Week 4 : Sustainable Competitive Advantage Saib Dianati BUSN9229
Dec 28, 2015
Sustainable Competitive Advantage
>Achieving Sustainable Strategic Competitive Advantage
>Firms achieve strategic competitiveness and earn above-average returns when their core competencies are effectively– Acquired (S)– Bundled (S)– Leveraged (S)
>Over time, the benefits of any value-creating strategy can be duplicated by competitors
Key to Sustainable Competitive Advantage: Internal Environment
Examine opportunities and threats
Examine unique resources, capabilities, and competencies: S and W(sustainable competitive advantage)
The Context of Internal Analysis
> Effective analysis of a firm’s internal environment (learning what the firm can do ) requires:
– Fostering an organizational setting in which experimentation and learning are expected and promoted
– Using a global mind-set– Thinking of the firm as a bundle of
heterogeneous resources and capabilities that can be used to create an exclusive market position
Creating Value
> By exploiting their core competencies or competitive advantages, firms create value
> Value is measured by
– A product’s performance characteristics (S)
– The product’s attributes for which customers are willing to pay (S)
> Firms create value by innovatively bundling and leveraging their resources and capabilities
Creating Competitive Advantage
> Core competencies, in combination with product-market positions, are the firm’s most important sources of competitive advantage
> Core competencies of a firm, in addition to its analysis of its general, industry, and competitor environments, should drive its selection of strategies
The Challenge of Internal Analysis
> To develop and use core competencies, managers must have (S)
– Courage– Self-confidence– Integrity– The capacity to deal with uncertainty and
complexity– A willingness to hold people (and themselves)
accountable for their work
Resources, Capabilities and Core Competencies
Resources (S)Are the source of a firm’s capabilitiesAre broad in scopeCover a spectrum of individual, social and organizational phenomenaAlone, do not yield a competitive advantage
Resources, Capabilities and Core Competencies
> Resources (S)
– Are a firm’s assets, including people and the value of its brand name
– Represent inputs into a firm’s production process, such as:• Capital equipment• Skills of employees• Brand names• Financial resources• Talented managers
Resources
> Resources
– Tangible resources• Financial resources• Physical resources• Technological resources• Organizational resources
– Intangible resources• Human resources• innovation resources• Reputation resources
Tangible Resources (S)
> Financial Resources •The firm’s borrowing capacity•The firm’s ability to generate internal funds
> Organizational Resources • The firm’s formal reporting structure and its formal planning, controlling,
and coordinating systems
> Physical Resources •Sophistication and location of a firm’s plant and equipment
•Access to raw materials
> Technological Resources • Stock of technology, such as patents, trade-marks, copyrights, and trade
secrets
Intangible Resources (S)
> Human Resources • Knowledge> • Trust> • Managerial capabilities> • Organizational routines> > Innovation Resources • Ideas > • Scientific capabilities > • Capacity to innovate> > Reputational Resources • Reputation with customers > • Brand name > • Perceptions of product quality,
durability, and reliability > • Reputation with suppliers > • For efficient, effective, supportive, and mutually
beneficial interactions and relationships
Capabilities (S)
– Are the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state
– Emerge over time through complex interactions among tangible and intangible resources
– Often are based on developing, carrying and exchanging information and knowledge through the firm’s human capital
Capabilities (S)
> Capabilities
– The foundation of many capabilities lies in:• The unique skills and knowledge of a firm’s
employees• The functional expertise of those employees
– Capabilities are often developed in specific functional areas or as part of a functional area
Core Competencies
> Core Competencies
– Resources and capabilities that serve as a source of a firm’s competitive advantage:
• Distinguish a company competitively and reflect its personality
• Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities
Core Competencies
> Core Competencies
– Activities that a firm performs especially well compared to competitors
– Activities through which the firm adds unique value to its goods or services over a long period of time
Four Criteria of Sustainable Competitive Advantage
> Four Criteria of Sustainable Competitive (S) Advantage1
– Valuable– Rare– Costly to imitate– Non-substitutable
Four Criteria of Sustainable Competitive Advantage
> Valuable Capabilities • Help a firm neutralise threats or exploit opportunities
> Rare Capabilities • Are not possessed by many others
> Costly-to-Imitate Capabilities
» Historical: A unique and a valuable organizational culture or brand name • Ambiguous cause: The causes and uses of a competence are unclear
> • Social complexity: Interpersonalrelationships, trust, and friendshipamong managers, suppliers, andcustomers
> Nonsubstitutable Capabilities • No strategic equivalent
Building Sustainable Competitive Advantage
> Valuable capabilities
– Help a firm neutralize threats or exploit opportunities
> Rare capabilities
– Are not possessed by many others
Building Sustainable Competitive Advantage
> Costly-to-Imitate Capabilities (S)
– Historical• A unique and a valuable organizational culture or
brand name
– Ambiguous cause• The causes and uses of a competence are unclear
– Social complexity• Interpersonal relationships, trust, and friendship
among managers, suppliers, and customers
Building Sustainable Competitive Advantage
> Non-substitutable Capabilities
– No strategic equivalent
Internal and external environment effects on SCA
> Factors that have a positive effect on SCA:
1. Organisational culture
2. Differentiation strategy
3. Internet retailing
4. Marketing programs
5. Speed of designing developing and producing new products
Impact of SWOT in achieving CSA
> Test the relationship between SW and competitive advantage
> Test the relationship between OT and competitive advantage
> Strong correlation between competitive advantage and SWOT analysis.
> Significant factors for CSA were: time, speed, quality and flexibility.
> Specific Factors: Other regions/countries; mergers and acquisitions; cost strategies in interest and loan issues
Strength and Opportunity to help identify : Sustainable competitive advantage
Strengths:
> Many diverse product lines: Attributes; durability reliability: costly to imitate &nonsubstitute
> Broad market coverage: Valuable> Manufacturing competence: capital equipment: physical resources: costly to
imitate> Good marketing skills: knowledge valuable and rare> R&D skills: technical resources: valuable and rare, unique> IS skills high level: Technological resources: valuable and rare, unique> Human resource competencies: employee skills, unique> Brand name reputation: brand name: reputation resources: valuable & rare> High level Management skills: Courage, integrity: Talented and capable: valuable,
unique> Good financial management: financial resources: valuable> Others?
Strength and Opportunity to identify : Sustainable competitive advantage
Opportunities:
> Expand core business: Valuable: costly to imitate> Exploit new market segments Valuable> Widen product range: costly to imitate; Valuable> Expand into foreign markets: Valuable> Apply R&D in new areas: Costly to imitate; rare> Make profitable new acquisitions’: Valuable; > Seek fast market growth: Valuable > Expand product line: Valuable> Serve additional customer groups: Valuable> Diversify into related products: Valuable> Find markets with faster growth: Valuable
Weaknesses and Threats to identify : Sustainable competitive advantageWeaknesses:
> Obsolete narrow product line> Rising manufacturing costs> Decline in R&D innovations> Poor marketing plan> Poor materials management> Loss of customer goodwill> Inadequate IS> Inadequate Human resources> Loss of brand name > Growth without direction> Bad management> Infighting among divisions> poor organisational structure> Poor financial management
Weaknesses and Threats to identify : Sustainable competitive advantage
Threats:
> Attacks on core business> Increase in competition> Change in consumer taste> Fall in barriers to entry> Rise in substitutes> Increase industry rivalry> Potential for takeover> Changes in demographic factors> Changes in economic factors> Downturn in economy> Rising labor costs> Slower market growth
In Sum
Components of internal analysis:
To establish Sustainable Competitive Advantage
Use the Four Criteria of Sustainable Advantage:> Valuable> Rare> Costly to imitate> Non substitutable
& Link these to the SWOT: Focus on the S & O