Competing For Advantage
Chapter 4 – The Internal Organization: Resources, Capabilities, and Core Competencies
Profitability in the U.S. Retailing Industry, 1996-2001
Why Internal Analysis?
Early strategy theory rooted in industry structural analysis - external focus
This approach has lost its appeal because: internationalization & deregulation has all but
removed safe havens technology and changes in demand have
blurred industry lines
Outcomes from Organizational Analyses
Components of Internal Analysis Leading to Competitive Advantage and Value Creation
Tangible Resources
Intangible Resources
Increasing Value of Intangible Resources
Less visibility and less imitable More sustainability More leverage within network of users
Evaluation of Resources
Strength or Weakness relative to competitorsbasic business requirementskey vulnerabilities
Tangible
Resources
Intangible
Resources
Org.
Capabilities
Examples…..• Customer Service• Product Development• Employee Productivity
Inputs into Outputs
Examples of Firm’s Capabilities
Core Competencies central to the firm’s competitiveness rewarded in market place combination of skills & knowledge, not
products or functions flexible, long term platforms embedded in the organization’s systems distinctive competencies are those the firm
performs better than rivals All core competencies have the potential to
become core rigidities
Supporting and nurturing more than four core competencies may prevent a firm from developing the focus needed to fully exploit its competencies in the marketplace
Tools for Building Core Competencies
Four Criteria of Sustainable Competitive Advantage
Value Chain Analysis
Sustainable Competitive Advantage
Must be valuable, rare, costly to imitable, and non-substitutable
Sustainability is a function of Durability - how long will it last?
Technology? Reputation? Fixed Assets? Imitability - how quickly can it be copied?
Transparent - easy to see? Transferable - can it be done
elsewhere? Replicable - can we do it here?
Four Criteria for Determining Core Competencies
Factors that Limit Imitation
Physical Uniqueness – location, patents Path Dependency – accumulation effect Causal Ambiguity – unable to disentangle Social Complexity – social interactions are
not readily understood nor duplicated Absorptive Capacity – ability to identify, value,
assimilate and use knowledge
Core Competencies as a Strategic Capability
Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage
Creating Value
Key Terms
Value – measured by a product's performance characteristics and by its attributes for which customers are willing to pay
Value Creation per Unit
Comparing Toyota and General Motors
Relative costs and prices
Where do cost/price differences come from? raw materials and components differences in technology, plant, equipment efficiencies, learning, experience, wages,
productivity marketing, sales, promotion, warehousing,
distribution, administration costs distribution inflation, exchange and tax rates
Porter’s Value Chain
Views the organization as a series (chain) of activities, which may or may not create value
Porter’s Value Chain (cont.)
Primary Activities– Inbound logistics – Supply Chain Management– Operations– Outbound logistics - Distribution– Marketing and sales– Customer service
– Contribute to the physical creation of the product/service, its sale and transfer to the buyer, and its service after the sale
Porter’s Value Chain (cont)
Support Activities Procurement Technological development Human resource management Firm infrastructure
The Value-Creating Potential of Support Activities
Firm Infrastructure
HRMTechnological Development
Procurement
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The Value ChainSupport
Primary
A low cost strategy…..
Firm Infrastructure
HRM
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…tries to pull the arrow back…..
Technological Development
Fewer layers of management
Policies to reduce turnover
IBM Printer - 150 to 62 parts, 3.5 minutes
Monitor supplier performance
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Low Cost - Support Activity examples…...
Low cost - Primary Activity examples….
Inbound - Toyota Operations - Subway Outbound - Campbell Soup’ Continuous
Replenishment Marketing/Sales - WalMart Customer Service - Federal Express
A differentiation strategy…..
Firm Infrastructure
HRM
Procurement
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….tries to pull the arrow forward...
Technological Development
Commitment to quality
Compensation rewarding innovationAmazon Recommendations
Purchasing high-quality components
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Differentiation - Support Activity examples…...
Inbound - Dell Operations - Marriott Outbound - WebVan Market/Sales - Nordstrom’s Customer Service - Pirtek
Differentiation - Primary Activity examples…...
Suppliers Buyers
Your Firm
Your Rivals
Suppliers Buyers
Your Firm
Your Rivals
Opportunities forAdvantage
Suppliers Buyers
Your Firm
Your Rivals
Opportunities forAdding Value
Opportunities forAdding Value
Source of Competitive Advantage
The resource or capability must allow the firm to perform an activity in a manner superior to the way competitors perform it
The resource or capability must allow the firm to perform a value-creating activity that competitors cannot perform
Outsourcing
Key TermsOutsourcing – purchase of a value-
creating activity from an external supplier
Outsourcing Viability When a firm does not have the capabilities in the
areas needed to succeed When a firm lacks a resource or possesses
inadequate skills needed to implement a strategy When few organizations possess the resources and
capabilities needed for competitive superiority in all primary and support activities necessary to compete
When extensive internal capabilities exist for effectively coordinating external sourcing and internal core competencies
Benefits of Outsourcing
Increased flexibility Mitigation of risks Reduced capital investments
Essential Skills for Outsourcing
Strategic thinkingDeal makingPartnership governanceManaging change