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When a firm makes profits that exceed the average level of its industry, the firm is said to possess a competitive advantage over its competitors (Competitive Advantage, 2010). Michel Porter identified two basic types of competitive advantages:
Cost advantage - deliver the same benefits as rivals but at a lower cost
Differentiation advantage - deliver benefits for the customers that exceed those of competing products
We can make conclusion, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. "A resource-based view emphasizes that a firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation" (Competitive Advantage, 2010). The following diagram combines the resource-based view and positioning views to illustrate the concept of competitive advantage:
A model of competitive advantage (Competitive Advantage, 2010)
What is the basis of the companies competitive advantage
Diversity property portfolio - cost advantage, which provides the customers more choices of property, hence they can have lower price product.
Customer intimacy - differentiation advantage, when the customers have found out the best solutions from Kungsleden.
Strategic risk diversification - cost advantage, which Kungsleden AB can achieve the object of maximizing the property portfolio's risk-adjusted return, hence can reduce the cost.
Human resource - Kungeleden AB is one of the best workplace in Sweden
What does the organization has to do well (= competencies) in order to deliver on 'the promise' they make.
In order to have diversity property portfolios, Kungsleden AB has 5 different locations in Sweden, different locations have different property portfolios, and furthermore, Kungsleden AB is willing to welcome new business opportunities regardless of the type of business or the geographic location.
In order to keep a long relationship with the tenants and get high customer intimacy, Kungsleden AB tries to get full understanding of the customers' need and search for the best solutions. What is more, Kungsleden AB also has diversity property portfolio to satisfy the customers' need.
Diverse geographical property portfolio helps Kungsleden AB to reduce property-specific risk, such as changes in an individual property type and risk affecting the returns of the whole portfolio (Kungsleden, 2012).
As one of the best workplace in Sweden, Kungsleden AB attracts more skilled-employees and motivates them to performance better. The corporate culture of Kungsleden AB is participation allows the employees more space to act which can let employees have strong drive and enjoyment.
In a conclusion, Kungsleden AB needs to have more geographical property portfolios to meet all the tenants in Sweden.
Describe the way the company is or will be successful (success means: 'doing things better than others).
Kungsleden AB keeps its strengths makes it be successful. Kungsleden AB is second in the medium-sized companies' category, and first among property companies (Kungsleden, 2012). Kungsleden AB follows the business concept to own and manage property with high and stable long-term returns. Furthermore, Kungsleden AB has proper diverse property portfolios to meet the current customers' needs.
Kungsleden AB can be more successful if they can solve the weakness. There are only 5 locations in Sweden for Kungsleden AB, and most of them are in growth regions, but where growth fluctuations are not extreme. Firstly, Kungsleden AB needs to have more property portfolios in more different regions; secondly, Kungsleden AB can go abroad, which means they can go to some other growth countries to have more market share.
1.5 Describe whether the company can be considered to focus on product/service differentiation of cost leadership and why.
In order to better understand the strategies of Kungsleden AB, Porter generic strategies are applied. These three generic strategies are defined along two dimensions: competitive scope and competitive strength (or competitive advantage) (Porter, 1980). Porter generic strategies consisting of three general types of strategies: Cost leadership, Differentiation and Focus and there are two variant consist in Focus - cost focus and differentiation focus (see chart below).
Porter's Generic Strategies (Marketing Teacher Ltd , 2011)
In Cost Leadership, firms use cost advantage, normally provide a price at or lower than industry average to attract the customers to gain market share. Larger economic of scale, improved technology or choose the raw materials at lower prices could be ways to pursuit source of cost advantage.
In Differentiation, firms seek to unique features or special services in its industry in order to meet wildly needs of their customers. Generally, the firms will charge a premium price for uniqueness.
In Focus, firms have choices of a narrow competitive scope within an industry and select a segment to serving them to exclusion of others (Marketing Teacher Ltd , 2011).
Kungsleden AB can be considered to focus on a service differentiation in a broad range within real estate industry. To satisfy the needs of its clients, Kungsleden AB differentiated its services through a sustainable competitive advantage to create the value for its customers, for example, when a client need a supermarket with special requirements such as new decorations or functions, Kungsleden AB would find the place and renovation the property or re-design it to meet the client requirement. Generally, Kungsleden would try their best to meet clients request to satisfy them. Additionally, the ability to deliver high quality services is required, Kungsleden AB communicates with ternate and customers a lot to find out what they need. Based on the value chain, we can see that Kungsleden AB is a process-oriented company, it can add value for its customers into its essential business processes (Internal controls, 2012). Moreover, Kungsleden AB differentiate its services through their special property portfolio, the company often goes its own way to get properties (Business model, 2012). Occasionally, what are considered good properties for Kungsleden AB may not be the appropriate properties for its competitors and the company only buys properties with lower price and then add-value to those properties to sell at a higher price (Business model, 2012). In order to do that, Kungsleden AB should have a comprehensive understanding of customers' needs. As we mentioned before in this part, Kungsleden AB have a close relationship with its customers. With all perspectives, Kungsleden AB can better differentiate its services to satisfy its customers and get a higher profit in return.
Addressing the Devil's Advocate question
What are the unique factors that allow this company to exploit this competitive advantage, and why are others unable to emulate it?
There are several unique factors that Kungsleden AB has to stand out within the industry. Firstly, organizational cultures along with its human resources offer a good working environment for its employees, and the organizational cultures encourage its employees to well-perform under a strong motivation-driving. Kungsleden AB also gives its employees more spaces to act and make contributions to the company. Secondly, Kungsleden AB has a good cost structure with a high net profit and the company integrates risk assessment into its business processes, as well as strategic risk diversification can maximizing the risk-adjusted returns (Internal controls, 2012). In addition, excellent management styles and decentralized decision-making bring a strong competitive advantage to the company. For excellent management, Kungsleden AB monitor its overall operations and get preparations ahead of property acquisitions and divestments, meanwhile, the Board of Directors receives ongoing financial report and have a well-understanding of company's current financial position (Internal controls, 2012). Decentralized decision-making allowed the regional managers to make their own decisions and control the properties better. Most important is, Kungsleden find a unique way to combine all those unique factors systemically in order to work effective and efficiency, which means, how all those factors combined together is a strongest competitive advantage for the company that allow Kungsleden AB exploit its competencies. And we assume that it is possible competitors can copy one or even two single factors of Kungsleden AB, but the systemically combination of those factors are unable emulate for competitors.