distinctive competency

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  • Internal Analysis: Distinctive Competencies, Competitive Advantage, and ProfitabilityChapter 3

  • Internal Analysis: Identifying Strengths and WeaknessesManagers must understandThe role of resources, capabilities, and distinctive competencies in the process by which companies create value and profitThe importance of superior efficiency, innovation, quality, and responsiveness to customersThe sources of their companys competitive advantage (strengths and weaknesses)

  • Distinctive Competences and Competitive AdvantageDistinctive competenciesFirm-specific strengths that allow a company to gain competitive advantage by differentiating its products and/or achieving lower costs than its rivalsArise from unique application of resources and acquisition of capabilities

  • The Role of ResourcesResourcesCapital or financial, physical, social or human, technological, and organizational factor endowmentsTangible and intangibleA firm-specific and difficult to imitate resource is likely to lead to distinctive competencyA valuable resource that creates strong demand for a firms products may lead to distinctive competency

  • The Role of CapabilitiesCapabilitiesA companys skills at coordinating and using its resourcesCapabilities are the product of organizational structure, processes, and control systemsWe must add people, particularly leadership in building the structure, etc.

  • Strategy, Resources, Capabilities, and Competencies

  • A Critical DistinctionIf a firm has firm-specific and valuable resources, it must also have the capability to use them effectively to create distinctive competencyA firm can create distinctive competency without firm-specific and valuable resources if it has unique capabilities

  • Competitive Advantage, Value Creation, and ProfitabilityProfitability factorsAmount of value customers place on the companys productsPrice chargedCosts of creating the value

  • Value Creation and Pricing Options

  • Comparing Toyota and General Motors

  • Differentiation and Cost Structure: Roots of Competitive Advantage

  • The Value ChainA company is a chain of activities for transforming inputs into outputs that customers valueThe transformation process is composed of primary and support activities that add value to the product

  • The Value Chain: Primary and Support Activities

  • The Generic Building Blocks of Competitive Advantage

  • ExerciseStrategy in Action 3.2: Southwest AirlinesWhat portions of the value chain does Southwest Airlines work on to create value for its customers? Why these portions rather than the more significant costs like fuel?

  • EfficiencyThe quantity of inputs it takes to produce a given output. Usually measured as outputs over inputs; examples of latterNo. of employeesCapital investmentProductivity leads to greater efficiency and lower costsEmployee productivityCapital productivity

  • QualitySuperior quality = customer perception of greater value in a specific products attributesForm, features, performance, durability, reliability, style, designQuality products = goods and services that are reliable and that are differentiated by attributes that customers perceive to have higher value

  • Quality (contd)The impact of quality on competitive advantageHigh-quality products increase the value of (differentiate) the products in customers eyesGreater efficiency and lower unit costs are associated with reliable products

  • A Quality Map for Automobiles

  • InnovationThe act of creating new, commercially viable products or processesProduct innovationCreates products that customers perceive as more valuable, increasing the companys pricing optionsProcess innovationCreates value by lowering production costsPerhaps the most important building block of competitive advantage

  • Responsiveness to CustomersDoing a better job than competitors of identifying and satisfying customers needsSuperior quality and innovation are integral to superior responsiveness to customersCustomizing goods and services to the unique demands of individual customers or customer groups

  • Responsiveness to Customers (contd)Sources of enhanced customer responsivenessCustomer response time, design, service, after-sales service and support Differentiates a companys products; leads to brand loyalty and premium pricing

  • Value Creation per Unit

  • Analyzing Competitive Advantage and ProfitabilityBenchmarking company performance against that of competitors and the companys own historic performanceReturn on invested capitalNet profit = Total revenues Total costs

  • Definitions of Basic Accounting Terms

  • Drivers of Profitability (ROIC)

  • Ways to Increase ROICIncrease the companys return on salesReduce cost of goods soldReduce spending on sales force, marketing, general, and administrative expensesReduce R&D spendingIncrease sales revenue more than costsIncrease sales revenues from invested capitalReduce the amount of working capitalReduce amount of fixed capital

  • The Durability of Competitive AdvantageBarriers to ImitationImitating ResourcesImitating CapabilitiesCapability of CompetitorsStrategic commitmentAbsorptive capacityIndustry Dynamism

  • Why Companies FailInertiaCompanies find it difficult to change their strategies and structuresPrior strategic commitmentsLimit a companys ability to imitate and cause competitive disadvantageThe Icarus paradoxA company can become so specialized based on past success that it loses sight of market realitiesCraftsmen, builders, pioneers, salesmen