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Sustainability of a competitive advantage is a function of:› the rate of core-competence
obsolescence due to environmental changes, e.g., technology
› the availability of substitutes for the core competence
› the imitability of the core competence, e.g., diffusion of an innovation
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3
General
Env
iron
men
t
General
Environment
Gen
eral
Environm
ent
Sociocultural
Global
Technological
Polit
ical
/Leg
al
Dem
ogra
phic Econom
ic
IndustryEnvironment
CompetitorEnvironment
what firm might choose to do
Opportunities and threats
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identify what they can do (over time)
Unique resources, capabilities, and core competencies
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Discovering CoreDiscovering CoreCompetenciesCompetencies
ResourcesResources• TangibleTangible• IntangibleIntangible
CapabilitiesCapabilities
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
StrategicStrategicCompetitivenessCompetitiveness
Four CriteriaFour Criteriaof Sustainableof Sustainable
AdvantagesAdvantages
• ValuableValuable• RareRare• Costly to ImitateCostly to Imitate• No substitutableNo substitutable
ValueValueChainChain
AnalysisAnalysis
• OutsourceOutsource
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Discovering CoreDiscovering CoreCompetenciesCompetencies
Resources• Tangible• Intangible
Tangible Resources
• Financial• Physical• Human
resources• Organizational
Intangible Resources
• Technological• Innovation• Reputation
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Discovering CoreDiscovering CoreCompetenciesCompetencies
CapabilitiesCapabilities
Capabilities are what a firm does, and represent the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective
markets for capabilities are imperfect
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Discovering CoreDiscovering CoreCompetenciesCompetencies
CoreCoreCompetenciesCompetencies
Core competencies are resources and capabilities that serve as a source of competitive advantage over rivals
Core competencies distinguish a company competitively and make it distinctive
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Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages
•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutable
Discovering CoreDiscovering CoreCompetenciesCompetencies
Valuable: Capabilities that help a firm neutralize threats or exploit opportunities
Rare: Capabilities that are not possessed by many others
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Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages
•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutable
Discovering CoreDiscovering CoreCompetenciesCompetencies
Costly to imitate: capabilities that other firms cannot develop easily, usually due to
• Unique historical conditions - e.g., founder, culture
• Causal ambiguity - capabilities hidden• Social complexity - capabilities
distributed
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Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages
•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutable
Discovering CoreDiscovering CoreCompetenciesCompetencies
Nonsubstitutable: capabilities that do not have strategic equivalents
• Invisible to competitors• Firm specific knowledge • Trust-based working relationships
between managers and nonmanagerial personnel
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Resources• Inputs to a firm’s
production process
Capability• A nonstrategic
team or resource
Core Competence• A strategic
capability
The source of
Does it satisfy the criteria of sustainable competitive advantage?
Yes
No
Capability• An integration of a
team of resources
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Valuab
le?
Rare?
Costly
to Im
itate?
Nonsu
bstitu
table
CompetitiveConsequences
PerformanceImplications
No No No NoCompetitiveDisadvantage
Below AverageReturns
Yes No NoYes/No
CompetitiveParity Average Returns
Yes Yes NoYes/No
Temporary Com-petitive Advantage
Above Average to Average Returns
Yes Yes Yes YesSustainable Com-petitive Advantage
Above Average Returns
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Questions?
Thank You
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