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Chapter 4 -- In ternal Analysis :
Resources, Capabi l i t ies, Competencies,
and Compet it ive Advantage
Text byCharles W. L. HillGareth R. Jones
Multimedia Slides byMilton M. Pressley
Univ. of New Orleans
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Preview
Competitive Advantage
Generic Building Blocks of Competitive
AdvantageBusiness Functions and the Value Chain
Distinctive Competencies, Resources, andCapabilities
Durability of Competitive AdvantageWhy Do Companies Fail?
Avoiding Failure and Sustaining CompetitiveAdvantage
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Competi t ive Advan tage: Value
Creation , Low Cos t, andDifferentiat ion
Competitive Advantage Sustained Competitive
Advantage
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Figu re 4.1: PC Firms: Return on Cap ital
Employed Relat ive to Indus try Means
-15
-10
-5
0
5
10
15
20
25
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
Apple
AST
Compaq
Dell
19
94
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Figure 4.2: Value Creation
V
P
C C
P-C
V-P
V=Value to Consumer
P=Price
C=Costs of Production
V-P=Consumer Surplus
P-C=Profit Margin
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Figu re 4.3: Generic Bui ld ing B locks
of Compet it ive Advantage
Competitive
Advantage:
Low Cost
Differentiation
Superior
Efficiency
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Figu re 4.3: Generic Bui ld ing B locks
of Compet it ive Advantage
Superior
Quality
Competitive
Advantage:
Low Cost
Differentiation
Superior
Efficiency
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Figu re 4.4: The Impact o f
Quali ty on Prof i ts
Increased
Reliability
Increased
Quality
Increased
Productivity
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Figu re 4.4: The Impact o f
Quali ty on Prof i ts
Increased
Reliability
Higher
Prices
Increased
Quality
Increased
Productivity
Lower
Costs
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Figu re 4.4: The Impact o f
Quali ty on Prof i ts
Increased
Reliability
Higher
Prices
Increased
Quality
Higher
Profits
Increased
Productivity
Lower
Costs
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Figu re 4.3: Generic Bui ld ing B locks
of Compet it ive Advantage(Continued)
Superior
Quality
Competitive
Advantage:
Low Cost
Differentiation
Superior
Innovation
Superior
Efficiency
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Figu re 4.3: Generic Bui ld ing B locks
of Compet it ive Advantage(Continued)
Superior
Quality
Competitive
Advantage:
Low Cost
Differentiation
Superior
Innovation
Superior
Efficiency
Superior
Customer
Responsiveness
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Figu re 4.5: Summary of the Impact of Effic iency,
Qual i ty, Innovat ion , and Cus tomer
Responsiveness on Unit Cos ts and Prices
Lower Unit Costs
Efficiency
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Figu re 4.5: Summary of the Impact of Effic iency,
Qual i ty, Innovat ion , and Cus tomer
Responsiveness on Unit Cos ts and Prices
Lower Unit Costs
Higher Unit Prices
Quality
Efficiency
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Figu re 4.5: Summary of the Impact of Effic iency,
Qual i ty, Innovat ion , and Cus tomer
Responsiveness on Unit Cos ts and Prices
Lower Unit Costs
Higher Unit Prices
Customer
Responsiveness
Quality
Efficiency
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Figu re 4.5: Summary of the Impact of Effic iency,
Qual i ty, Innovat ion , and Cus tomer
Responsiveness on Unit Cos ts and Prices
Innovation
Lower Unit Costs
Higher Unit Prices
Customer
Responsiveness
Quality
Efficiency
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Figu re 4.6: The Value Chain
Business Funct ions, The Value
Chain, and Value Creation
Inputs Outputs
Primary Activities
Research
and
Development
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Figu re 4.6: The Value Chain
Business Funct ions, The Value
Chain, and Value Creation
Inputs OutputsProduc-
tion
Primary Activities
Research
and
Development
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Figu re 4.6: The Value Chain
Business Funct ions, The Value
Chain, and Value Creation
Inputs OutputsProduc-
tion
Marketing
and
Sales
Primary Activities
Research
and
Development
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Figu re 4.6: The Value Chain
Business Funct ions, The Value
Chain, and Value Creation
Inputs OutputsProduc-
tion
Marketing
and
Sales
Service
Primary Activities
Research
and
Development
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Figu re 4.6: The Value Chain
Business Funct ions, The Value
Chain, and Value Creation
Materials Management
Inputs OutputsProduc-
tion
Marketing
and
Sales
Service
Primary Activities
Research
and
Development
Support
Activities
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Figu re 4.6: The Value Chain
Business Funct ions, The Value
Chain, and Value Creation
Human Resources
Materials Management
Inputs OutputsProduc-
tion
Marketing
and
Sales
Service
Primary Activities
Research
and
Development
Support
Activities
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Figu re 4.6: The Value Chain
Inputs OutputsProduc-
tion
Marketing
and
Sales
Service
Primary Activities
Research
and
Development
Support
Activities
Company Infra-Structure
Human Resources
Materials Management
Business Funct ions, The Value
Chain, and Value Creation
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Bus iness Funct ions, The Value
Chain , and Value Creation
Cross Functional Goals*
*More Detail in Chapter 11
Corporate Headquarters Staff
CEO
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Figure 4.7: The Roots of Competi t ive Ad vantage
Distinctive
Competencies
Dist inc t ive Competenc ies,
Resources , and Capab i l i t ies
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Figure 4.7: The Roots of Competi t ive Ad vantage
Resources
Distinctive
Competencies
Dist inc t ive Competenc ies,
Resources , and Capab i l i t ies
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Tangible Land
Buildings
Plant
Equipment
Intangible Brand Names
Reputation
Patents
Technical orMarketingKnow-How
Dist inc t ive Competenc ies,
Resources , and Capab i l i t ies
Resources Are:
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Figure 4.7: The Roots of Competi t ive Ad vantage
Resources
Distinctive
Competencies
Capabilities
Dist inc t ive Competenc ies,
Resources , and Capab i l i t ies
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Figure 4.7: The Roots of Competi t ive Ad vantage
Resources
Distinctive
Competencies
Capabilities
Superior
Efficiency
Quality
Innovation
Customer
Respon-
siveness
Dist inc t ive Competenc ies,
Resources , and Capab i l i t ies
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Figure 4.7: The Roots of Competi t ive Ad vantage
Dist inc t ive Competenc ies,
Resources , and Capab i l i t ies
Resources
Distinctive
Competencies
Capabilities
Differentia-tion
Low Cost
Superior
Efficiency
Quality
Innovation
Customer
Respon-
siveness
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Figure 4.7: The Roots of Competi t ive Ad vantage
Dist inc t ive Competenc ies,
Resources , and Capab i l i t ies
Resources
Distinctive
Competencies
Capabilities
Differentia-tion
Low Cost
Value
Creation
Superior
Efficiency
Quality
Innovation
Customer
Respon-
siveness
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Figure 4.7: The Roots of Competi t ive Ad vantage
Dist inc t ive Competenc ies,
Resources , and Capab i l i t ies
Resources
Higher
Profits
Distinctive
Competencies
Capabilities
Differentia-tion
Low Cost
Value
Creation
Superior
Efficiency
Quality
Innovation
Customer
Respon-
siveness
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Dist inc t ive Competenc ies,
Resources , and Capab i l i t ies
(Cont inued)
Strategy and Competitive Advantage
Resources &
Capabilities
(Competencies)
Strategies
Shape
Build
Figure 4.8: The Relationship Between Strategies
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Dist inc t ive Competenc ies,
Resources , and Capab i l i t ies(Cont inued)
The Role of Luck
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The Durab i li ty o f
Competi tive Advantage Barriers to Imitation
Imitating Resources
Imitating Capabilities
Capability of Competitors
Strategic Commitment
Industry Dynamism
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Why Do Compan ies Fai l?
Inertia
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Why Do Compan ies Fai l?
Inertia
Prior StrategicCommitments
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Why Do Compan ies Fai l?
The IcarusParadox
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Avo iding Fai lure and Sus tain ing
Competi t ive Advantage
Focus on the Building Blocks ofCompetitive Advantage
Institute Continuous Improvementand Learning
Track Best IndustrialPractice and Use
Benchmarking Overcome Inertia
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