strategic management presentation (group 3) (final)
TRANSCRIPT
CHAPTER (4)INTERNAL ANALYSIS:
Resources, Capabilities, Competencies & Competitive
Advantage
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Group (3)
Ma Hnin Thiri Chaw (Roll no. 4)Ma May Zin Htet (Roll no. 14)Ma Mya Myin Kyi (Roll no. 25)Ma May Myo Mon (Roll no. 36)Ma May Thu Naing (Roll no. 45) { Leader }Mg Thein Oo (Roll no. 53)Ma Zin Hnin Phyu (Roll no. 57)Ma Khine Hnin Hnin Thu (Roll no. 71)Ma Yin Mar Naing Win (Roll no. 81) Ma Ei Ei Phyo Zaw (Roll no. 90)
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Contents
Competitive Advantage
Generic Building Blocks of Competitive Advantage
Business Functions, Value Chain & Value Creation
Distinctive Competencies, Resources &
Capabilities
Durability of Competitive Advantage
Why Do Company Fail?
Avoiding Failure & Sustaining Competitive
Advantage3
Competitive Advantage
4
Competitive Advantage
Com
peti
tive
Ad
van
tag
e Value Creation
Low Cost
Differentiation
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Competitive Advantage
If its profit rate is higher than the average for its
industry, it is said that the company has a
competitive advantage.
Two basis conditions determine the company’s
profit rate:
(1) The amount of value customers place on the
company’s goods and services
(2) Company’s cost of production6
Competitive Advantage (Cont.)
Company charged price must be less than value
placed on the goods and services under competitive
pressures.
V> P = consumer surplus
A company can create more value
(1) by lowering C (Low cost)
(2) by making more attractive product through superior
design, functionality and quality
(Differentiation)
Consumer place greater value on it (V increases) and
consequently consumer are willing to pay high price (P
increases).
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Value Creation
Superior value creation requires that the gap
between V and C should be greater than the
gap attained by competitors. 8
Generic Building Blocks of Competitive Advantage
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Generic Building Blocks of Competitive Advantage
Superior Quality
Competitive Advantage
- Low Cost- Differentiation
Superior Efficiency
Superior Customer
Responsiveness
Superior Innovation
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Efficiency
Business - device for transforming inputs into outputs
Inputs - basic factors of production such as labor, land,
capital, management, etc.
Outputs - goods and services that the business
produces
Efficiency - the quantity of inputs that it takes to
produce a given output
Efficiency = Outputs/Inputs
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Efficiency (Cont.)
The more efficient a company, the fewer the inputs
required to produce a given output.
Efficiency helps a company attain a low-cost
competitive advantage.
Most important component - employee productivity
(output / employee)
Highest employee productivity will typically have the
lowest costs of production.
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Quality
Quality products are goods and services that are
reliable in the sense that they do the job they were
designed for and do it well.
High product quality on competitive advantage is
twofold:
First, high-quality products increases the value of
those products in the eyes of consumers.
The company can charge a higher price for its
products.
For example, Toyota Vs. General Motors 13
Quality (Cont.)
Second, high quality comes from the greater efficiency
and the lower unit costs it brings.
The company charge higher prices for its product, but
also has lowers costs.
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The Impact of Quality on Profits
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Innovation
Innovation - anything new or novel about the way
a company operates or the products it produces
Innovation includes products, production
processes, management systems, organizational
structures and strategies developed by a
company. (E.g. - Toyota’s lean production system -
pioneer company).
Innovations give a company something unique -
something its competitors lack. 16
Innovation (Cont.)
When competitors succeed in imitating the
innovator, the innovating company had build up
such strong brand loyalty and supporting
management processes that its position proved
difficult for imitators to attack.
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Customer Responsiveness
Customer responsiveness - a better job than
competitors of identifying and satisfying the
needs of its customers
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Customer Responsiveness (Cont.)
Sources of Enhanced Customer
Responsiveness
Quality
Innovation
Customization
Shorter customer response time
Superior design
Service
After-sale service and support 19
Customer Responsiveness (Cont.)
All these factors allow a company to differentiate
itself.
Differentiation enables a company to build brand
loyalty and to charge a premium price for its
products.
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Impact of Efficiency, Quality, Customer Responsiveness &
Innovation on Unit Costs & Prices
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Business Functions, Value Chain &
Value Creation
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Business Functions
Different business functions of a company in the
value creation process:
production, marketing, R&D, service, information
systems, materials management and
human resources.
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Value Chain
It refers to the idea that a company is a chain of
activities for transforming inputs into outputs that
customers value.
The process of transforming inputs into outputs
includes:
(1) Primary activities
(2) Support activities
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Primary Activities
These activities include doing with the design,
creation, and delivery of the product, its
marketing and its support and after-sale service.
R&D Production
Marketing & Sales ServiceInputs Output
s
Primary Activities
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Research & Development
It concerns with the design of products and
production processes.
R&D can increase the functionality of products
which makes them more attractive consumers.
As a result, there will become more efficient
production process with lower production costs
and value creation.
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Production
It is concerned with the creation of a good or
service.
For physical products, it can be called as
manufacturing.
For services, it means delivering to the
customers.
The production function of a company creates
value by performing its activities efficiently and
lower cost result. 27
Marketing & Sales
For example, Brand Positioning and Advertising
It can increase the value which the consumers
perceive to be contained in a company’s product.
It also create a favorable impression of the
company’s product in the minds of consumers.
By discovering consumer needs and
communicating them back to the R&D function of
the company which can design produce better
match those needs, we can create the value. 28
Service
The role of service is to provide after-sale service
and support.
It can create a perception of superior value in the
minds of consumers by solving customer
problems and supporting customers after they
have purchased the product.
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Support Activities
These activities provide inputs that allow the
primary activities to take place.
Material Management Function
Human Resource Function
Company Infrastructure
Primary Activities
Support Activities
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Material Management Function
/ LogisticsIt controls the transmission of physical materials
through the value chain from procurement
through production and into distribution.
The efficient material management function
lowers the cost and creates the value.
Lower materials mean lower costs and greater
value creation.
E.g. Wal-Mart31
Human Resource Function
The human resource function ensures that the
company has the right mix of skilled people to
perform its value creation activities effectively.
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Information Systems
These systems refer to electronic systems for
managing inventory, tracking sales, pricing
products, selling products, dealing with customer
service inquires.
Information systems hold out the promise of
being able to alter the efficiency and
effectiveness with which a company manages its
other value creation activities.
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Company Infrastructure
It means companywide context within which all
the other value creation activities take place.
Company infrastructure includes the
organizational structure, control systems, and
culture of the company.
Strong leadership and top management can
continuously shape a company’s infrastructure
and the performance of all other value creation
activities within the company. 34
Cross-functional Goals
Achieving the competitive advantages requires
strategies that embrace several distinct value
creation activities.
Cross-functional goals mean goals that cut across
the different value creation functions of a
company. It also requires substantial cross-
functional integration.
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Distinctive Competencies, Resources & Capabilities
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Distinctive Competencies
Unique strength that allows a company to achieve
superior value and attain a competitive
advantage.
product differentiation, cost reduction, value
creation
E.g. Toyota
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The Root of Competitive Advantage
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Resources
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Resources (Cont.)
Resources must be both unique and valuable.
A resource is valuable only if it helps create
strong demand for the company’s products.
E.g. Polaroid
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Capabilities
A company’s skills at coordinating its resources
and putting them to productive use.
Capabilities are the product of its organizational
structure and control systems.
They reside in the way individuals interact,
cooperate, and make decisions within the context
of an organization.
E.g. Nucor41
A Requirement to get Distinctive Competencies
(1) A unique and valuable resource and the
capabilities (skills) necessary to exploit that
resource.
(2) A unique capability to manage common
resources.
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Strategy & Competitive Advantage
A company needs to pursue strategies that
build on its existing resources and capabilities
(its competencies)
build additional resources and capabilities
(develop new competencies)
E.g. Walt Disney & 3M
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The Relationship between Strategies and Resources and
Capabilities
• Functional level• Business level• Corporate level• International level
Resources & Capabilities
(Competencies)
Strategies
Shape
Build
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The Role of Luck
Scholars argued: Luck plays a critical role in
determining competitive success and failure.
This luck argument devalues the importance of
planned strategy.
It states that in coping with uncertainty some
companies just happened to stumble on the
correct strategy.
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The Role of Luck (Cont.)
Otherwise, they just happened to develop or
possess the right kind of resources and
capabilities by accident rather than by design.
From long-term perspective: This luck
argument is unconvincing explanation for the
persistent success of a company.
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The Role of Luck (Cont.)
In deed, competition is a process in which
companies are continually trying to outdo each
other in their ability to achieve the generic blocks
of competitive advantage.
Substantial competitive advantage cannot be
driven by luck but by conscious effort.
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Durability of Competitive Advantage
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How long will a competitive advantage last once it has been created?
Durability of Competitive Advantage
Barriers to Imitation
Capability of
Competitors
Industry Dynamis
m
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Barriers to Imitation
A company with a competitive advantage will
earn higher than average profits.
These profits send a signal to rivals that the
company is in possession of some valuable
distinctive competency.
So, competitors can identify and imitate that
competency.
The speed of imitation depends on the durability
of a company’s competitive advantage. 50
Barriers to Imitation (Cont.)
So, the critical issue is time.
E.g. China & U.S.
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Barriers to Imitation (Cont.)
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Imitating Resources & Capabilities
Imitating resources is the easiest distinctive
competencies to imitate by depending on
possession of unique and valuable tangible
resources.
Resources are visible to competitors and can
often be purchased on the open market.
But, intangible resources can be more difficult to
imitate.
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Imitating Resources & Capabilities (Cont.)
So, patent system should be made for prevention
of imitation.
These capabilities are based on the way decisions
are made and process managed deep within a
company.
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Capability of Competitors
• A company’s commitment to a particular way of doing business - to developing a particular set of resources and capabilities.
• When a company has already had long-established commitments to a particular way of doing business, there may be slow to imitate an innovating company’s competitive advantage.
Strategic Commitme
nt
• The ability of an enterprise to identify, value, assimilate and utilize new knowledge.
• To overcome internal inertiaAbsorptive
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Industry Dynamism
A dynamism industry environment is one that is
changing rapidly.
The most dynamic industries to be those with a
very high rate of product innovation.
The rapid rate of innovation means that product
life cycles are shortening.
Competitive advantage can be very transitory (or)
temporary.56
WHY DO COMPANIES FAIL?
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Why do Companies Fail?
A company can lose its competitive advantage
but still not fail because it can earn average
profits.
Three related reasons for failure:
Inertia
Prior Strategic Commitments
The Icarus Paradox
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Inertia
Companies find it difficult to change their
strategies and structures in order to adapt to
changing competitive conditions.
E.g. IBM
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Why do companies find it so difficult to adapt to new environmental
conditions?
They are difficult to change because a certain
distribution of power and influence is embedded
within the established decision-making and
management processes of an organization.
It means changing the established decision-
making in the organization means changing its
existing distribution of power and influence would
diminish resist such change.
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Prior Strategic Commitments
A company’s prior strategic commitments not
only limit it ability to imitate rivals, but may
also cause competitive disadvantage.
E.g. IBM
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The Icarus Paradox
It is the root of competitive failure.
A company can become so specialized and
inner- directed that it loses sight of market
realities and the fundamental requirements
for achieving competitive advantage.
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Miller identifies four major categories among the rising
and falling companies
Pioneers
enamored of their own
originally brilliant
innovations
continued to search for
additional brilliant
innovations
ended up producing novel
but completely useless
products
Salesmen
became so convinced of
their ability to sell
anything
paid low attention to
product development and
manufacturing excellence
spawned a proliferation of
unattractive, inferior
products63
Miller identifies four major categories among the rising
and falling companies
Craftsmen
achieved early success
became so obsessed
lost sight of market
realities
Builders
built successful
became so enchanted
with diversification for it
own sake
Continued to diversify far
beyond the point at which
it was profitable to do so
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Avoiding Failure & Sustaining Competitive
Advantage
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Avoiding Failure & Sustaining Competitive Advantage
Focus on the Building Blocks of Competitive
Advantage
Institute Continuous Improvement and Learning
Track Best Industrial Practice and Use
Benchmarking
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Focus on the Building Blocks of Competitive Advantage
Continue focusing on the four generic building
blocks of competitive advantage:
(1) Efficiency
(2) Quality
(3) Innovation
(4) Customer responsiveness
Develop distinctive competencies that contribute
to superior performance in these areas.67
Institute Continuous Improvement & Learning
Today’s source of competitive advantage may soon
be rapidly imitated by capable competitors, or it
may be made obsolete by the innovations of a rival.
A company can maintain a competitive advantage
over time is to continually improve its efficiency,
quality, innovation, and customer responsiveness.
The way to do so is recognize the important of
learning within the organization.
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Institute Continuous Improvement & Learning
(Cont.)They are constantly upgrading the value of their
distinctive competencies or creating new
competencies.
The objective is to learn from prior mistakes and
to seek our ways to improve their processes over
time.
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Track Best Industrial Practice & Use Benchmarking
One of the best ways to develop distinctive
competencies is to identify best industrial
practice and to adopt it.
Benchmarking is the process of measuring the
company against the products, practices, and
services of some of its most efficient global
competitors.
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Overcome Inertia
A further reason for failure is an inability to adapt
to changing conditions because of organizational
inertia.
Overcoming the barriers to change within an
organization is one of the key requirements for
maintaining a competitive advantage.
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