discriptive competencies

8/7/2019 discriptive competencies

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Internal Analysis: Distinctive

Competencies, CompetitiveAdvantage, and Profitability

Chapter 3


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Internal Analysis: Identifying

Strengths and WeaknessesManagers must understand

The role of resources, capabilities, anddistinctive competencies in the process by

which companies create value and profit The importance of superior efficiency,

innovation, quality, and responsiveness tocustomers

The sources of their companys competitiveadvantage (strengths and weaknesses)


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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 unique application of resources

and acquisition of capabilities


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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


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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

We must add people, particularly

leadership in building the structure, etc.


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Strategy, Resources,

Capabilities, and Competencies


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A Critical Distinction

If a firm has firm-specific and valuable

resources, it must also have the capability

to use them effectively to create distinctivecompetency

A firm can create distinctive competency

without firm-specific and valuable

resources if it has unique capabilities


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Competitive Advantage, Value

Creation, and Profitability Profitability factors

Amount of value customers place on the

companys products

Price charged

Costs of creating the value


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Value Creation and Pricing

Options


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Comparing Toyota and General

Motors


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erent at on an ost

Structure: Roots of Competitive

Advantage


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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


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The Value Chain: Primary and

Support Activities


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The Generic Building Blocks of

Competitive Advantage


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Exercise

Strategy in Action 3.2: Southwest Airlines

What portions of the value chain does

Southwest Airlines work on to create valuefor its customers?

Why these portions rather than the more

significant costs like fuel?


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Efficiency

The quantity of inputs it takes to produce agiven output. Usually measured as outputsover inputs; examples of latter

No. of employees

Capital investment

Productivity leads to greater efficiency and

lower costs Employee productivity

Capital productivity


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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 byattributes that customers perceive to have

higher value


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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


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A Quality Map for Automobiles


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Innovation

The act of creating new, commercially

viable 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


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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 customergroups


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Responsiveness to Customers

(contd) Sources of enhanced customerresponsiveness

Customer response time, design, service,

after-sales service and support

Differentiates a companys products; leads

to brand loyalty and premium pricing


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Value Creation per Unit


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Analyzing Competitive

Advantage and Profitability Benchmarking company performanceagainst that of competitors and the

companys own historic performance

Return on invested capital

capitalInvestedprofitNetROIC!

Net pro it = Total revenues Total costs


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Definitions of Basic Accounting

Terms


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Drivers of Profitability (ROIC)


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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 investedcapital

Reduce the amount of working capital

Reduce amount of fixed capital


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The Durability of Competitive

Advantage Barriers to Imitation Imitating Resources

Imitating Capabilities Capability of Competitors

Strategic commitment

Absorptive capacity

Industry Dynamism


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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

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discriptive competencies