Lessons from a Masters In Business Administration: Walmart / Proctor and Gamble’s Competitive Advantage

Walmart’s Success:
The goal of sustainable competitive advantage is to develop and integrate a consistent set of mutually reinforcing activities. You want to build up a business that cannot fail over time because of the momentum moving in support of it. Walmart is not successful because of its low costs and low prices.

Walmart is difficult to replicated because it has:

  1. a frugal corporate culture;
  2. low store construction costs in rural and suburban locations;
  3. limited advertising;
  4. stellar logistics operation;
  5. no unions;
  6. a stranglehold on suppliers ie working capital;
  7. top-notch technology/inventory tracking.

Procter and Gamble’s Competitive Advantage: P&G sells a lot of toothpaste, they are a better toothpaste company because they have larger toothpaste factories that produce more of the stuff, and are more efficiently. It then sets a lower price, without reducing its profit margin, and they sell even more toothpaste going forward. The more Lancaster bombers that were produced in Winnipeg, Canada, the faster the planes came off the production line, and the better they were: it’s called a learning curve. Good businesses develop a learning curve that is advantageous.

Apple’s Competitive Advantage: the more people bought iPads the more people want them. Music companies made their entire catalogue available on iTunes at the price that Steve Jobs wanted. Consumers bought iTunes music, making the iPad even more precious. When rival device makers entered this market, they aren’t just competing with the iPad itself but an entire ecosystem of that Apple created.

Interactions with Rivals: if I do this, what will my competitors do? You can use Game Theory in this case to understand the financial consequences of a decision for two parties. If Jimmy opens a shop beside Sally what should she do? What are the costs of closing or competing? Mapping out these options and applying values to their consequences helps decision makers make choices.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]

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