Competitive advantage (競争優位) is a favorable position in which customers choose you more readily than your rivals and you earn higher profits.
Source: unique capabilities or new ways of working
Favorable position: customers pick you more readily
Result: high profits that last
Whatever creates that position is called a source of competitive advantage, such as a capability other firms lack or a new technology or way of working. The harder the source is for others to copy, the longer the favorable position lasts.
AnalogyIt is like holding the best ground in a territory game. As long as you can keep holding it, you stay in a position where winning comes easier.
How to rememberThe Japanese 優位 literally reads "superior position." It names where you stand in the competition, not the capability itself.
Exam points
ExamA capability that rivals find hard to imitate and that leads to value for customers becomes a source of competitive advantage (競争優位).
Mix-upCompetitive advantage is the favorable position a company holds, while the central internal capability that produces that position is called core competence (コアコンピタンス).
Core competence (コアコンピタンス) is a company's central capability that creates value for customers and that other firms cannot easily copy.
Examples include proprietary technology built through years of research and know-how accumulated inside the organization. Another feature is that it is not tied to one product but can be applied across several products and businesses.
AnalogyIt is the roots and trunk of a tree. Even as the products, like branches and fruit, come and go, the same strong roots let new branches grow again and again.
How to rememberIn Japanese it is simply the English "core competence" written in katakana: core is the center, competence is ability.
Exam points
ExamCore competence (コアコンピタンス) means the company's own technology or skills that produce what customers value and that competitors struggle to copy.
ExamCore competence management (コアコンピタンス経営) builds competitive advantage (競争優位) by putting management resources mainly into the capabilities that are the company's own strengths.
Innovation (イノベーション) is a change that produces new technology, new systems or new ways of doing business and brings new value to markets and society.
It is not limited to technology: besides changes that yield new products, it includes changes to how things are made or sold, or to the business model itself. It is one source of competitive advantage and can also open up new markets and demand.
AnalogyIt is like a new combination of everyday ingredients turning into a classic dish that everyone eats.
How to rememberIt comes from the Latin in (into) and nova (new): read it as making something new from within.
Exam points
ExamInnovation (イノベーション) covers not only technical breakthroughs but also the creation of new business models.
Mix-upInvention (発明) is creating a new technology, whereas innovation turns a new idea into a business that brings value to markets and society.
A niche strategy (ニッチ戦略) concentrates management resources on a small market that large companies neglect (a niche market) and builds an advantage there.
When firms in an industry are grouped by market position, there are four types: leader, challenger, follower and nicher, and the niche strategy is the typical approach of the nicher, which devotes itself to a niche market. The leader is the top firm, a challenger is a high-ranking firm that goes after the top spot, and a follower is a firm that models itself on those above it. Even with limited resources, a firm that meets the needs of a specific customer group in depth can hold a strong position in that market.
AnalogyA small fish living in a crack in the rocks survives precisely because the big fish cannot get in there.
How to rememberA niche was originally a small recess set into a wall to hold an ornament. A recess in a big wall is a gap in the market.
Exam points
ExamA niche strategy (ニッチ戦略) does not target the whole market; it narrows down to a specific small customer group and concentrates management resources there.
ExamA challenger (チャレンジャー) competes with both higher- and lower-ranked firms to grow its market share, so its goal differs from that of a nicher (ニッチャー), which keeps its edge in a niche market.
An imitation (matching) strategy (同質化戦略) is one in which the industry leader adopts the point of difference (differentiation) a challenger has introduced and so cancels it out.
Position
Standing
Typical strategy
Leader
Number one
Grows the whole market and answers a challenger's differentiation by matching it
Challenger
High-ranked, going for the top
Stands out from the top firms to take share
Follower
Follows the top firms
Copies the top firms' products to keep costs down
Nicher
Focuses on a niche
Concentrates resources on a small market
Once the difference disappears, customers choose on overall strength such as scale and sales reach, and the leader, which is stronger on those points, comes out ahead. That is why the strategy suits a firm with the money and production capacity to match a challenger's moves right away.
AnalogyIt is like a sumo wrestler who picks up any new move the moment an opponent shows it, then simply wins on sheer size.
How to rememberThe opposite of "different in kind" is "same in kind." The challenger attacks by being different; the leader answers by becoming the same.
Exam points
ExamA follower (フォロワー) models its products on those of the top firms to cut costs and sells at low prices. Its reason for copying differs from that of the imitation strategy (同質化戦略), which the leader (リーダー) uses to erase a difference.
Mix-upThe imitation strategy works to remove differences from rivals, the opposite direction to differentiation (差別化), through which a challenger (チャレンジャー) sets itself apart.
A blue ocean strategy (ブルーオーシャン戦略) avoids fighting rivals in an existing market and instead offers new value to create, by itself, a market with no competitors.
Red ocean (existing market)
Blue ocean (new market)
Market
A market that already exists
A market newly created
Rivals
Crowded with companies
No rivals
Demand
Fight over limited demand
Create new demand
An existing market crowded with rivals fighting over limited demand is called a red ocean, and an untapped market with no rivals is called a blue ocean. By looking at what customers still lack and rethinking the assumptions the industry has taken for granted, the strategy creates new demand itself.
AnalogyIt is like giving up the fight for a spot at a packed fishing pier and sinking an artificial reef in empty water offshore, so that you create a brand-new fishing ground with no one else on it.
How to rememberRed is a sea stained with the blood of competition; blue is a calm, empty sea. Remember it by the contrast in color.
Exam points
ExamA blue ocean strategy (ブルーオーシャン戦略) uses new value to generate demand and opens up a market where there are no competitors.
Mix-upA niche strategy (ニッチ戦略) competes in a small slice of a market that already exists, while a blue ocean strategy creates a whole new market with no rivals.
Concentrates resources on a specific customer group
Creates demand through new value
Key points
Competitive advantage is a more favorable position than rivals hold, and its sources include a hard-to-copy central capability (core competence) and change that creates new value (innovation).
A niche strategy concentrates management resources on a small market the big players neglect and holds the advantage in that field.
In an imitation (matching) strategy, the leader adopts a challenger's differentiation, removes the difference and competes on overall strength.
A blue ocean strategy uses new value to create its own market with no rivals.