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How to Achieve a Decisive Competitive Edge

Updated: Nov 28, 2022

Innovating the Business Model and aligning Strategy and Operations

Decisive Competitive Edge

Different schools of thought define Competitive Advantage and how to achieve it. Among the best known, the approach of M.E. Porter, who has declined two alternative paths of undoubtedly competitive advantage, is certainly one of the most known:

  • Through strategies that aim to achieve Cost Leadership;

  • Through techniques that aim to create more value for the customer through Differentiation.

Depending on the extent to which the organization chooses to execute one or the other strategy (global/segment), the model leads to a matrix of five alternatives.

Framework Vantaggio Competitivo - Source: APICS
Competitive Advantage Framework - Source: APICS

Porter listed several ways to implement one strategy rather than the other. Is that the best we can do?

If we enrich the concept of Competitive Advantage with the attribute "Decisive," we enter a completely new paradigm; we walk a step into the world of those realities, which in the jargon of the Theory of Constraints are called "Ever Flourishing Companies," that is, those realities that, consistently and continuously, can double if not triple their value every four / five years, with growth rates from 25% upwards. Results that go beyond the "noise factor."

Before explaining how to build a Decisive Competitive Edge, let's return for a moment to the traditional world, where the attempts to apply Porter's models are evident in many sectors.

In this article, we will take the automotive as a reference industry, as it is understandable to practically everyone, having almost everyone tried the experience of buying a vehicle (car, motorcycle, or scooter) in their lives.

The Business Model and Competitive Strategies

Analyzing the industry from the point of view of the business model, we realize how difficult it is to find significant differences in the competitive strategy of the various traditional incumbents[1]:

  1. Apart from those manufacturers who have decided to focus on specific niches, all large manufacturers try to compete almost in all segments, often with multi-brand policies;

  2. In the economy segment, we are witnessing a price battle that has led OEMs[2] to live with shallow margins, with increasingly frequent attempts to enrich the product to try to differentiate it to stand up from the pure price competition;

  3. In the premium segments, where the differentiation strategy has been applied, we see that more or less all OEMs have followed the approach of offering high levels of customization of the available options. In addition to the possibilities that can be selected individually, for some years, it has been fashionable to provide the "packages," i.e., predefined "bundles" of different options whose price is less than the sum of each alternative;

  4. More or less everyone is chasing each other in trying to launch new products at ever higher rates to stimulate demand, shortening the life cycle of the product itself, also exploiting the contribution of technological enrichment;

  5. Practically all the players in the sector have tried to activate additional revenue channels to support the core business, offering various ancillary services: financial services, extended warranty packages, buyback, etc.

By analyzing the competition, is it possible to identify a player who has acquired a natural Decisive Competitive Edge?

We can argue that some are better off and are most recognized as reference leaders in a segment. Still, the answer, adhering to the definition of Decisive Competitive Edge that we will provide below, in our opinion, is NO: the sector represents the classic "Red Ocean," where the product is mature. Margins are substantially low compared to other industries, and incumbents all compete in an undifferentiated way with the same strategy.

We now share our view regarding the definition of a Decisive Competitive Edge.

Decisive Competitive Edge means having the ability to remove a significant limitation for the customer, in a way that was not possible before, to such extent that no relevant competitor can offer.

We elaborate on this concept by examining what the different players in the sector do.

Have you recently tried to contact any dealership and requested a quote and related delivery date? If "accidentally" the configuration you were looking for was unavailable, the times communicated to you were likely between nine and twelve months, presumably attributing the cause to the problems caused by the pandemic.

The pandemic has exacerbated the phenomenon, but can we argue that the pre-pandemic situation was perfect when waiting times were three to four months on average?

Given these premises, the questions we want to ask are the following:

  1. Is it legitimate to question the ability of companies in the sector to offer the possibility to the customers to configure the vehicle according to their wishes and deliver it quickly?

  2. If it were possible to remove the limitation of waiting times, would it be possible to acquire a Decisive Competitive Edge in the market?

  3. How much could waiting times be reduced, considering the product is assembled on highly automated lines in a few hours?

Comparing the marketing strategy and operational performance, we can say that a problem of misalignment of the business model with the operating model unequivocally limits the sector.


The operating model

After focusing on how the various players in the sector operate from the point of view of the business model and Marketing and Commercial strategies, let's now analyze how they are positioned from an operational point of view.

Make-To-Stock (MTS) and Assembly-To-Order (ATO)

  1. Make-to-stock is the supply chain operating model applied to produce the stock of vehicles that will be pushed into the dealer network[3];

  2. Make-to-order is the operating model applied typically to manage special orders, such as orders from fleets, special vehicles for public administrations, and the "annoying orders of end customers" who have not found the configuration they wanted at dealers.

Let's now try to imagine the complexity of the sector: if we look at the different legitimate options that are made available (models, versions, equipment, engines, transmissions, options, color, etc.) and try to compose the various possible permutations, we quickly arrive at enormous levels of complexity[4] that the supply chain is called to manage.

To satisfy the customer, delivering the exact configuration he wants quickly, there are only two possible alternatives left to the manufacturer.

1) Have the exact required configuration available in network stock.

Let's start by acknowledging that it is questionable, if not unpractical, that the available stock, even by virtually aggregating the inventory at all dealers in a particular area, can include all possible configurations. At most, it is likely that there may be a few dozen configurations available: the most common ones, the fast runners, therefore very far from the entire catalog of allowed configurations.

2) Be extremely quick in fulfilling the sales order when the required configuration is not readily available.

The current limit of the model is the processing times of the configured order. To be quicker in reacting to a sales order, it is necessary to review the critical parameters of the supply chain, along with the underlying erroneous paradigms that self-limit its potential. The complexity lies in the logic of reordering and stocking components and sub-assemblies that must be available to the assembly line at the right time and in the right quantities.

As long as organizations remain bound to the limits of point 1) and cannot implement the change of approach to implement point 2), reviewing the implicit limitations of the model and the limiting paradigms that for years have influenced the way of operating in the sector, the marketing message, not even so hidden, that the seller will be forced to communicate to the end customer, sounds more or less like this:

"We offer you the possibility to choose from thousands of possible combinations to customize your choice. If you want the vehicle in a reasonable time, you must be happy to choose from the few dozen combinations normally available that we thought can meet the needs of the majority of consumers. If you really want it exactly as you like it, queue up and wait for the time it takes probably months, unless you are so lucky that the production of the vehicle you are looking for has already been planned against some dealer order. "

The limitations of the operating model

Let's delve into the negative ramifications of the Make-to-Stock and Assembly-to-Order models.

The Make-to-Stock (MTS) is a supply chain operating model in which the organization produces in advance what it is assumed the market will ask.

Therefore, the crucial decisions in such a model are to determine what and how much to produce. Such decisions are commonly made based on Sales Forecasts. Whatever techniques are adopted, forecasts ALWAYS present an inherent amount of inaccuracy, which cannot be eliminated. Forecasting error tends to increase:

  1. the more we try to segment and narrow the sample on which to make the estimation;

  2. the more the forecast horizon extends into the future.

To these intrinsic characteristics of forecasts, we must also add the lousy practice of presenting and using the forecast numbers as if they were a "number without variability."

We are not saying that it is useless to use forecasts at all: they are necessary to make decisions related to estimating capacities and trends. Instead, we argue that projections are inadequate for deciding what and how much to produce.

Nevertheless, in most cases, the forecast-based and "Push" driven replenishment model still turns out to be the prevailing way to make these decisions. This is because, even if the orders arriving from dealers differ, the OEM has enough bargaining power to force its distribution network to buy what is available.

"Although OEMs record the transfer of stock to the dealer as a sale, in reality the system has not yet sold anything" – E.M. Goldratt.

Despite the attempt to push the stock on the network, especially to achieve the goals of the end of the month/quarter/year, the time to deal with the end customer sooner or later comes.

And when what is asked does not match what the OEM has decided to produce and push, here it comes that the dealer – loaded with inventory – will do everything to try to sell to the end customer what he has on hand at the moment.

To do this – and here comes the second negative ramification – the dealer will have somehow to offer discounts to the customer, discounts that not only make dealers lose margins but also to the OEM, which, to financially support the dealers themselves, will have to somehow grant discounts to the network.

Another desperate attempt not to lose the sale is to look for a similar vehicle from the other dealers in the proximity (stock locator): the negative ramification is equally evident because the dealer will not only have to share the revenue but will also have to bear the cost of transporting the vehicle.

And if even this last desperate move is not enough to convince our end customer, then all that remains is to place the annoying configured customer order to the OEM, with good peace of mind for all:

  • The dealer, who has not disposed of the stock he has on hand,

  • the OEM, who finds an annoying sales order to manage and fit into the intricate tangle of different priorities.

  • And the end customer, who will have to wait several months unless he has decided to look for another brand.

If in the past, OEMs were easier to offload the problem of mismatch between supply and demand on Supply Chains because they had a more significant share of local suppliers, today, with globalization and the pressure on costs to compete, many supplies have moved offshore, creating new negative ramifications for the OEM.

The greater distance and longer transport times require the extension of the forecast horizon, resulting in a loss of accuracy. In addition, component procurement orders must be placed earlier. Finally, the system will suffer less responsiveness to changing demand.

All together, these negative ramifications amplify the frequency and size of overstock or stock-out phenomena, effectively preventing the possibility of achieving the Decisive Competitive Advantage.

What defines a Decisive Competitive Edge?

Let's take up the two concepts:

  1. Porter presents us with two alternative strategies – cost leadership and differentiation leadership.

  2. The TOC suggests removing a significant limitation for the customer in a problematic way to copy.

The resulting consequence is that the cost and differentiation strategies are not necessarily alternatives: in some cases, there is no possibility of opting for one or the other.

Take the luxury car industry, from 200K$ upwards, to be precise. Do you think that 20K$ more or less makes a real difference for the target audience? Is a 20K lower price removing any significant limitation?

The message provided by the Theory of Constraints is strongly focused on understanding what generates value for the customer and his real needs.

It pushes us to know our market very well and understand all the different segments' behavior to convey our offer effectively, make it "unrefutable," and stay as long as possible in the Blue Ocean.

And when it starts to turn to "red" because competitors have learned to imitate us and point to lowering costs, the stimulus is to innovate the model to recreate the Blue Ocean, supported by the Decisive Competitive Advantage: a warning to avoid always throwing ourselves on bearish strategies focused only on costs regardless. On this front,t significant work on paradigms in the business model design is also necessary.



The concepts we have explained, taking as a reference the automotive sector simply because it is commonly known, can be extended and applied to any industrial sector, considering the specificities of the market, demand, and operational and process constraints.

What applies, in general, is the concept that the speed of flow is a fundamental competitive factor: speed of innovation, speed of service to the market, and speed of adaptation to changing conditions (agility).

What is essential to learn to remove limitations is to question the paradigms that guide the culture and prevailing mindset of the company, those paradigms that block us from doing what we know to be suitable to do but that, for some reason, we are barred from realizing.

We will return to the subject, explaining how, by applying the logic of the Theory of Constraints it is possible to drastically reduce these waiting times, identifying and acting on the wrong paradigms and mechanics of the supply chain model that must be changed.


With our thirty years of experience in the Theory of Constraints, Lean and Six Sigma, APICS, and Supply Chain best practices, in Real Throughput you can find a team of expert consultants to help your team lead your Business Transformation program successfully.

We have successfully helped leading companies in different sectors implement broad and innovative transformation initiatives across the organization – Sales, Operations, Supply Chain, and Finance – achieving double-digit profitability gains and substantially improving the ROI of invested capital.

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  • [1] A recent case is identifiable in Tesla, which has been able to create its own "Blue Ocean" in a particular segment.

  • [2] Original Equipment Manufacturer

  • [3] The stock is immediately sold to dealers as OEMs do generally not keep the finished stock in a plant warehouse.

  • [4] A study in the 90s done by Goldratt for a well-known automotive player had counted over 7 million possible combinations.


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