© Ram Mudambi, Temple University, 2007 Lecture 3 Internal Analysis: Resources, Capabilities,...
-
Upload
annice-craig -
Category
Documents
-
view
215 -
download
0
Transcript of © Ram Mudambi, Temple University, 2007 Lecture 3 Internal Analysis: Resources, Capabilities,...
© Ram Mudambi, Temple University, 2007
Lecture 3Lecture 3
Internal Analysis: Resources, Internal Analysis: Resources, Capabilities, Competencies, and Capabilities, Competencies, and Competitive AdvantageCompetitive Advantage
BA 951BA 951Policy Formulation and Policy Formulation and
AdministrationAdministration
© Ram Mudambi, Temple University, 2007 3-2
Learning OutcomesLearning Outcomes
A systematic look inside the firm – why are A systematic look inside the firm – why are some firms more successful than others?some firms more successful than others?
The basis of competitive advantageThe basis of competitive advantageThe boundaries of the firmThe boundaries of the firm
‘‘Make or buy’Make or buy’ Inter-firm cooperationInter-firm cooperation
© Ram Mudambi, Temple University, 2007 3-3
Lecture OutlineLecture Outline
The nature and sources of competitive The nature and sources of competitive advantageadvantageGeneric strategiesGeneric strategiesThe resource-based view of the firmThe resource-based view of the firmFrom resources to core competenciesFrom resources to core competenciesFrom core competencies to value creationFrom core competencies to value creation
© Ram Mudambi, Temple University, 2007 3-4
Competitive Advantage: Value Competitive Advantage: Value Creation, Low Cost, and Creation, Low Cost, and DifferentiationDifferentiationCompetitive advantageCompetitive advantage is a firm’s ability to is a firm’s ability to
outperform its competitors (earn higher outperform its competitors (earn higher profits).profits).Sustained competitive advantageSustained competitive advantage (SCA)(SCA) comes from maintaining higher profits than comes from maintaining higher profits than competitors over long periods of time.competitors over long periods of time.The source of competitive advantage is The source of competitive advantage is value creationvalue creation for customers. for customers.
© Ram Mudambi, Temple University, 2007 3-5
Value Creation per UnitValue Creation per Unit
Sometimes called producer surplus
U
© Ram Mudambi, Temple University, 2007 3-6
Comparing Toyota and General Comparing Toyota and General MotorsMotors
Superior value creation requires that the gap between perceived utility (U) and costs of production (C)
be greater than that obtained by competitors.
© Ram Mudambi, Temple University, 2007 3-7
Definitions of basic accounting Definitions of basic accounting termsterms
© Ram Mudambi, Temple University, 2007 3-8
Drivers of Profitability (ROIC)Drivers of Profitability (ROIC)
© Ram Mudambi, Temple University, 2007 3-9
Comparing Wal-Mart to TargetComparing Wal-Mart to Target
© Ram Mudambi, Temple University, 2007 3-10
Generic Building Blocks of Generic Building Blocks of Competitive AdvantageCompetitive Advantage
3-11© Ram Mudambi, Temple University, 2007
Porter’s generic strategiesPorter’s generic strategies
Competitive DimensionCost Differentiation
Competitive Broad Cost leadership Differentiation leadership
Scope Narrow Cost focus Differentiation focus
© Ram Mudambi, Temple University, 2007 3-12
Efficiency, quality, innovation, Efficiency, quality, innovation, and customer responsivenessand customer responsiveness
© Ram Mudambi, Temple University, 2007 3-13
The resource-based view of the The resource-based view of the firmfirmAssociated with Edith Penrose and more Associated with Edith Penrose and more recently with Birger Wernerfeltrecently with Birger WernerfeltThe question is The question is “what do we have?”“what do we have?” rather rather than than “who do we serve?”“who do we serve?”The external environment is in a constant The external environment is in a constant state of flux and largely out of the firm’s state of flux and largely out of the firm’s controlcontrolThe internal environment is more stable and The internal environment is more stable and more in the firm’s controlmore in the firm’s control
© Ram Mudambi, Temple University, 2007 3-14
What are the firm’s resources?What are the firm’s resources?
Tangible resourcesTangible resources Financial resourcesFinancial resources Physical resourcesPhysical resources
Intangible resourcesIntangible resources ReputationReputation Brand equityBrand equity
Human resourcesHuman resources Human capital – knowledge, skills, etc.Human capital – knowledge, skills, etc. Relationships – effectiveness of teamsRelationships – effectiveness of teams
© Ram Mudambi, Temple University, 2007 3-15
From resources to capabilitiesFrom resources to capabilities
From From ‘what to we have?’‘what to we have?’ to to ‘what ‘what can we do?’can we do?’Relative rather than absolute Relative rather than absolute measurementsmeasurements
© Ram Mudambi, Temple University, 2007 3-16
What are the firm’s capabilities?What are the firm’s capabilities?Capability = competenceCapability = competenceCompetencies are identified by Competencies are identified by
disaggregationdisaggregation Functional disaggregationFunctional disaggregation Value chain disaggregationValue chain disaggregation
Competencies are relativeCompetencies are relative Importance of benchmarkingImportance of benchmarking
Core competencies are those whichCore competencies are those which make a disproportionate contribution to ultimate make a disproportionate contribution to ultimate
customer value or to the efficiency of its deliverycustomer value or to the efficiency of its delivery are a basis for entering new marketsare a basis for entering new markets
© Ram Mudambi, Temple University, 2007 3-17
Value Chain DisaggregationValue Chain Disaggregation
© Ram Mudambi, Temple University, 2007 3-18
Core competencies Core competencies A A competencecompetence becomes a becomes a core competencecore competence when the when the well-performed activity is well-performed activity is centralcentral to the company’s to the company’s strategy, competitiveness, and profitabilitystrategy, competitiveness, and profitability Often, aOften, a core competence results from core competence results from
collaboration collaboration among different parts among different parts
of an organizationof an organization TypicallyTypically,, core competencies reside in a core competencies reside in a
company’s company’s peoplepeople, not in its physical assets, not in its physical assets A A core competencecore competence gives a company a potentially gives a company a potentially valuable valuable competitive competitive andand collaborative advantage collaborative advantage
© Ram Mudambi, Temple University, 2007 3-19
CompetenciesCompetencies
Competencies
CoreCompetencies
Distinctivecompetencies
Uniqueness- Selznick, Ansoff
Importance- Hamel and Prahalad
© Ram Mudambi, Temple University, 2007 3-20
Examples of core competenciesExamples of core competenciesSkills in manufacturing a high quality productSkills in manufacturing a high quality productSystem to fill customer orders accurately and swiftlySystem to fill customer orders accurately and swiftlyFast development of new productsFast development of new productsBetter after-sale service capabilityBetter after-sale service capabilitySuperior know-how in selecting good retail locationsSuperior know-how in selecting good retail locationsInnovativeness in developing popular product featuresInnovativeness in developing popular product featuresMerchandising and product display skillsMerchandising and product display skillsExpertise in an important technologyExpertise in an important technologyExpertise in integrating multiple technologies to create Expertise in integrating multiple technologies to create whole families of new productswhole families of new products
© Ram Mudambi, Temple University, 2007 3-21
Examples: Core competencies Examples: Core competencies Sharp CorporationSharp Corporation
Expertise in flat-panel display technology Expertise in flat-panel display technology
Toyota, Honda, NissanToyota, Honda, Nissan Low-cost, high-quality manufacturing capability and Low-cost, high-quality manufacturing capability and
short design-to-market cycles short design-to-market cycles
IntelIntel Ability to design and manufacture ever more powerful Ability to design and manufacture ever more powerful
microprocessors for PCsmicroprocessors for PCs
MotorolaMotorola Defect-free manufacture (six-sigma quality) of cell Defect-free manufacture (six-sigma quality) of cell
phonesphones
© Ram Mudambi, Temple University, 2007 3-22
Profit potential of a competencyProfit potential of a competency
EXTENT SUSTAINABILITY APPROPRIABILITY
Scarcity Durability Property rights
Relevance Mobility Relative bargaining power
Replicability Embeddedness of resources
© Ram Mudambi, Temple University, 2007 3-23
The Sustainability of Competitive The Sustainability of Competitive AdvantageAdvantage
Barriers to imitationBarriers to imitation Speed of imitation by competitors in reducing advantageSpeed of imitation by competitors in reducing advantage Imitation by acquiring similar resourcesImitation by acquiring similar resources Imitation of capabilities (more difficult)Imitation of capabilities (more difficult)
Limits on competitorsLimits on competitors Prior strategic commitmentsPrior strategic commitments Absorptive capacity for changeAbsorptive capacity for change
Industry dynamismIndustry dynamism The rapid innovation The rapid innovation
shortens product life cycles.shortens product life cycles.
© Ram Mudambi, Temple University, 2007 3-24
Overview of resource/capability Overview of resource/capability analysisanalysis
Resources
Capabilities
Profit potential
Strategy
Sources of strength and weakness
What can the firmdo relative to
its competitors?
Best exploits the firm’s capabilities relative
to its externalenvironment
Identify resource gapsInvest in resource base
© Ram Mudambi, Temple University, 2007 3-25
Distinctive Competencies, Distinctive Competencies, Resources, and CapabilitiesResources, and Capabilities
The roots of competitive advantage:The roots of competitive advantage:
© Ram Mudambi, Temple University, 2007 3-26
Why Do Companies Fail?Why Do Companies Fail?
What went wrong?What went wrong? InertiaInertia
Companies find it difficult to change their Companies find it difficult to change their strategies and structures strategies and structures
Prior strategic commitmentsPrior strategic commitments Limit a company’s ability to imitate and Limit a company’s ability to imitate and
cause competitive disadvantage cause competitive disadvantage
The Icarus paradoxThe Icarus paradox
© Ram Mudambi, Temple University, 2007 3-27
The Icarus ParadoxThe Icarus Paradox
• A company becomes so specialized and A company becomes so specialized and inner directed based on past success that it inner directed based on past success that it loses sight of market realities loses sight of market realities
• Craftsmen – Texas Instruments, DEC – engineering Craftsmen – Texas Instruments, DEC – engineering for engineering’s sakefor engineering’s sake
• Builders – diversification – ITT, Gulf + WesternBuilders – diversification – ITT, Gulf + Western• Pioneers – Innovation – Wang LabsPioneers – Innovation – Wang Labs• Salesmen – Sell anything – P&G, ChryslerSalesmen – Sell anything – P&G, Chrysler
• Failure to see the link between competence Failure to see the link between competence and value creationand value creation
© Ram Mudambi, Temple University, 2007 3-28
Avoiding failure and sustaining Avoiding failure and sustaining competitive advantagecompetitive advantage
Focus on the building blocks of competitive Focus on the building blocks of competitive advantage.advantage.
Institute continuous improvement and Institute continuous improvement and learning.learning.
Track best industrial practice and use Track best industrial practice and use benchmarking.benchmarking.
Overcome inertia.Overcome inertia.
© Ram Mudambi, Temple University, 2007 3-29
SummarySummary
The building blocks of competitive The building blocks of competitive advantageadvantage
Generic strategiesGeneric strategiesThe resource based view of the firmThe resource based view of the firmFrom resources to competenciesFrom resources to competenciesFrom competencies to value creationFrom competencies to value creation
Sources of failures in this linkageSources of failures in this linkage