Strategic management presentation (group 3) (final)

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


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Com

peti

tive

Ad

van

tag

e Value Creation

Low Cost

Differentiation

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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


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Superior Quality


- 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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How long will a competitive advantage last once it has been created?


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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Strategic management presentation (group 3) (final)

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