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Internal Analysis
Competitive Advantage
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Why Do An Internal Analysis?
To Determine Strengths & Weaknesses
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Seven Key Internal Forces
Management
Marketing
Information
Systems
Finance/AccountingResearch &
Development
Purchasing
Manufacturing
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Introduction
Why do firms in the same industry pursuing
the same strategies vary by performance?
Ebay versus Ubid
Walmart versus Kmart
Best Buy versus Radio Shack
Often the top performing firm(s) possessesa Competitive Advantage over its rivals
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What is Competitive
Advantage?
Set of resources or capabilities that allows
firms to consistently outperformtheir rivals.
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Intangible Resources
Assets deeply rooted in the firms history and have
accumulated over time
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Tangible Resources Assets that can be seen and quantified
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How to Determine if a Competitive
Advantage Exists
One way is to use theResource-Based
View (RBV) of the firm. RBV suggests firms can be viewed as collections of
productive resources.
Competitive advantage might exist if a firm possesses
and utilizes superior resources.
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How to Determine if Competitivedvantage Exists The RBV Questions
Competitive Advantage (CA) exists if the
answer to the following questions is YesValuedoes the resource provide CA?
Rarenessdo competi tors have it?
Imitability
is it costly for competi tors to imitate?Substitutableare there any strategic equivalents?
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Test of Value
Does the resource help a firm neutralize
threats or exploit opportunities?
If so, the firm is able to create value for itscustomers
Examples:
Amazon.com turns visitors into customers Ebay turns browsers into buyers and sellers
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Test of Rareness
Do many competitors posses it?
Examples:
Ipod MP3 playersystem integration and ease
Palm Pilot
Its software is still rare and is licensed by
competitors, including Handspring
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Test of Imitability
Is the resource costly for a
competitor to copy?How about Gerbers baby food?
A brand name could be developed
But the associated trust cant be
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Test of Substitutability
Are there any strategic equivalents?
Invisible capabilities are difficult to imitate
Examples:
Dells direct sales model
Viagra?
Southwest Airlines?
Jet Blue?
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Valuable
?
Rare
?
Costly
toImitate
?
Non-
Substitutable?
Competitive
Consequence
Performance
Implications
No No No No
Yes No No Yes/no
Yes Yes No Yes/no
Yes Yes Yes Yes
A Test of Competitive Advantage
Competitive
Disadvantage
Below average
returns
Competitive
Parity
Average
Returns
Temporary
CompetitiveAdvantage
Average to
Above average
Sustainable
Competitive
Advantage
Above average
returns
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Valuable
?
Rare
?
Costly
toImitate
?
Non-
Substitutable?
Competitive
Consequence
Performance
Implications
No No No No
Yes No No Yes/no
Yes Yes No Yes/no
Yes Yes Yes Yes
A Test of Competitive Advantage
Competitive
Disadvantage
Below average
returns
Competitive
Parity
Average
Returns
Temporary
CompetitiveAdvantage
Average to
Above average
Sustainable
Competitive
Advantage
Above average
returns
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Valuable
?
Rare
?
Costly
toImitate
?
Non-
Substitutable?
Competitive
Consequence
Performance
Implications
No No No No
Yes No No Yes/no
Yes Yes No Yes/no
Yes Yes Yes Yes
A Test of Competitive Advantage
Competitive
Disadvantage
Below average
returns
Competitive
Parity
Average
Returns
Temporary
CompetitiveAdvantage
Average to
Above average
Sustainable
Competitive
Advantage
Above average
returns
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Valuable
?
Rare
?
Costly
toImitate
?
Non-
Substitutable?
Competitive
Consequence
Performance
Implications
No No No No
Yes No No Yes/no
Yes YesNo
Yes/no
Yes Yes Yes Yes
A Test of Competitive Advantage
Competitive
Disadvantage
Below average
returns
Competitive
Parity
Average
Returns
Temporary
CompetitiveAdvantage
Average to
Above average
Sustainable
Competitive
Advantage
Above average
returns
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For Long Run Profits
You must sustain the competitive advantage
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Barriers & Long Run
Competitive Advantage
A resource will only contribute to sustained
competitive advantage if it is associated with
barriers
that prevent resource acquisition or replication by
competitors.
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These Barriers Are
Patents.
Exclusive rights for 17 years.
Exclusive access to key resources or assets.
Superior R&D
Brand name/ loyalty/ goodwill
C ti f R S t i bilit
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Continuum of Resource Sustainability
(and Firm Profitability)
High
(Hard to imitate)Low
(Easy to Imitate)
Slow Cycle
Resources
Standard- Cycle
Resources
Fast Cycle
Resources
Strongly shieldedPatents, brand name
Gillette: Track III
Searle:Nutrasweet
Eli Lilly: Prozac
Standardized mass
production
Economies of scale
or complicated
processes
Chrysler: Minivan
Easily Duplicated
Idea Driven
Sony: Walkman
TI: Calculators
Rio: MP3 players