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Competitive Advantage Matrix

Use this framework to figure out how you can get a competitive advantage by volume production and differentiation

In 1981, Richard  Lochridge, a Boston Consulting Group consultant, developed a two axis matrix to show how companies can develop a growth strategy. The competitive advantage matrix sits in parallel with what is frequently referred to as simply the Boston Matrix (that of cash cows, dogs, question marks and stars). It hasn't achieved the recognition and use of the Boston Matrix (growth/share matrix) but it is (as all frameworks) useful for building a big picture of how your company can grow.

The competitive advantage matrix has two axes – the horizontal axis looks at economies of scale (i.e. size of business) and the vertical axis covers opportunities for differentiation (i.e. the ability of the company to differentiate from its competitors). This results in four quadrants –

 

  • volume business,

  • stalemated business,

  • fragmented business,

  • specialised business.

Volume business: these are companies such as automotive manufacturers who seek to compete by efficiencies achieved with their massive production runs. They are capital intensive businesses whose ability to compete depends very much on how good they are at managing their costs.

 

Stalemated business: traditional companies such as those making textiles also seek to reduce their costs as much as possible. Because they don't have economies of scale like the automotive companies, they have to find some other means of gaining a competitive advantage. They may, for example, choose to relocate their business to a country with low cost labour. These companies have much less opportunity for achieving a competitive advantage than others in the matrix.

 

Specialised business: these companies have volume and they also are able to take advantage of differentiation (i.e. branding) to win a competitive advantage. Typical examples are large consumer goods companies such as Unilever and Procter & Gamble who use their size to obtain advantages of low-cost as well as consumer pull through their brands.

 

Fragmented business: these companies don't have size on their side but they are able to differentiate and win a competitive advantage through playing in a niche. Think of restaurants, printers, engineering jobbing shops and the like, all of them with loyal customer bases.

The framework helps you understand where your competitive advantage comes from and so it can be useful in guiding future strategy. For example, if you know that you are a stalemated business, there is no point attempting to compete by increasing the volume of your output or trying to differentiate, but you may be able to gain some advantage by finding a location for your business where there is low cost labour.

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