School of Economics and Management | Ola Mattisson | FEKH11 Business Policy|

Business Policy Lecture 4 OLA MATTISSON

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• 2 Swedish minutes • RBV perspective - resources and capabilities • RBV for competitive advantage • Positioning for competitive advantage • Organization

Strategy in single-business firms

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Resource Based View

Two assumptions: »Resource heterogeniety

–Resources and capabilities are heterogeously distributed across competing firms

»Resource immobility –Resources and capabilities are stable over time and difficult to move/transfer

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Resorces & capabilities (Grant)

Tangible resources »financial, physical

Intangible resources »Technology, reputation, culture

Human resources »Know-how, capacity for communication,

collaboration, motivation

Create organizational capabilities

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Links between resources, capabilities and competitive advantage

Organizational capabilities

Industry key success factors

Strategy Competitive advantage

Resources Tangible Intangible Human

Financial Technology SkillsKnow-how (cash, borrow) Reputation Communication/ Physical (brands) Colloboration (plant, land) Culture Motivation

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Value chain

Primary activities

Secondary (support) activities

Value creation

Marketing & sales

Service

Firm infrastructure

Human resource development

Research and development

Inbound logistics

Production Outbound logistics

Procurement

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Firm specific assets

• It must be built, because it cannot be bought • Hamel and Prahalahad use the term “core

competence” to describe central strategic capabilities

– Make a disproportionate contribution to end customer value

– Basis for entering new markets

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Capabilities

• They are collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technology

• Oragnizational routines

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Profit-earning potential (Grant)

1. Extent of competitive advantage – Scarcity – Relevance

2. Sustainability

– Durability – Transferability – replicability

3. Appropriability

– Property rights – Relative bargining power – Embeddedness

School of Economics and Management | Ola Mattisson | FEKH11 Business Policy|

Appraising resources and capabilities

Relative strength

Strategic importance

Key Weaknesses

Superfluous strengths Key strengths

Zone of irrelevance

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Competitive advantage from

• External sources

– Changing demand – Changing prices – Technological change

• Internal sources

– Internal changes

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Positioning for competitive advantage • Two sources of competitive advantages

Low cost Cost advantage

Differentiation Customer value

• Position gap Difference in profitability between actual firm and industry average Steaming from costs and customer value

• Competitive scope Firm ‘s choice of markets (products/services, distribution,

geograpy

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Porter’s generic strategies

• Porter: Cost leadership and differentiation is mutually excluding

– Stuck in the middle

• Scope and competitive advantage Source of competitive advantage

Competitive scope

Industry-wide

Single segment

Cost leadership

Differentiation

Focus

Differentiation Low cost

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Drivers of cost advantage

• Economies of scale • Economies of learning • Production techniques • Product design • Input costs • Residual efficiency

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– Disaggregate the firm into separate activities – Establish the relative importance in total costs of the

product – Compare costs by activity – Identify cost drivers – Identify linkages – Identify opportunities to reduce costs

Value chain to analyze costs

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The value chain in cost advantage analysis

• Figure 7:8 in Grant

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Differentiation strategy

• Potential to differentiation from physical characteristics – Complex products/services

• Differentiation goes beyond physical characteristics – Relationships firm-customer

• Tangible differentiation – Size, shape, colour, weight, design etc – Performance such as reliability, consistency, durability, safety

• Intangible differentiation – Experience, exclusivity, image, status, etc.

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Drivers of uniqueness

• Analyzing customers’ needs – analyze firm ability to offer differentiated features

• Drivers of uniqueness » Product features and performance » Complementary services » Intensity in marketing » Technology in design and production » Input quality control » Procedures control for delivery, quality etc. » Skill and experience

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Value chain in differentiation analysis • Construct value chain for the firm and the

customer • Identify drivers of uniqueness in each activity • Select the most promising differentiation

variables for the firm » Potential vs competitors » Linkages among activities » Potential for sustainability

• Locate linkages between the value chain of the firm and of the buyer

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The value chain in differentiation analysis

• Figure 7:11 in Grant

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The match of internal and external conditions

• Consider industry cycle; emergent, mature or declining • Fragmented industries • Both low-cost and differentiation possible?

– Seek unique position • Stability and consistency

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Organization

• Specialization vs coordination and cooperation

• Hierarchy for coordination and control

• Alternative forms

– Functional structure

– Divisional structure

– Matrix structure

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Read also

• Porter HBR article Jan 2008

”The five competitive forces that shape strategy”

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School of Economics and Management | Ola Mattisson | FEKH11 Business Policy|