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A systematic look inside the firm – why are A systematic look inside the firm – why are some firms more successful than others?some firms more successful than others?
The basis of competitive advantageThe basis of competitive advantageThe boundaries of the firmThe boundaries of the firm
‘‘Make or buy’Make or buy’ Inter-firm cooperationInter-firm cooperation
The nature and sources of competitive The nature and sources of competitive advantageadvantageGeneric strategiesGeneric strategiesThe resource-based view of the firmThe resource-based view of the firmFrom resources to core competenciesFrom resources to core competenciesFrom core competencies to value creationFrom core competencies to value creation
Competitive Advantage: Value Competitive Advantage: Value Creation, Low Cost, and Creation, Low Cost, and DifferentiationDifferentiationCompetitive advantageCompetitive advantage is a firm’s ability to is a firm’s ability to
outperform its competitors (earn higher outperform its competitors (earn higher profits).profits).Sustained competitive advantageSustained competitive advantage (SCA)(SCA) comes from maintaining higher profits than comes from maintaining higher profits than competitors over long periods of time.competitors over long periods of time.The source of competitive advantage is The source of competitive advantage is value creationvalue creation for customers. for customers.
The resource-based view of the The resource-based view of the firmfirmAssociated with Edith Penrose and more Associated with Edith Penrose and more recently with Birger Wernerfeltrecently with Birger WernerfeltThe question is The question is “what do we have?”“what do we have?” rather rather than than “who do we serve?”“who do we serve?”The external environment is in a constant The external environment is in a constant state of flux and largely out of the firm’s state of flux and largely out of the firm’s controlcontrolThe internal environment is more stable and The internal environment is more stable and more in the firm’s controlmore in the firm’s control
Human resourcesHuman resources Human capital – knowledge, skills, etc.Human capital – knowledge, skills, etc. Relationships – effectiveness of teamsRelationships – effectiveness of teams
From resources to capabilitiesFrom resources to capabilities
From From ‘what to we have?’‘what to we have?’ to to ‘what ‘what can we do?’can we do?’Relative rather than absolute Relative rather than absolute measurementsmeasurements
What are the firm’s capabilities?What are the firm’s capabilities?Capability = competenceCapability = competenceCompetencies are identified by Competencies are identified by
disaggregationdisaggregation Functional disaggregationFunctional disaggregation Value chain disaggregationValue chain disaggregation
Competencies are relativeCompetencies are relative Importance of benchmarkingImportance of benchmarking
Core competencies are those whichCore competencies are those which make a disproportionate contribution to ultimate make a disproportionate contribution to ultimate
customer value or to the efficiency of its deliverycustomer value or to the efficiency of its delivery are a basis for entering new marketsare a basis for entering new markets
Core competencies Core competencies A A competencecompetence becomes a becomes a core competencecore competence when the when the well-performed activity is well-performed activity is centralcentral to the company’s to the company’s strategy, competitiveness, and profitabilitystrategy, competitiveness, and profitability Often, aOften, a core competence results from core competence results from
collaboration collaboration among different parts among different parts
of an organizationof an organization TypicallyTypically,, core competencies reside in a core competencies reside in a
company’s company’s peoplepeople, not in its physical assets, not in its physical assets A A core competencecore competence gives a company a potentially gives a company a potentially valuable valuable competitive competitive andand collaborative advantage collaborative advantage
Examples of core competenciesExamples of core competenciesSkills in manufacturing a high quality productSkills in manufacturing a high quality productSystem to fill customer orders accurately and swiftlySystem to fill customer orders accurately and swiftlyFast development of new productsFast development of new productsBetter after-sale service capabilityBetter after-sale service capabilitySuperior know-how in selecting good retail locationsSuperior know-how in selecting good retail locationsInnovativeness in developing popular product featuresInnovativeness in developing popular product featuresMerchandising and product display skillsMerchandising and product display skillsExpertise in an important technologyExpertise in an important technologyExpertise in integrating multiple technologies to create Expertise in integrating multiple technologies to create whole families of new productswhole families of new products
The Sustainability of Competitive The Sustainability of Competitive AdvantageAdvantage
Barriers to imitationBarriers to imitation Speed of imitation by competitors in reducing advantageSpeed of imitation by competitors in reducing advantage Imitation by acquiring similar resourcesImitation by acquiring similar resources Imitation of capabilities (more difficult)Imitation of capabilities (more difficult)
Limits on competitorsLimits on competitors Prior strategic commitmentsPrior strategic commitments Absorptive capacity for changeAbsorptive capacity for change
Industry dynamismIndustry dynamism The rapid innovation The rapid innovation
shortens product life cycles.shortens product life cycles.
• A company becomes so specialized and A company becomes so specialized and inner directed based on past success that it inner directed based on past success that it loses sight of market realities loses sight of market realities
• Craftsmen – Texas Instruments, DEC – engineering Craftsmen – Texas Instruments, DEC – engineering for engineering’s sakefor engineering’s sake
• Builders – diversification – ITT, Gulf + WesternBuilders – diversification – ITT, Gulf + Western• Pioneers – Innovation – Wang LabsPioneers – Innovation – Wang Labs• Salesmen – Sell anything – P&G, ChryslerSalesmen – Sell anything – P&G, Chrysler
• Failure to see the link between competence Failure to see the link between competence and value creationand value creation
The building blocks of competitive The building blocks of competitive advantageadvantage
Generic strategiesGeneric strategiesThe resource based view of the firmThe resource based view of the firmFrom resources to competenciesFrom resources to competenciesFrom competencies to value creationFrom competencies to value creation
Sources of failures in this linkageSources of failures in this linkage