to Qualify as “Better”
1. Customer Segment in the context of Industry
– The concept of ‘better’ as a critical element of
competitive advantage depends on the customer
segment context (users with a common ‘job-to-
be-done’ in a given industry)
– Commuters (Chevrolet) and racers (Ferrari)
represent the same industry (transportation) but
two distinct market segments – not to be
compared
8Michel A. Vachon

9. Three Steps to Qualify as “Better”
2. Customer Segment in the context of the
Marketplace
– A relatively inexpensive 6-cylinder Chevrolet in
America is better than a Formula One Ferrari to
commute in and around busy US cities
– A Chevrolet becomes very expensive in the streets
of Calcutta where the Tata Nano car has superior
value in terms of maneuverability in dense traffic
and narrow passages
– In Calcutta, a Tata Nano is better than a Chevrolet
9Michel A. Vachon

10. Three Steps to Qualify as “Better”
3. Customer Segment in the context of Value
Chain
– A value chain consists of a number of unique
activities that you must systematically perform to
create value in a sustainable manner
– Those activities form a network of interdependent
value-creating actions called value chain
– The value chain is a critical element of your
business model
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11. Value Chain
Southwest Airlines’ unique value chain that allows for ‘better, cheaper, and faster
relative to their competitors (cars, buses, and trains)
11Michel A. Vachon

12. Business Model Canvas
• Value-creating activities
form the value chain
driving the value
proposition for the
targeted customer
segment
12Michel A. Vachon

13. Business Models
• If ‘better, cheaper,
faster’ define
competitive advantage,
we must frame the
conversation in real
terms – in terms that
are embedded in an
innovative business
model Business Model Canvas by Strategyzer.com
13Michel A. Vachon

14. Business Models Matter
• Southwest Airlines
• IKEA
• Apple
• Amazon
• Google
• Walmart
• Kmart/Sears
• Segway
• Kodak
• Some have great
dynamic business
models
• Others have weak
business models
• Some experience
spectacular growth
• Others barely survive
• Some are dead
14Michel A. Vachon

15. Expedia.com
• Recent financial results indicated a 3% drop in
anticipated revenues
• Expedia.com and Hotels.com dominate (90%) the
$68 billion online booking industry
• Wall Street sounded the alarm
– Why? Blame it on an aging business model
– Current business model is anchored in the www
accessible on any personal computer in the world
– The trend is moving towards mobile access
– Neither Expedia nor Hotels.com are ready for this
transformation
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16. ‘Better’
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17. ‘Cheaper’
• ‘Cheaper’ has to do with relative cost and relative
price
– Relative Cost within your industry and marketplace
– Relative Price within a customer segment within a
specific industry and a given marketplace
– Profit = Relative Price – Relative Cost
• A healthy balance sheet and income statement
will serve as evidence of being ‘cheaper’
• Proof of competitive advantage is reflected in
your P&L
17Michel A. Vachon

18. Apple
• Apple’s value proposition is so strong that it fosters an
almost cult-driven customer base no matter the price
of the iPhone
• Relative to other smart phones, Apple commands a
disproportionate share (92%) of the industry profit
compared to its share of the market. Right click on the
link; select Hyperlink/Open Hyperlink
http://www.wsj.com/video/why-apple-dominates-smartphone-
profits/C4A02D74-A181-4DCD-8FB1-42420D6DE75E.html
• High profits due to relative low cost and relative high
price combined with a stratospheric valuation gives
Apple a huge competitive advantage
18Michel A. Vachon

19. Source of Relative Cost
• Operational efficiency
– Low relative cost is found in the systematic, value-
creating and cost-generating activities in the value
chain of the business model
Right
tool at
the right
, me
Budget
Assurance
No
down
, me
Manufacturing
Modular
Tools
Warranty
Technology
Distribu, on
Fleet
Management
Logis, cs
Online
Training
Strategic
Focus
HILTI
Centers
HILTI’s Value Chain
19Michel A. Vachon

20. Skype
• Superior profitability
– Ridiculously relative low prices for international calls
– Relative low cost (free) Voice-Over-Internet Protocol
(VOIP) use of the Internet
• Unmatched competitive advantage
– 300 million monthly active users
– 1 billion downloads
– 3 billion minutes spent on Skype every day
– 2 trillion minutes used on Skype video calls
– 50: # of languages Skype support IM text-to-text
translation
20Michel A. Vachon

21. Any successful strategy must take into account the
spread between relative price and relative cost
Relative Price > Relative Cost = Profit
21Michel A. Vachon

22. Competitive Advantage
• The secret sauce can be found in the
uniqueness, the effectiveness, the cost and in
the value creation ability of your value chain
activities
22Michel A. Vachon

23. Key Activities of the Value Chain
• The more efficient you are in performing these
activities…
• The more integrated and interdependent are
these activities…
• The more value each activity generates…
… the bigger and the more sustainable is your
competitive advantage
Create more value and command premium prices
23Michel A. Vachon

24. Think Value Chain
• Only the customer’s perceptions really count
– You must have a strong value chain to impact your
customer’s perception
• Create activities that add incremental value to
the end product/service and you will have a
huge competitive advantage
24Michel A. Vachon

25. ‘Faster’
• In sports, speed means the first one to get at the
finish line
• In business, the customer defines the term
‘faster’
• If Amazon promises next day delivery, then the
customer defines speed as next day delivery.
• When deliveries are completed as promised
consistently, then the concept of ‘faster’ takes on
a reality of its own. Any delay erodes the
perception of ‘faster’.
25Michel A. Vachon

26. “Faster’ than your rivals
• A good project manager will produce all
required deliverables in the shortest
timeframe possible and at the lowest possible
cost to the customer.
• When the customer receives her deliverables
consistently within schedule, then she
considers the service to be ‘faster’ than rivals
who may not be as reliable or dependable
26Michel A. Vachon

27. How Does One Get to Be “Faster”?
• Value chain activities do not inherently
produce speed
• Key resources and key partners are the
engines of speed
• Process efficiency and key resources/partners’
productivity determine ‘operational speed’
• Continuous training and enduring
commitment are essential ingredients
contributing to “faster”
27Michel A. Vachon

28. The Bottom Line
• Business models matter!
– Because they enable strategy as the ultimate tool
for competitive advantage and the antidote to
competition
• Strategic advantage originates with customer
perception based on the value you create for
your customer
– That value, at the heart of the business model, is
embodied in “better, cheaper, and faster”
28Michel A. Vachon