Stramgt 258 Strategic Management: Strategy and Organization

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Stramgt 258Strategic Management Strategy and
Organization

• 3. Positional Advantage and Capabilities
• Kao Corporation

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Low Cost and Perceived Quality
Higher perceived quality
Competitive advantage ultimately manifests
itself in your placement in this space
Lower cost
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Low Cost and Perceived Quality
Higher perceived quality
Seek to develop CAs that place you in a unique
position in this space, away from the
competition (and from where it can reach)!
A
B
C
Lower cost
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Competitive Advantage

• CA may come from capabilities (what you can do)
  or position (who and where you are) or both.
  Either may be sustainable, but equally either can
  be subject to erosion.
• Real power comes from combinations that are
  mutually re-enforcing.
• For example, having positional advantage allows
  you the time and resources to build capabilities
  that then strengthen the position.

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Creating Long-Term Profit from CAs

• Barriers exist preventing others from
  duplicating
• Capabilities rivals cannot duplicate the
  capability
• Position rivals are blocked from an equivalent
  position
• This is the question of sustainability and one
  reason we worry about logic

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Strategic Capabilities

• The most valuable capabilities are unique
• Such capabilities are inherently less
  understandable
• Tacit
• Ambiguous to rivals, analysts, and managers
• Embodied in organization
• Products or technologies are consequences, not
  causes
• Unique capabilities often emerge over time
• How to manage?
• Manage the development process, not its
  consequence

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Misapplying Capabilities

• Managers over-extend the applicability of their
  capabilities
• The competency trap
• New rivals offer challenges that your
  organization did not develop capabilities to deal
  with
• Blind spots among established firms

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Strategic Position

• There are many forms of valuable strategic
  position. For example
• Sunk costs
• Brand
• Reputation
• Distribution channels
• Switching costs
• Geographic incumbency
• Network externalities (standards)

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Positional Advantage Pitfalls

• Robust versus fragile strategic positions
• Insulates firm from capability-creating
  competition
• Firm attributes success to capabilities rather
  than position
• Unwarranted diversification or product/market
  expansion

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Sustainable Capabilities

• Capabilities are sustainable due to causal
  ambiguity
• Complex interplay of routines, structures and
  individuals
• Firm only captures value if embodied in
  organization not individuals

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Sustainable Positional Advantages

• A positional advantage is sustainable to the
  extent that it is not susceptible to erosion by
• Environmental change
• Existing or potential rivals behavior. Those
  with same capabilities need to
• Make significant (unrecoverable) investments in
  time or capital to match the firms cost or
  quality

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Resources as a Source of CA?

• If the firm is succeeding just because it
  controls some (marketable) resource, then either
  it has to worry that the rents will all accrue to
  the resource or else it has to be concerned that
  it is not the best owner of the resource and
  could realize more value by selling it.
• Non-marketed resources may be a different story,
  but in many cases these may actually be better
  seen as capabilities.

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Understanding your CA

• It is crucial to understand the true nature of
  your competitive advantage and its sources.
• Guide competitive moves
• Guide investments in CA
• Too often (we have arguably seen some examples
  already) managers do not have this understanding.
  This leads to really bad decisions.

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Strategic Expansion

• Expansion into new (geographic or product)
  markets should seek to leverage and extend your
  firms existing competitive advantages or
  underused (nonmarketable) resources.
• Otherwise, how are you going to add value?
• This places even greater importance on
  understanding these and the extent to which they
  can be realized in the new context.

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Lessons from Kao

• Arguably, Kao did not really understand the
  nature of its CA in Japan and it certainly did
  not understand how, if at all, it could leverage
  these internationally.
• These are tied up in its relations with the
  channel participants and its organizational
  design
• They are not easily exported/replicated by Kao,
  any more than they are easily copied by others in
  Japan