conclusion

Conclusion

This note has covered a lot of ground, but the main ideas are fairly simple:

! A successful firm does not simply participate in an attractive industry. It also strives to generate more economic profits than the typical firm in its industry.

The ability to generate and capture profits in an industry derives from added value. A firm has added value when the network of customers, suppliers, and complementors in which it operates is better off with the firm than without it; the firm offers something that is unique and valuable in the marketplace.

A firm usually can’t claim any value unless it adds some value.

To have added value, a firm must drive a wedge between customer willingness to pay and supplier opportunity cost—indeed a wider wedge than rivals achieve. A firm that attains a wider wedge is said to have a competitive advantage.

To establish a competitive advantage, a firm has to do different things than its rivals on a day-to-day basis. These differences in activities, and their effects on relative cost and relative willingness to pay, can be analyzed in detail.

A firm can use its analysis of activities to generate and assess options for creating competitive advantage. In doing so, the management team must decompose the firm into parts, but also craft a vision of an integrated whole.

The landscape metaphor reminds us that the creation of competitive advantage involves choice. In occupying one peak, a firm foregoes an alternative position. It also highlights the role of competition: it is often more valuable to inhabit one’s own, separate peak than to crowd onto a summit that is already heavily populated. Finally, it emphasizes the importance of internal consistency. Peaks are coherent bundles of mutually reinforcing choices.