Strategic management chapter 3 competitive advantage

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Competitive Advantage

• Firms achieve strategic competitiveness and earn above-average returns when their core competencies are effectively:

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Competitive Advantage (cont’d)

• Sustainability of a competitive advantage

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Analyzing the External Environment

By studying the external environment, firms

identify what they might choose to do.

Opportunities and threats

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Analyzing the Internal Organization

By studying the internal environment,

firms identify what they can do

Unique resources, capabilities, and competencies

(required for sustainable competitive advantage)

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Figure 3.1 Components of an Internal Analysis

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Creating Value

• By exploiting their core competencies or competitive advantages, firms create value.

• Value is measured by:

– Product performance characteristics – Product attributes for which customers will pay

• Firms create value by innovatively bundling and leveraging their resources and capabilities.

• Superior value  Above-average returns

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Creating Competitive Advantage

• Core competencies, in combination with market positions, are the firm’s most important sources of competitive advantage.

product-• Core competencies of a firm, in addition to its analysis of its general, industry, and competitor environments, should drive its selection of

strategies.

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Figure 3.2 Conditions Affecting Managerial Decisions about Resources,

Capabilities, and Core Competencies

Resources, Capabilities and Core Competencies

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Resources

• Tangible

• Intangible

Capabilities Core Competencies

• Resources

– Are a firm’s assets, including people and the value of its brand name that represent inputs into a firm’s production process:

• Human resources

• Innovation resources

• Reputation resources

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Resources

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Table 3.1 Tangible Resources

Financial

• The firm’s ability to generate internal funds

Organizational

Physical Resources • The sophistication and location of a firm’s

plant and equipment and the attractiveness of its location

• Distribution facilities

• Product inventory

Technological Resources • Availability of technology-related resources

such as copyrights, patents, trademarks, and trade secrets

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• Perceptions of product quality, durability, and reliability

• Positive reputation with stakeholders such as suppliers and customers

Resources, Capabilities and Core Competencies

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Capabilities

Represent the capacity to deploy resources that have been purposely integrated to achieve a desired end state

Emerge over time through complex interactions among tangible and intangible resources

Often are based on developing, carrying and exchanging information and knowledge through the firm’s human capital

Competitive Advantage

Resources, Capabilities and Core Competencies

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Competitive Advantage

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Table 3.3 Examples of Firms’ Capabilities

Resources, Capabilities and Core Competencies

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The four criteria for determining strategic capabilities:

Value RarityCostly-to-imitateNonsubstitutability

Competitive Advantage

Resources

• Tangible

• Intangible

Capabilities Core Competencies

Resources, Capabilities and Core Competencies

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Core CompetenciesResources and capabilities that are the sources

of a firm’s competitive advantage:

Distinguish a firm competitively and reflect its personality.

Emerge over time through an organizational process of accumulating and learning how

to deploy different resources and capabilities.

Competitive Advantage

Resources, Capabilities and Core Competencies

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Core CompetenciesActivities that a firm performs especially well compared to competitors

Activities through which the firm adds unique value to its goods or services over a long period of time

Competitive Advantage

Building Core Competencies

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The Four Criteria of Sustainable Competitive Advantage

Valuable capabilitiesRare capabilitiesCostly to imitateNonsubstituable

Sustainable Competitive Advantage

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Table 3.4 The Four Criteria of Sustainable Advantage

Valuable Capabilities • Help a firm neutralize threats or exploit

opportunities

Rare

Costly-to-Imitate Capabilities • Historical: A unique and a valuable organizational

culture or brand name

• Ambiguous cause: The causes and uses of a competence are unclear

• Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers

Nonsubstitutable

Building Sustainable Competitive Advantage

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Building Sustainable Competitive Advantage

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Ambiguous cause

The causes and uses of a competence are unclearSocial complexity

Interpersonal relationships, trust, and friendship among managers, suppliers, and customers

Sustainable Competitive Advantage

Building Sustainable Competitive Advantage

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Nonsubstitutable Capabilities

No strategic equivalent

Firm-specific knowledgeOrganizational culture

Superior execution of the chosen business model

Sustainable Competitive Advantage