Competing for Advantage

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Competing for Advantage
PART II STRATEGIC ANALYSIS

• Chapter 4
• The Internal Organization
• Resources, Capabilities, and Core Competencies

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The Strategic Management Process
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The Internal Organization

• Firms rely on a unique bundle of resources to
  create a sustainable competitive advantage.
• Factors that Determine Sustainability
• Rate of core competence obsolescence
• Availability of substitutes
• Imitability of core competence

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Outcomes from Internal Organizational Analysis
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Resource Decision Pitfalls

• Neglecting international considerations
• Pursuing only short-term earnings goals
• Failing to recognize core competencies
• Emphasizing resources and capabilities that do
  not form a competitive advantage

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Conditions That InfluenceInternal Analysis

• Key Terms
• Global mind-set
• Ability to study an internal environment in ways
  that do not depend on the assumptions of a single
  country, culture, or context

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Conditions That InfluenceInternal Analysis

• Global interconnectedness
• Pace of environmental change
• Economic volatility

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Conditions Affecting Managerial Decisions about
Resources, Capabilities, and Core Competencies
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Resource Perspective

• The perspective that a firm is a bundle of
  heterogeneous resources, capabilities, and core
  competencies that can be used to create a unique
  market position is a critical characteristic of
  effective resource analysis.

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Resources, Capabilities, and Core Competencies

• Resources are the source of a firm's
  capabilities.
• Capabilities, in turn, are the source of a firm's
  core competencies.
• A firm's core competencies are the basis for its
  competitive advantages in the marketplace.

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Components of Internal Analysis Leading to
Competitive Advantage and Value Creation
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Creating Value

• Key Terms
• Value
• Measured by a product's performance
  characteristics and by its attributes for which
  customers are willing to pay

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Resources

• Key Terms
• Tangible resources
• Assets that can be observed and quantified
• Intangible resources
• Assets that typically are rooted deeply in the
  firm's history and have accumulated over time
• Organizational routines
• Complex patterns of social interactions that
  allow firms to accomplish much of what they do

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Tangible Resources
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Intangible Resources
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Resources

• Key Terms
• Social capital
• Relationships with other organizations that
  contribute to the creation of value
• Strategic value of resources
• Degree to which resources can contribute to the
  development of capabilities, core competencies,
  and ultimately, competitive advantage

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Capabilities

• Key Terms
• Capabilities
• Firm's capacity to deploy resources that have
  been purposely integrated to achieve a desired
  end state

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Examples of Firms Capabilities
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Core Competencies

• Key Terms
• Core competencies
• Resources and capabilities that serve as a source
  of competitive advantage for a firm over its
  rivals

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How Many?

• 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.

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Tools for Building Core Competencies

• Four Criteria of Sustainable Competitive
  Advantage
• Value Chain Analysis

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Four Criteria of Sustainable Competitive Advantage

• Valuable Capabilities
• Rare Capabilities
• Costly-to-Imitate Capabilities
• Nonsubstitutable Capabilities

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Four Criteria of Sustainable Competitive Advantage

• Key Terms
• Valuable capabilities
• Allow the firm to exploit opportunities or
  neutralize threats in its external environment
• Rare capabilities
• Possessed by few, if any, current or potential
  competitors
• Costly-to-imitate capabilities
• Cost for other firms to develop is prohibitive,
  cannot easily be developed by other firms
• Nonsubstitutable capabilities
• Do not have strategic equivalents

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Four Criteria for Determining Core Competencies
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Costly-to-Imitate Capabilities

• Unique historical conditions
• Causal ambiguity
• Socially complexity

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Core Competencies as a Strategic Capability
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Outcomes from Combinations of the Criteria for
Sustainable Competitive Advantage
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Value Chain Analysis

• Key Terms
• Value chain activities
• Activities or tasks involved with the production
  of a firms product, the sale and distribution of
  products to buyers, and after-sales services in
  ways that create value for the customer
• Support functions
• Activities or tasks which support the firms work
  required to make, sell, distribute, and service
  its products

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Value Chain Model
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Creating Value Through Value Chain Activities
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Creating Value Through Support Functions
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Sources of Competitive Advantage

• The resource or capability must allow the firm to
  perform a value chain activity or a support
  function in a manner superior to the way
  competitors perform it.
• The resource or capability must allow the firm to
  perform a value-creating value chain activity or
  a support function that competitors cannot
  perform.

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Outsourcing

• Key Terms
• Outsourcing
• The purchase of a value-creating activity from an
  external supplier

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Benefits of Outsourcing

• Increased flexibility
• Risk mitigation
• Reduced capital investments

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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 essential to successfully
  implement a strategy
• When few organizations possess the resources and
  capabilities required to achieve competitive
  superiority in all value chain activities and
  support functions
• When extensive internal capabilities exist to
  effectively coordinate external sourcing and
  internal core competencies

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Essential Skills for Outsourcing

• Strategic thinking
• Deal making
• Partnership governance
• Managing change

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Core Competencies Cautions

• Never take for granted that core competencies
  will continue to provide a permanent 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.
• Manager inflexibility stemming from the strength
  of shared beliefs (strategic myopia) is the
  primary reason core rigidities develop.

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Stakeholder Objectives and Power

• Key Terms
• Economic power
• Comes from the ability to withhold economic
  support from the firm
• Political power
• Results from the ability to influence others to
  withhold economic support or to change the rules
  of the game
• Formal power
• Involves laws or regulations that specify the
  legal relationship existing between a firm and a
  particular stakeholder group

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Returns and Stakeholders

• High economic returns firm has the capability
  and flexibility to satisfy multiple stakeholders
  simultaneously
• Average economic returns firm is unable to
  maximize the interests of all stakeholders
• Below-average returns firm does not have the
  capacity to satisfy all stakeholders

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Measures of Firm Performance

• Capital market performance
• Product market performance
• Organizational stakeholder performance

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Firm Performance from a Capital Market
Perspective
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Measures of Firm Performance

• Key Terms
• Risk
• Investor uncertainty about the economic gains or
  losses that will result from a particular
  investment

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Other Measures of Firm Performance
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Sustainable Development

• Key Terms
• Sustainable development
• Business growth that does not deplete the natural
  environment or damage society

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Ethical Question

• Could efforts to develop sustainable
  competitive advantages result in employees using
  unethical practices? If so, what unethical
  practices might be used to compare a firms core
  competencies with those held by rivals?

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Ethical Question

• Do ethical practices affect a firms ability to
  develop a brand name as a source of competitive
  advantage? If so, how does this happen?
  Identify some brands that are a source of
  competitive advantage in part because of the
  firms ethical practices.

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Ethical Question

• What is the difference between exploiting a
  firms human capital and using that capital as a
  source of competitive advantage? Are there
  situations in which the exploitation of human
  capital can be a source of advantage? If so, can
  you name such a situation? If the exploitation
  of human capital can be a source of competitive
  advantage, is this a sustainable advantage? Why
  or why not?

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Ethical Question

• Are there any ethical dilemmas associated with
  outsourcing? If so, what are they? How would
  you deal with those dilemmas?

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Ethical Question

• What ethical responsibilities do managers have
  if they determine that a set of employees has
  skills that are valuable only to a core
  competence that is becoming a core rigidity for
  the firm?

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Ethical Question

• Through postings to the Internet, firms
  sometimes make a vast array of data, information,
  and knowledge available to competitors as well as
  to customers and suppliers. What ethical issues,
  if any, are involved when the firm finds
  competitively relevant information on a
  competitors Website?

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Ethical Question

• To what extent does a firm have a moral
  obligation to distribute value back to
  stakeholders based on their relative
  contributions to its creation? Does a firm have
  any legal obligations to do so?