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    Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability

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    Managers must understand the role of resources, capabilities, and distinctive competencies in the process by which companies create value and profit. A firm can create distinctive competency without firm-specific and valuable resources if it has unique capabilities. Superior efficiency, innovation, quality, and responsiveness to customers are important.

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    Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability

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    yosefnir
    52 views31 pages
    Managers must understand the role of resources, capabilities, and distinctive competencies in the process by which companies create value and profit. A firm can create distinctive competency without firm-specific and valuable resources if it has unique capabilities. Superior efficiency, innovation, quality, and responsiveness to customers are important.

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    Managers must understand the role of resources, capabilities, and distinctive competencies in the process by which companies create value and profit. A firm can create distinctive competency without firm-specific and valuable resources if it has unique capabilities. Superior efficiency, innovation, quality, and responsiveness to customers are important.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    52 views31 pages

    Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability

    Uploaded by

    yosefnir
    Managers must understand the role of resources, capabilities, and distinctive competencies in the process by which companies create value and profit. A firm can create distinctive competency without firm-specific and valuable resources if it has unique capabilities. Superior efficiency, innovation, quality, and responsiveness to customers are important.

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    Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability

    Internal Analysis
    Identifying the strengths and weaknesses of the company Managers must understand
    The role of resources, capabilities, and distinctive competencies in the process by which companies create value and profit The importance of superior efficiency, innovation, quality, and responsiveness to customers The sources of their companys competitive advantage (strengths and weaknesses)
    Copyright Houghton Mifflin Company. All rights reserved. 3-2

    Competitive Advantage
    Competitive advantage
    A firms profitability is greater than the average profitability for all firms in its industry

    Sustained competitive advantage


    A firm maintains competitive advantage for a number of years

    Copyright Houghton Mifflin Company. All rights reserved.

    3-3

    Profitability in the U.S. Retailing Industry, 1996-2001

    Copyright Houghton Mifflin Company. All rights reserved.

    3-4

    Distinctive Competences and Competitive Advantage


    Distinctive competencies
    Firm-specific strengths that allow a company to gain competitive advantage by differentiating its products and/or achieving lower costs than its rivals Arise from resources and capabilities

    Copyright Houghton Mifflin Company. All rights reserved.

    3-5

    The Role of Resources


    Resources
    Capital or financial, physical, social or human, technological, and organizational factor endowments Tangible and intangible

    A firm-specific and difficult to imitate resource is likely to lead to distinctive competency A valuable resource that creates strong demand for a firms products may lead to distinctive competency

    Copyright Houghton Mifflin Company. All rights reserved.

    3-6

    The Role of Capabilities


    Capabilities
    A companys skills at coordinating and using its resources

    Capabilities are the product of organizational structure, processes, and control systems

    Copyright Houghton Mifflin Company. All rights reserved.

    3-7

    Strategy, Resources, Capabilities, and Competencies

    Copyright Houghton Mifflin Company. All rights reserved.

    3-8

    A Critical Distinction
    If a firm has firm-specific and valuable resources it must also have the capability to use them effectively to create distinctive competency A firm can create distinctive competency without firm-specific and valuable resources if it has unique capabilities

    Copyright Houghton Mifflin Company. All rights reserved.

    3-9

    Competitive Advantage, Value Creation, and Profitability


    Profitability factors
    Amount of value customers place on the companys products Price charged Costs of creating the value

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 10

    Value Creation per Unit

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 11

    Value Creation and Pricing Options

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    3 - 12

    Comparing Toyota and General Motors

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 13

    Differentiation and Cost Structure: Roots of Competitive Advantage

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 14

    The Value Chain


    A company is a chain of activities for transforming inputs into outputs that customers value The transformation process is composed of primary and support activities that add value to the product

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 15

    The Value Chain: Primary and Support Activities

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    3 - 16

    The Generic Building Blocks of Competitive Advantage

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 17

    Efficiency
    The quantity of inputs it takes to produce a given output Productivity leads to greater efficiency and lower costs
    Employee productivity Capital productivity

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 18

    Quality
    Superior quality = customer perception of greater value in a specific products attributes
    Form, features, performance, durability, reliability, style, design

    Quality products = goods and services that are reliable and that are differentiated by attributes that customers perceive to have higher value

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 19

    Quality (contd)
    The impact of quality on competitive advantage
    High-quality products increase the value of (differentiate) the products in customers eyes Greater efficiency and lower unit costs are associated with reliable products

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 20

    A Quality Map for Automobiles

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 21

    Innovation
    The act of creating new products or processes
    Product innovation
    Creates products that customers perceive as more valuable, increasing the companys pricing options

    Process innovation
    Creates value by lowering production costs

    Perhaps the most important building block of competitive advantage

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 22

    Responsiveness to Customers
    Doing a better job than competitors of identifying and satisfying customers needs
    Superior quality and innovation are integral to superior responsiveness to customers Customizing goods and services to the unique demands of individual customers or customer groups

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 23

    Responsiveness to Customers (contd)


    Sources of enhanced customer responsiveness
    Customer response time, design, service, aftersales service and support

    Differentiates a company/its products; leads to brand loyalty and premium pricing

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 24

    Analyzing Competitive Advantage and Profitability


    Benchmarking company performance against that of competitors and the companys own historic performance Return on invested capital

    ROIC =

    Net profit Invested capital

    Net profit = Total revenues Total costs


    Copyright Houghton Mifflin Company. All rights reserved. 3 - 25

    Definitions of Basic Accounting Terms

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 26

    Drivers of Profitability (ROIC)

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 27

    Ways to Increase ROIC


    Increase the companys return on sales
    Reduce cost of goods sold Reduce spending on sales force, marketing, general, and administrative expenses Reduce R&D spending Increase sales revenue more than costs

    Increase sales revenues from invested capital


    Reduce the amount of working capital Reduce amount of fixed capital

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 28

    The Durability of Competitive Advantage


    Barriers to Imitation
    Imitating Resources Imitating Capabilities

    Capability of Competitors
    Strategic commitment Absorptive capacity

    Industry Dynamism

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 29

    Why Companies Fail


    Inertia
    Companies find it difficult to change their strategies and structures

    Prior strategic commitments


    Limit a companys ability to imitate and cause competitive disadvantage

    The Icarus paradox


    A company can become so specialized based on past success that it loses sight of market realities Craftsmen, builders, pioneers, salesmen

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 30

    Avoiding Failure and Sustaining Competitive Advantage


    Focus on the building blocks of competitive advantage Institute continuous improvement in learning Track best industrial practice in use benchmarking Overcome inertia Luck

    Copyright Houghton Mifflin Company. All rights reserved.

    3 - 31

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