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Sustainability of a Competitive Advantage

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1. Sustainability of a Competitive Advantage. Sustainability of a competitive advantage is a function of: ... the availability of substitutes for the core competence ... – PowerPoint PPT presentation

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Title: Sustainability of a Competitive Advantage


1
Sustainability of a Competitive Advantage
  • 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

2
External and Internal Analyses
By studying the external environment, firms
identify what they might choose to do
Opportunities and threats
3
External and Internal Analyses
By studying the internal environment, firms
identify what they can do (over time)
Unique resources, capabilities, and core
competencies (sustainable competitive advantage)
4
Challenge of Internal Analysis
  • How do we effectively manage current core
    competencies while simultaneously developing new
    ones?
  • How do we assemble bundles of resources,
    capabilities and core competencies to create
    value for customers?
  • How do we learn to change rapidly?

5
Conditions Affecting Decisions About Resources,
Capabilities, and Core Competencies
  • Uncertainty regarding characteristics of the
    general and the industry environments,
    competitors actions, and customers preferences
  • Complexity regarding the interrelated causes
    shaping a firms environments and perceptions of
    the environments
  • Intraorganizational Conflicts among people making
    managerial decisions and those affected by them

6
Components of Internal Analysis
7
Resources represent inputs into a firms
production process... such as capital equipment,
skills of employees, brand names, finances and
talented managers
Resources are what a firm has to work with--its
assets--including its people and the value of its
brand name
8
  • Tangible Resources
  • Financial
  • Physical
  • Human resources
  • Organizational
  • Intangible Resources
  • Technological
  • Innovation
  • Reputation

9
Capabilities become important when they are
combined in unique ways to create core
competencies
10
Capabilities are what a firm does, and represent
the firms capacity or ability to integrate
individual firm resources to achieve a desired
objective markets for capabilities are imperfect
11
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 McKinsey and Co. recommends using
three to four competencies when framing strategic
actions
12
Valuable Capabilities that help a firm
neutralize threats or exploit opportunities Rare
Capabilities that are not possessed by many
others
13
  • 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

14
  • Nonsubstitutable capabilities that do not have
    strategic equivalents
  • Invisible to competitors
  • Firm specific knowledge
  • Trust-based working relationships between
    managers and nonmanagerial personnel

15
Core Competence as a Strategic Capability
Yes
Does it satisfy the criteria of sustainable
competitive advantage?
The source of
No
16
Performance Implications
Costly to Imitate?
Nonsubstitutable
Valuable?
Competitive Consequences
Performance Implications
Rare?
Competitive Disadvantage
Below Average Returns
No
No
No
No
Yes/ No
Competitive Parity
Yes
No
No
Average Returns
Yes/ No
Temporary Com- petitive Advantage
Above Average to Average Returns
Yes
Yes
No
Sustainable Com- petitive Advantage
Above Average Returns
Yes
Yes
Yes
Yes
17
(No Transcript)
18
Value creation
  • Profit determined by
  • The amount of value customers place on firms
    goods or services (V)
  • Firms cost of production (C)
  • Consumer surplus occurs when price charged by a
    firm on a good or service is less than value
    placed on it by a customer
  • Value creation V-C

19
Value creation
20
Porters Value Chain
Firm Infrastructure
Human Resource Management
Support Activities
Technology Development
Procurement
Inbound Logistics
Primary Activities
Operations
Outbound Logistics
Marketing and Sales
Service
Upstream value activities Downstream
value activities
21
Value Chain activities in Bio/Pharm
22
Value Chain in Communications Technology Industry
Source MIT Sloan School Architectures and
roadmaps for communications and media
23
Global Value Chain Management
Supplier A Supplier B Supplier N
Assembling, Manufacturing and Sales
Distribution Center
Supplier X Supplier Y Supplier Z
Assembling, Manufacturing and Sales
Country Market A
Country Market B
Where will you design, assemble, inventory,
market, and manage?
24
Outsourcing
Outsourcing is the purchase of some or all of a
value-creating activity from an external
supplier Usually this is because the specialty
supplier can provide these functions more
efficiently
25
Strategic Rationales for Outsourcing
  • Improve Business Focus
  • lets company focus on broader business issues by
    having outside experts handle various operational
    details
  • Provide Access to World-Class Capabilities
  • the specialized resources of outsourcing
    providers makes world-class capabilities
    available to firms in a wide range of applications

26
Strategic Rationales for Outsourcing
  • Accelerate Business Re-Engineering Benefits
  • achieves re-engineering benefits more quickly by
    having outsiders--who have already achieved
    world-class standards--take over process
  • Share Risks
  • reduces investment requirements and makes firm
    more flexible, dynamic and better able to adapt
    to changing opportunities

27
Strategic Rationales for Outsourcing
  • Free Resources for Other Purposes
  • permits firm to redirect efforts from non-core
    activities toward those that serve customers more
    effectively

28
Outsourcing Issues
  • Greatest Value
  • outsource only to firms possessing a core
    competence in terms of performing the primary or
    support activity being outsourced
  • Evaluating Resources and Capabilities
  • dont outsource activities in which the firm
    itself can create and capture value
  • Environmental Threats and Ongoing Tasks
  • do not outsource primary and support activities
    that are used to neutralize environmental threats
    or complete necessary ongoing organizational
    tasks

29
Outsourcing Issues
  • Nonstrategic Team of Resources
  • do not outsource capabilities that are critical
    to their success, even though the capabilities
    are not actual sources of competitive advantage
  • Firms Knowledge Base
  • do not outsource activities that stimulate the
    development of new capabilities and competencies

30
Core Competencies Cautions and Reminders
  • Never take for granted that core competencies
    will continue to provide a source of competitive
    advantage
  • All core competencies have the potential to
    become core rigidities
  • Core rigidities are former core competencies that
    now generate inertia and stifle innovation
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