Competitive Advantage Internal

8/13/2019 Competitive Advantage Internal

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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


Competitive

Disadvantage

Below average

returns

Competitive

Parity

Average

Returns

Temporary


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


Competitive

Disadvantage

Below average

returns

Competitive

Parity

Average

Returns

Temporary


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


Competitive

Disadvantage

Below average

returns

Competitive

Parity

Average

Returns

Temporary


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

Competitive Advantage Internal

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