ch 03

• Competitive advantage


  Exists when a company's profitability is greater than the average profitability of all companies in its industry
• Sustained competitive advantage


  Exists when a company maintains its competitive advantage over a number of years
• Distinctive competencies


  Firm-specific strengths that allow a company to differentiate its products and/or achieve lower costs than its rivals
• Distinctive competencies


  • Arise from resources and capabilities
  • Resources: Assets of a company (Tangible: Physical entities, Intangible: Nonphysical entities created by managers and other employees)
  • Capabilities: Company's skills at coordinating its resources and putting them to productive use
• For a company to possess a distinctive competency, it must have either (1) a firm-specific and valuable resource, and the capabilities (skills) necessary to take advantage of that resource, or (2) a firm-specific capability to manage resources
• Distinctive competencies shape the strategies that the company pursues

  Strategies lead to competitive advantage and superior profitability
• Strategies a company adopts

  Can build new resources and capabilities or strengthen the existing resources and capabilities of the company, thereby enhancing the distinctive competencies of the enterprise
• Disney


  • Putting together its brand name and in-house animation capabilities, Disney produced a stream of major box office hits
• UBER, Samsung, PRAN-RFL


  • Can we relate the same for these companies?
• Profitability of a company

  Depends on the value customers place on its products, the price it charges for its products, and the costs of creating those products
• When a company strengthens the value of its products, it can raise prices to reflect higher utility or lower prices to generate demand
• Value chain


  The idea that a company is a chain of activities that transforms inputs into outputs that customers value
• Primary activities


  • Research and development
  • Production
  • Marketing and sales
  • Customer service
• Support activities


  • Materials management / Logistics
  • Human resources
  • Information systems
  • Company infrastructure
• Building blocks of competitive advantage

  • Efficiency
  • Quality (as excellence, as reliability)
  • Innovation (product, process)
  • Customer responsiveness
• Barriers to imitation make it difficult for a competitor to copy a company's distinctive competencies
• Barriers to imitation


  • Imitating resources (firm-specific and valuable tangible resources, intangible resources like brand names, marketing and technical knowhow, technological knowhow)
  • Imitating capabilities (not visible to outsiders, no one individual has access to all the internal operating routes and procedures)
• Capability of competitors


  Determined by the nature of the competitors' prior strategic commitments and their absorptive capacity (ability to identify, value, assimilate, and use new knowledge)
• Most dynamic industries are those with a very high rate of product innovation, where product life cycles and competitive advantages are short-lived
• VRIN framework for sustainability of competitive advantage

  • Value: Resources that can bring value can be a source of competitive advantage
  • Rareness: Resources that are available to all competitors rarely provide any significant competitive advantage
  • Imitability: An ideal resource cannot be obtained by competing businesses
  • Non-substitutable: An ideal resource cannot be substituted by any other resource
• A sustainable competitive advantage requires value creating products, processes, and services that cannot be matched by competitors now, and strategies to maintain that position as the company scales
• Reasons for failure of companies

  • Inertia (companies find it difficult to adapt to changing competitive conditions)
  • Prior strategic commitments (limit a company's ability to imitate rivals)
  • The Icarus paradox (lose sight of market realities)
• Steps to avoid failure

  • Focus on the building blocks of competitive advantage
  • Institute continuous improvement and learning
  • Track best industrial practice and use benchmarking
  • Overcome inertia
  • The role of luck