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Chapter 3Chapter 3
An Introduction to An Introduction to Competitive AdvantageCompetitive Advantage
Chapter 3Chapter 3
An Introduction to An Introduction to Competitive AdvantageCompetitive Advantage
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Develop a corporate strategy based on their beliefs about the appropriate scale and scope for their firms, their understandings of how their firms’ businesses are related, and the beliefs about how diversification should be managed.
Create an organizational structure based on their beliefs about how to organize a business firm that will allow them to implement their firms’ strategies.
Exhibit 3.1:Exhibit 3.1: Model of Model of Strategic ManagementStrategic ManagementExhibit 3.1:Exhibit 3.1: Model of Model of Strategic ManagementStrategic Management
Others (cont.)• Customer perceptions of quality and business reputation.
Certain accounting items, such as “extraordinary items” or a series of restructuring charges over a period of several years can have positive or negative impact on a firm’s performance.
Source of performance measurement data.• Annual reports.
Criteria which Determine whether Criteria which Determine whether Resources and Capabilities Can Resources and Capabilities Can Provide Firms with Competitive Provide Firms with Competitive AdvantageAdvantage
Criteria which Determine whether Criteria which Determine whether Resources and Capabilities Can Resources and Capabilities Can Provide Firms with Competitive Provide Firms with Competitive AdvantageAdvantage
Resource-based theory suggests that firms will enjoy a sustained competitive advantage only if their capabilities are valuable and rare, lack substitutes, and are difficult to imitate.
Asymmetric Nature of Asymmetric Nature of Competitive Competitive AdvantageAdvantage
Asymmetric Nature of Asymmetric Nature of Competitive Competitive AdvantageAdvantage
Asymmetry is essential characteristic of competitive advantage. To enjoy a competitive advantage, a firm must do
what its rivals cannot do, or alternatively, if it does what its rivals can do, then it must do it better.
Any resource or capability will only contribute to development of competitive advantage if it is associated with “barriers” that prevent its acquisition or replication by competitors.
Challenge of Challenge of Defending Against Defending Against ImitationImitation
Challenge of Challenge of Defending Against Defending Against ImitationImitation
More difficult in our society due to accessibility of information.
Studies have shown that ideas and innovation are diffused through the economy in the “S-shaped curve” as illustrated in Exhibit 3.3 on following slide. For a relatively brief time, from t0 to t1, innovations
may be proprietary to one or just a few firms.• The value of innovation will contribute to competitive
advantage only until the diffusion process begins (at t1 in this case).
Competitive advantage most likely to result from development of unique capabilities that are acquired through an on-going process of resource accumulation. Five factors contribute to resource accumulation
Firm that builds a resource or capability through investments over many years may enjoy significant advantage over firms that attempt to replicate that capability through larger investments made over a shorter period of time. Value of time is directly related to extent of
Interconnectedness of Interconnectedness of Asset StocksAsset StocksInterconnectedness of Interconnectedness of Asset StocksAsset Stocks
Ability to augment a particular resource or capability may be tied to or depend on the strength or value of other capabilities. Customer service and information from field
regarding future product requirements. R&D capabilities and marketing skills (in
pharmaceutical industry). Computer operating systems and software
Likelihood of maintaining sustained competitive advantage is greatly enhanced if resources and capabilities are shrouded in casual ambiguity. If competitors are unable to determine how or why
another firm is enjoying a competitive advantage, this will greatly complicate their efforts to imitate the high-performing firm’s success.
How Firms Develop How Firms Develop Competitive Advantage - Competitive Advantage - SummarySummary
How Firms Develop How Firms Develop Competitive Advantage - Competitive Advantage - SummarySummary
Exhibit 3.4 on following slide contains a conceptual flow chart with questions each firm should ask itself when assessing competitive advantage.
U.S. automakers have imitated techniques of their Japanese competitors, yet the Big Three continue to lag behind Toyota and Honda in many capabilities. Imitation did not result in gaining a competitive
Business StrategyBusiness StrategyBusiness StrategyBusiness Strategy
For most firms, competitive advantage depends on being able to to do what other firms also do, but doing it better than they do. Gap Jeans has developed certain firm-specific
capabilities that allow it to be more successful than competitors pursuing similar strategies.
Distinction between Distinction between Content and ProcessContent and ProcessDistinction between Distinction between Content and ProcessContent and Process
Strategy content: What a firm does. Process: How a firm does or decides what it does. Organizational processes not only complement, but
also have distinct advantages over strategy content elements in managers’ efforts to develop competitive advantage. These processes are less amenable to imitation,
because internal organizational processes are much less visible to outsiders.
Distinction between Distinction between Content and ProcessContent and Process (cont.)(cont.)
Distinction between Distinction between Content and ProcessContent and Process (cont.)(cont.)
Exhibits 3.5 and 3.6 suggest that Merck’s high performance is not due to the content of its R&D strategy, but more likely is due to the processes the firm uses to implement and manage its R&D program in order to yield so many new blockbuster drug products.
Value Chain AnalysisValue Chain AnalysisValue Chain AnalysisValue Chain Analysis
Can be very helpful tool for evaluating the capabilities embedded in organizational processes. Simply a diagram illustrating the various value-
adding processes that occur inside a business (see Exhibit 3.7 on following slide).
Analyzing the various links in the value chain helps managers evaluate the extent to which their organization’s processes contribute to competitive advantage.
Importance of Socially Importance of Socially Complex ResourcesComplex ResourcesImportance of Socially Importance of Socially Complex ResourcesComplex Resources
Defined as: Resources that enable an organization to conceive,
choose, and implement strategies because of the values, beliefs, symbols, and interpersonal relationships possessed by individuals or groups in a firm.
• Examples: Organizational culture; trust and friendship among managers in an organization; reputation of an organization among its customers; teamwork among managers and workers.
A particular internal process can quickly be rendered obsolete due to environmental shifts, such as changes in regulations or technologies. Therefore, managers need to acquire and develop
resources that enhance their firm’s current position, while being mindful of the kinds of resources and capabilities that will be needed in the future.
Key Points Key Points Introduced in Introduced in Chapter 3Chapter 3
Key Points Key Points Introduced in Introduced in Chapter 3Chapter 3
Definition for competitive advantage: Set of factors or capabilities that allows firms to
consistently outperform their rivals. Without resource “mobility barriers” to prevent the
transfer of resources and skills across firms, capabilities and other sources of competitive advantage tend to be quickly diffused through an industry and the entire economy.
Key Points Introduced Key Points Introduced in Chapter 3 in Chapter 3 (cont.)(cont.)
Key Points Introduced Key Points Introduced in Chapter 3 in Chapter 3 (cont.)(cont.)
Firms that enjoy a sustained competitive advantage possess factors, capabilities, or competencies that are valuable, rare, lack substitutes, and are difficult to imitate. As a result, a key characteristic of competitive
advantage is asymmetry.• Firms enjoy a competitive advantage by either doing
what other firms cannot do, or if they do what other firms can also do they must do it better.
Key Points Introduced Key Points Introduced in Chapter 3 in Chapter 3 (cont.)(cont.)
Key Points Introduced Key Points Introduced in Chapter 3 in Chapter 3 (cont.)(cont.)
Five factors that contribute to the development of sustained competitive advantage are: Time Past success Interconnectedness of resources Investment Casual ambiguity
Key Points Introduced Key Points Introduced in Chapter 3 in Chapter 3 (cont.)(cont.)
Key Points Introduced Key Points Introduced in Chapter 3 in Chapter 3 (cont.)(cont.)
Because they tend to be casually ambiguous and difficult to imitate, a firm’s internal processes are more likely than the content of its strategies to be sources of sustained competitive advantage.
Socially complex resources such as reputation and organizational culture can also be important sources of competitive advantage They are so difficult to imitate.
Key Points Introduced Key Points Introduced in Chapter 3 in Chapter 3 (cont.)(cont.)
Key Points Introduced Key Points Introduced in Chapter 3 in Chapter 3 (cont.)(cont.)
The value chain can be a very useful tool for analyzing organizational capabilities and processes and to assess competitive advantage.
A source of competitive advantage in one time period can become dated and useless in a later time period, so a key management responsibility is to be mindful of how vulnerable resources and capabilities are to imitation and obsolescence and to anticipate the kinds of resources and capabilities that will be needed to compete effectively in the future.