The Sources of Competitive Advantage of Rolls-Royce PLC and Tesco PLC in Harvard Style - Essay Example

The Sources of Competitive Advantage of Rolls-Royce PLC and Tesco PLC in Harvard Style 1.0 Introduction A competitive advantage is defined as a process or a competence that enables a firm to generate and sustain profit than the industry average (Competitive Advantage 2006). Furthermore, the strategist Michael Porter identifies two source of competitive advantage namely, cost advantage and differentiation advantage. A cost advantage exists if the business organization delivers the same benefits but at a relatively lower price than competitors. On the other hand, a differentiation advantage enables a firm to offer a product or service that exceeds the benefit, value, or feature currently offered by the other players in the industry. This paper will compare and contrast the competitive advantages of renowned engine manufacturer Rolls-Royce Plc (Rolls-Royce) and retail store giant Tesco Plc (Tesco). Traditionally, the competitive advantage business organizations can be fully identified by conducting a value chain analysis. However, recognizing the numerous changes in the businesses’ market environment, this paper will also complement value chain analysis with a method introduced by Shawn Cartwright, the value web analysis. It should be noted that this tool brings into consideration the analysis of competitive advantage of dotcoms or firms whose operations are conducted online or whose brick and mortar strategies are complemented by online presence (Cartwright and Oliver 2000). This report will be organized as follows. The first section will take a look at the operations of Rolls-Royce Plc. A brief organizational profile will be presented together with the company’s identified core competencies. The paper will then evaluate Rolls-Royce’s competitive advantage in light of the value chain and the value web analysis. The second section will also evaluate Tesco Plc in the same manner. This paper will conclude with a comparison and contrast of the previously identified competitive advantages. 2.0 Rolls-Royce Plc Rolls-Royce is currently the world’s second largest airline engine manufacturer behind the General Electric Aviation. Aside from aero-engine, the company is also involved in other industries like defence, marine, and energy markets. The business organization traces its origin in 1971 and was founded by Henry Royce and CS Rolls. With its humble beginning, it has now ascended in the global business marketplace with its cutting edge technology and diverse product offerings. The company is not just a provider of high-quality products but also offers unmatched after sales service to its clients. Its market base spans over 120 countries around the globe, becoming a significant supplier of engine to important customers worldwide. Also, in order to complement its product, Rolls-Royce has established online presence through Aeromanager in offering aftermarket services. 2.1 Core Competencies The success of Rolls-Royce in the global aero-engine industry is attributed to its core competencies. A core competence, according to Prahalad and Hamel (1990) is something that a firm can do well and meet three specific conditions: “it provides customer benefit; it is hard for competitors to imitate; and it can be leveraged widely to many products and market.” A company’s core competencies are the capabilities which the company needs in order to build a competitive advantage. In the case of Rolls-Royce, its core competency is apparently in the production of engine. It should be noted that the expertise of the business organization in the creation of aero-engine is applied to a wide range of industries where it operates such as defence, marine, and energy. With the company’s expertise in the production of a single product engine, Rolls-Royce, with its technological is able to transform this engine into one which can be used in other industries. It should be noted that all the end products of the company are mere modifications of their core product which is engine. 2.2 An Evaluation of Competitive Advantage by Value Chain and Value Web Analyses The rationale in the identification of competitive advantage through the value chain is simple. By conducting an evaluation of the different processes which occurs in the business organization, it can better identify the activities which it does better than its other competitors (The Value Chain n.d.). Through the utilization of value chain analysis, it can be seen that Rolls-Royce highly funds and capitalizes on one of its support activities—research and development. It should be noted that the company heavily invests in this activity in order to develop new products. Recognizing that there are still ways in which to improve product offerings, the company embarks on discovering more innovative products which adds more value for customers. Rolls-Royce put a high value on innovation, because “innovation technology and engineering are at the core of [our] their business.” Because of this, the research and development efforts have created a unique technology for the business organization which is unmatched by any other competitor in the industry. This technological know-how has become a high barrier to entry which hinders other incumbent and potential players from competing head-on with Rolls-Royce: “The knowledge based investment in product, capability, and infrastructure to support this market position have created high barriers to entry” (Rolls-Royce Annual Report 2002). Rolls-Royce stresses the importance of technology on its business operation referring to it as the “key success driver of the company” (Rolls-Royce Annual Report 2002). The unique technology of Rolls-Royce is utilized in order to come up with products which are superior in quality and in features, thus, differentiating it from the offerings of other players in the global aero-engine industry. It can then be deduced that by using the value chain analysis, Rolls-Royce is apparently leveraging on its differentiation advantage. The value web analysis will be used in order to ascertain the aero-engine aftermarket service offered by Rolls-Royce. It should be noted that this service is offered to complement the products offered by the engine manufacturer and is facilitated through an online portal called Aeromanager. In line with the value chain analysis, it can be seen that Rolls-Royce is apparently using its differentiation advantage not from its partners, customers, or complementors but through the use of its technological superiority: “Our competitive advantage in the provision of these services is derived from our unique knowledge of our products and the proprietary technology we have embedded in them. This has enabled us to offer tailored support packages, such as TotalCare and Mission Ready Management Solutions.” 3.0 Tesco Plc Tesco PLC is the largest British retailer based on both global and local shares. Traditionally, the UK-based international retailer specializes only in the distribution of food products but it currently adds other goods and services to its product portfolio which ranges from clothing to consumer electronics to consumer financial services to internet services to internet service and consumer telecom. Last February 26, the company announced a total annual turnover of £33.974 billion and reported a pre-tax profit of £1.962 billion. It is estimated that in every £8 UK retail sales, £1 is spent on Tesco (Tesco Plc 2007). Tesco is currently one of the world recognized retailers. The phenomenal success of Tesco as a retailer is recognised even in the global arena. The company lags behind Wal-mart in terms of global sales, staying ahead of other retail giants like Carrefour, and Home Depot. The company’s success and even mere existence in the strategies it employs to capture new markets and retain its current buyers. In order to expand its customer base, the retail giant is currently pursuing opening up operations abroad. This is coupled with the company’s use of internet technology in order to have gain access to a low-cost distribution system and reach a wider market. 3.1 Core Competencies When John Cohen founded Tesco, he envisioned a retail outlet which will become a leader in the industry because of its low cost strategy. Thus, the retail giant based its operation on a “Pile it high, sell it cheap” approach (Tesco Plc 2006). Founded in this philosophy, the retailer has grown to be a global brand which still sticks to this strategy. In the core of the company’s operation is its quest of providing customers with products at the least possible price. This has become the core competency of the business organization. However, as opposed to other retailers in the global market, Tesco couples its cost competency with excellent customer service. Recognizing that customer loyalty is not only cultivated through competitive pricing, Tesco also invests in training its employees and making them part of its success through the extension of high quality service together with their cheap products. 3.2. An Evaluation of Competitive Advantage by Value Chain and Value Web Analyses Looking at the value chain of Tesco, it can be seen that it is relatively more efficient in carrying out its outbound logistics, distribution, and customer service. Its efficiency in outbound logistics is justified by its mere scope and size. Tesco, as one of the world’s largest retailer, is a very important customer to its supplier. Thus, the company posses a high bargaining leverage, enabling it to get discounts which are not otherwise available to its smaller competitors. The company also enjoys economies of scale in distribution, advertising, administrative processes, and production. This enables Tesco to significantly reduce cost and generate high margins. As opposed to other players in the industry, Tesco’s own brand is a source of large margins in its total revenue. With this, it can be seen that the competitive advantage of Tesco is generated through its cost efficiency. The company uses its size and economies of scale throughout its value chain in order to significantly drive down its cost, allowing it to charge lower, if not the lowest price in the market. However, the fact that the company does not just offer products at less than industry average prices but couples it with excellent service implies that it also takes effort in differentiating itself from its competitors. For Tesco, it is not just about the product but the shopping experience is also a key in cultivating customer patronage and loyalty. Through the value web analysis, it can be seen that the relationship of Tesco with its supplier and its customers are very much significant in the creation of a competitive advantage. Through the company’s strategic alliance with its supplier, Tesco is able to bring down prices. On the other hand, the company’s launching of the Loyalty Card allows it to know more about its customers for more specific target marketing. It becomes apparent that all these strategies are very much supportive of a cost advantage. Strategic advantage entails less procurement costs while target marketing becomes a key in cutting advertising costs. 4.0 Comparison and Conclusion The discussion above shows how two different players in the industry, specifically Rolls-Royce Plc and Tesco Plc uses their resources and skills in order to create competitive advantage in strategically competing both in the marketplace and the marketspace. What becomes apparent in the discussion is that both companies are banking on their expertise in creating a competitive advantage. For Rolls-Royce, the competitive advantage is its ability to design and manufacture engines and modify them for the industries that it serve. The company capitalizes on its technological capability and invests heavily on research and development enabling it to differentiate itself and its products from its competitor. On the other hand, Tesco capitalizes on its efficiency, size, and economies of scale in order to cost more competitively. It also becomes apparent that both of the company’s competitive advantage becomes the foundation of their strategies. Rolls-Royce differentiation advantage allows it to pursue a differentiation strategy while the cost advantage of Tesco allows it to employ a cost leadership strategy. On the other hand, it can be seen that the competitive advantage of Rolls-Royce is generated from activities which is internal to it. It can be seen that the company’s technological expertise is developed internally without any other stakeholder involved. Tesco, on the other hand, generates its competitive advantage internally and its relationship with suppliers and customers. Also, it can be seen that even though these two companies employ different strategies due to their different competitive advantage, they are both considered leaders in their own industries. References Cartwright, S.,  Oliver, R. 2000, The Journal of Business Strategy. Boston: Jan/Feb 2000.Vol.21, Iss. 1;  pg. 22, 6 pgs Competitive Advantage 2006, Retrieved 22 January 2007, from http://www.quickmba.com/strategy/competitive-advantage/ Geber, B 1994, Training. Minneapolis: Nov 1994.Vol.31, Iss. 11;  pg. 33, 6 pgs Rolls-Royce PLC Website, www.rolls-royce.com Tesco PLC, 2007, Retrieved 22 January 2007, from http://en.wikipedia.org/wiki/Tesco Tesco PLC Website, www.tesco.com Read More