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Format:Paperback
Warren Buffett is famous for preferring companies with "wide moats" -- those with unassailable competitive advantages -- as they are capable of producing superior returns for years on end.
Greenwald and Kahn's book analyses the sources of these advantages. From the preface:
"On a level playing field, in a market open to competitors on equal terms, competition will erode the returns of all players to a uniform minimum. Therefore, to earn profits above this minimum, a company must be able to do something that its competitors cannot. It must, in other words, benefit from competitive advantages."
In the economists' dictionary these advantages are called "barriers to entry". These might be due to a large firm benefiting from an economy of scale -- its large size enables it sell at goods at a lower cost. Some industries, such as utilities, have large barriers to entry because of incredibly high start-up costs. These industries are known as "natural monopolies" and are often strongly regulated to keep profits artificially low.
One recurring competitive advantage in the modern economy is the "network effect": sites such as Facebook and eBay have incredible inherent advantages because the size of their user base presents an insurmountable challenge to competitors.
Older competitive advantages are often due to geography. Wal-Mart is used as a case-study of this barrier. Wal-Mart has benefited from a superior distribution network which allows it to deliver goods in-store cheaper than any of its local rivals. This allows Wal-Mart to undercut competitors or enjoy fatter profit margins; hence explaining the firm's enduring profitability. However, this advantage means that Wal-Mart's domination is inherently limited, as Wal-Mart doesn't possess a cost advantage in markets further from its operational core in midwest USA.
This book presents interesting food-for-thought on the topic of competitive advantages in the modern economy. That is, barriers to entry in many "new" industries are incredibly low, indicating that returns will also be. meagre. Take a second-hand bookstore on Amazon, for example. Literally anyone with access to a post office and a few unwanted books on their shelf can compete with you. Additionally, consumers can find the lowest cost seller at the click of a button. The internet has allowed for a huge expansion in competition, but this has been to the main benefit of the consumer, not the business owner. The best way for companies to create competitive advantages is to offer a product that is truly unique and uncopyable. Either that, or stick to industries that benefit from old-school geographical barriers -- such as hotels.
Greenwald and Kahn's book analyses the sources of these advantages. From the preface:
"On a level playing field, in a market open to competitors on equal terms, competition will erode the returns of all players to a uniform minimum. Therefore, to earn profits above this minimum, a company must be able to do something that its competitors cannot. It must, in other words, benefit from competitive advantages."
In the economists' dictionary these advantages are called "barriers to entry". These might be due to a large firm benefiting from an economy of scale -- its large size enables it sell at goods at a lower cost. Some industries, such as utilities, have large barriers to entry because of incredibly high start-up costs. These industries are known as "natural monopolies" and are often strongly regulated to keep profits artificially low.
One recurring competitive advantage in the modern economy is the "network effect": sites such as Facebook and eBay have incredible inherent advantages because the size of their user base presents an insurmountable challenge to competitors.
Older competitive advantages are often due to geography. Wal-Mart is used as a case-study of this barrier. Wal-Mart has benefited from a superior distribution network which allows it to deliver goods in-store cheaper than any of its local rivals. This allows Wal-Mart to undercut competitors or enjoy fatter profit margins; hence explaining the firm's enduring profitability. However, this advantage means that Wal-Mart's domination is inherently limited, as Wal-Mart doesn't possess a cost advantage in markets further from its operational core in midwest USA.
This book presents interesting food-for-thought on the topic of competitive advantages in the modern economy. That is, barriers to entry in many "new" industries are incredibly low, indicating that returns will also be. meagre. Take a second-hand bookstore on Amazon, for example. Literally anyone with access to a post office and a few unwanted books on their shelf can compete with you. Additionally, consumers can find the lowest cost seller at the click of a button. The internet has allowed for a huge expansion in competition, but this has been to the main benefit of the consumer, not the business owner. The best way for companies to create competitive advantages is to offer a product that is truly unique and uncopyable. Either that, or stick to industries that benefit from old-school geographical barriers -- such as hotels.
Format:Hardcover
There are so many excellent books already in print that focus on the formulation, implementation, and refinement of business strategy. (Several are identified within this book's Notes section.) That said, I remain convinced that senior-level executives should complete some due diligence on several volumes available by reading the comments on those which are rated highest in the Customer Reviews provided by Amazon. I also think it desirable to consult more than one source (preferably several) which seem most relevant to the specific circumstances within the given organization.
In this volume, Greenwald and Kahn succeed remarkably well with clarifying their readers' "understanding of strategy and to reframe their approach to it. We want executives to know how their markets work, where there competitive opportunities lie, and how to develop and protect them. To this end, we include both broad discussions of general principles and detailed case studies of actual competitive interactions. Taken together, we think they present a useful guide for people who make strategic decisions."
In large organizations, there are entire departments responsible for strategic planning. (Obviously, their efforts are supervised by senior-level executives and usually a board member or two.) In much smaller organizations, strategic planning may be conducted by the owner/CEO alone or by one or two executives. Whatever the situation, strategies are still "hammers" which drive "nails" (i.e. tactics) and invariably require both long-term commitments and substantial allocation of resources. Strategies are the cornerstones of plans for achieving and then sustaining success, plans which specifically focus on the actions and responses of competitors. Therefore, in essence, as Greenwald and Kahn correctly observe, "strategic thinking is about creating, protecting, and exploiting competitive advantages." That is as true of the family-owned neighborhood store as it is of a Fortune 500 company. The only major differences involve those of scale (e.g. operations and resources). However, I doubt that many owners of neighborhood stores will read this book.
I was especially interested in what Greenwald and Kahn have to say about business strategy at work within companies such as Wal-Mart, Coors, the Fox Network, and Kiwi Airlines as well as within others in direct competition: Compaq vs. Apple, Coke vs. Pepsi, and Kodak vs. Polaroid. I was also interested in what they have to say about mergers and acquisitions, venture investing, and brand extensions. In all organizations (regardless of size or nature), it remains imperative for their decision-makers to decide who their organization is...and who it isn't...before launching business development initiatives to become more successful, whatever the given competitive marketplace(s) may be. Greenwald and Kahn's final observation provides an appropriate conclusion to this commentary. In the absence of competitive advantages and barriers to entry, those initiatives have only one strategic imperative: "The efficient use of all the resources they require."
In this volume, Greenwald and Kahn succeed remarkably well with clarifying their readers' "understanding of strategy and to reframe their approach to it. We want executives to know how their markets work, where there competitive opportunities lie, and how to develop and protect them. To this end, we include both broad discussions of general principles and detailed case studies of actual competitive interactions. Taken together, we think they present a useful guide for people who make strategic decisions."
In large organizations, there are entire departments responsible for strategic planning. (Obviously, their efforts are supervised by senior-level executives and usually a board member or two.) In much smaller organizations, strategic planning may be conducted by the owner/CEO alone or by one or two executives. Whatever the situation, strategies are still "hammers" which drive "nails" (i.e. tactics) and invariably require both long-term commitments and substantial allocation of resources. Strategies are the cornerstones of plans for achieving and then sustaining success, plans which specifically focus on the actions and responses of competitors. Therefore, in essence, as Greenwald and Kahn correctly observe, "strategic thinking is about creating, protecting, and exploiting competitive advantages." That is as true of the family-owned neighborhood store as it is of a Fortune 500 company. The only major differences involve those of scale (e.g. operations and resources). However, I doubt that many owners of neighborhood stores will read this book.
I was especially interested in what Greenwald and Kahn have to say about business strategy at work within companies such as Wal-Mart, Coors, the Fox Network, and Kiwi Airlines as well as within others in direct competition: Compaq vs. Apple, Coke vs. Pepsi, and Kodak vs. Polaroid. I was also interested in what they have to say about mergers and acquisitions, venture investing, and brand extensions. In all organizations (regardless of size or nature), it remains imperative for their decision-makers to decide who their organization is...and who it isn't...before launching business development initiatives to become more successful, whatever the given competitive marketplace(s) may be. Greenwald and Kahn's final observation provides an appropriate conclusion to this commentary. In the absence of competitive advantages and barriers to entry, those initiatives have only one strategic imperative: "The efficient use of all the resources they require."
0 of 1 people found the following review helpful
Format:Paperback
This is a fabulous book on learning about a company's moat. Warren Buffett coined this term, which simply means a competitive advantage. A moat protects the company's revenues from competitors just like a moat protected a castle from invaders. I found this book extremely helpful because it helped me with competition and market analysis. I also read Michael Porter's books and I enjoyed them very much, but this book was simpler to understand.
In this book, readers learn how to evaluate if the company has any benefits from barriers to entry and whether the moats come from a proprietary technical advantage, customer captivity or economies of scale.
For readers looking for more books on this subject, I also recommend The Little Book That Builds Wealth by Pat Dorsey of Morningstar. In his book, he describes that moats can come from intangible assets, switching costs, network effect, and cost advantages.
- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market
In this book, readers learn how to evaluate if the company has any benefits from barriers to entry and whether the moats come from a proprietary technical advantage, customer captivity or economies of scale.
For readers looking for more books on this subject, I also recommend The Little Book That Builds Wealth by Pat Dorsey of Morningstar. In his book, he describes that moats can come from intangible assets, switching costs, network effect, and cost advantages.
- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market
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