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Competitive Advantage and Measurement

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Kindly assist with the following questions.

1. What is competitive advantage and how do you measure it?
2. What does "value chain" mean and how does it relate to competitive advantage? Identify strategies that can be used for cost advantage.
3. What is differentiation? Give examples of differentiation in the IT industry.
4. What are the characteristics of offensive and defensive competitive strategies?

One or two paragraphs for each question above.

Please also include scholarly references

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Solution Summary

This response provides guidelines and notes for understanding what is competitive advantage, what is 'Value Chain' and how it relates to competitive advantage, and what is differentiation. It is also discussed what are the characteristics of offensive and defensive competitive strategies

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Competitive Advantage and Measurement
Competitive advantage refers to the superior performance of the firm in relation to other competitors in the same industry. In others words, it can be seen as superior performance of the firm in comparison of the industry average. Thus, it is related to do anything, which helps firms to do better as compared to their competitors (Hill & Jones, 2012). In order to measure competitive advantage, several dimensions including economic, accounting, financial metrics, and performance metrics can be used, which are qualitative. In this, first dimension is related to the assessment of economic value generated by the firm. Second dimension is organizational accounting profitability and third dimension is shareholder values. In this, economic value comprises three factors such as value, price and cost. These help to determine economic value by identifying difference between buyer's willingness to pay for product and firm's cost to produce (Dzevad & Zijada, 2006).
In case of creating more economic value than rivals, a firm has competitive advantage. By evaluating accounting data such as income statements and balance sheets, accounting profitability can be determined, which also helped to determine competitive advantage of a firm. In order to conduct direct performance comparison, accounting data helps positively that also shows competitive advantages of a firm. By measuring return on risk capital for shareholders, organizational competitive advantage can be determined. In case of offering high value to the shareholders on their share, the firm has competitive advantage over its competitors (Hill & Jones, 2012). Thus, by using these dimensions, it would be easy to determine competitive advantage of a firm.

Value Chain and Competitive Advantage
Value chain is related to the chain of activities, which are used by firms in operating in specific ...

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