The graphic shown in Figure 1 was also provided in the article (Porter, 2008).
Figure 1: Five Forces Model
This model's effectiveness does not however capture the increasingly critical role of tacit and explicit knowledge in businesses. The tacit knowledge, of the type that is learned from the continual streamlining of core processes, is not easily captured and communicated. It is often called tribal knowledge as this type if intelligence often stays within workgroups where it originates and seldom is captured for broader use. Specific knowledge, or the type of intelligence that can easily be captured and communicated, is often not used to its full potential as well. Studies in the auto industry suggest that knowledge, not products or pricing, is the new competitive advantage (Dyer, Nobeoka, 2000). The Five Forces Model does not recognize how important knowledge is as a competitive force in the definition of competitive advantage and its role in defining competitive rivalries. The bargaining power of knowledge needs to be added as does the threat of falling behind the knowledge curve of an industry. An example of this dynamic is how Intel has continually reinvented itself first into microprocessors and later into entire motherboards, subassemblies for servers and chipsets for enabling networking communications. Knowledge is also critical for the development of trust across a value chain and with customers. The greater the knowledge a company has, the greater it can aspire to be a trusted advisor to customers and a trusted partner with suppliers. Knowledge, a catalyst of growth, deserves inclusion in the Five Forces Model because companies compete more on this dimension that any other. Trust is the new currency and the model needs to be updated to reflect this new focus on how knowledge can enable it.
3. How can a business best leverage its distinctive competencies into competitive advantage?
A business can best leverage its distinctive competencies by first concentrating on the intersection of its unique approach to processes, products and systems. The intersection of these three aspects of a company's business is a path to defining a rare, non-substitutable and highly valuable set of core competencies. The intersection of these three areas also leads to core competencies that are inimitable and nearly impossible to clone or replicate. The reason is that while competitors may study processes and even imitate product designs, the highly differentiated approach to defining the integration of systems to processes and products cannot be imitated without completely imitating an entire company culture. Figure 2 shows graphically how the integration of these core areas of a business can create a competitive advantage.
The Intersection of Process, Product and Systems Defines Competitive Advantage
This approach to defining a competitive advantage is also agile enough to deal with rapid changes in the market landscapes of industries businesses compete in as well. The unique integration of these three elements together, which will vary markedly by each business, defines the center of competitive advantage. For businesses that base their competitive advantage on process expertise as WalMart does with supply chain operations for example, the overlap will favor this process expertise. To challenge WalMart in this area of their business is nearly impossible given the depth of supplier integration they require. For Nike the overlap of these three factors will favor their product focus and ability to quickly launch entirely new product divisions in response to market opportunities. In conclusion, these three aspects of any business will vary so significantly that they form a reliable means of defining competitive advantage.
Jeffrey H. Dyer, & Kentaro Nobeoka. (2000). Creating and managing a high-performance knowledge-sharing network: The Toyota case. Strategic Management Journal: Special Issue: Strategic Networks, 21(3), 345-367.
Ormanidhi, O., & Stringa, O.. (2008). Porter's Model of Generic Competitive Strategies. Business Economics, 43(3), 55-64.
Michael E. Porter. (2008, January). THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY. Harvard Business Review: Special HBS Centennial Issue, 86(1), 78-93.
Core Competency or Unique Strength of the Business
Products -- The delivered product or service to a customer, including the fulfillment of a service commitment (a flight on a passenger jet for example)
Processes -- The unique set of approaches businesses use to deliver value in…