• Discuss the competitive approach that Vanguard has pursued in gaining and sustaining a competitive position in investment management.
• Discuss the value chain activities that would be most easily overcome by rivals and those that would be most difficult to overcome. How would you recommend that a rival organization revamp its value chain to better compete with Vanguard?

:Vanguard is now one of the world's largest investment manage- ment companies. It became an industry giant by leading the way in low-cost passive index investing. In active trading, an invest- ment manager is compensated for making an educated deci- , sion on which stocks to sell and which to buy. This incurs both transactional and management fees. In contrast, passive index portfolios aim to mirror the movements of a major market index like the S&P 500, Dow Jones Industrial Average, or NASDAQ. Passive portfolios incur fewer fees and can be managed with I lower operating costs. A measure used to compare operating costs in this industry is known as the expense ratio, which is the percentage of an investment that goes toward expenses. In 2018, Vanguard's expense ratio was less than 18 percent of the ','*indu5try's average expense ratio. Vanguard was the first to capi- italize on what was at the time an underappreciated fact: Over *-_-:long horizons, well-managed index funds, with their lower costs and fees, typically outperform their actively trading competitors. ' Vanguard provides lowcost investment options for its clients . in several ways. By creating funds that track index(es) over a long Iristoffer Tripplaar/Alamy Stock Photo W-COST LEADER IN INVESTMENT MANAGEMENT horizon, the client does not incur transaction and managemenneeg; normally charged in actively managed funds. Possibly more Impm d was created with a unique CuentWner structure 5t with Vanguard you become an owner of Vanguard When you inve . 1 This structure effectively cuts out traditional shareholders who Seek to share in profits. Under client ownership, any returns in Excess\" operating costs are returned to the clients/investors. Vanguard keeps its costs low in several other ways. one notable way is its focus on its employees and organizatlow structure. The company prides itself on low turnover Tales (8 percent) and very flat organizational structure. In Sevefal instances Vanguard has been able to capitalize on being a fast follower. They launched several product lines after their Competitors introduced those products. Being a fast follower allowed them to develop superior products and reach scale more qu'mer both further lowering their cost structure. The low-cost structure has not come at the expense of pertor; mance. Vanguard now has 370 funds, over 20 million investo W has surpassed $4.5 trillion in AUM (assets under management) and is growing faster than all its competitors combined. Whe mentfunds, Vanguard's low-cost strategy has been so successful industry experts now refer to The Vanguard Effect. This rele to the pressure that this investment management giant has I " on competitors to lower their fees in order to compete\"; Vanguard's low-cost value proposition. ' Note: Developed with Vedrana B. Greatorex. Sources: https://www.nytimes.com/2017/04/14Ibusinessl mutfund/vanguardmutual-indexfunds-growthhtml', httpstll investor.vanguard.com; and A. Sunderam. L. Viceira, and A. Ciechanover. The Vanguard Group, Inc. in 2015: Celebrating 40, HRS No. 9-216-026 (Boston, MA: Harvard Business School __ Publishing, 2016). 7' ._- amen