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Strategic management presentation (group 3) (final)


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Strategic management presentation (group 3) (final)

  1. 1. CHAPTER (4) INTERNAL ANALYSIS: Resources, Capabilities, Competencies & Competitive Advantage 1
  2. 2. Group (3) Ma Hnin Thiri Chaw (Roll no. 4) Ma May Zin Htet (Roll no. 14) Ma Mya Myin Kyi (Roll no. 25) Ma May Myo Mon (Roll no. 36) Ma May Thu Naing (Roll no. 45) { Leader } Mg Thein Oo (Roll no. 53) Ma Zin Hnin Phyu (Roll no. 57) Ma Khine Hnin Hnin Thu (Roll no. 71) Ma Yin Mar Naing Win (Roll no. 81) Ma Ei Ei Phyo Zaw (Roll no. 90) 2
  3. 3. Contents Competitive Advantage Generic Building Blocks of Competitive Advantage Business Functions, Value Chain & Value Creation Distinctive Competencies, Resources & Capabilities Durability of Competitive Advantage Why Do Company Fail? Avoiding Failure & Sustaining Competitive Advantage 3
  4. 4. Competitive Advantage 4
  5. 5. Competitive Advantage CompetitiveAdvantage Value Creation Low Cost Differentiation 5
  6. 6. Competitive Advantage If its profit rate is higher than the average for its industry, it is said that the company has a competitive advantage. Two basis conditions determine the company’s profit rate: (1) The amount of value customers place on the company’s goods and services (2) Company’s cost of production 6
  7. 7. Competitive Advantage (Cont.) Company charged price must be less than value placed on the goods and services under competitive pressures. V> P = consumer surplus A company can create more value (1) by lowering C (Low cost) (2) by making more attractive product through superior design, functionality and quality (Differentiation) Consumer place greater value on it (V increases) and consequently consumer are willing to pay high price (P increases). 7
  8. 8. Value Creation Superior value creation requires that the gap between V and C should be greater than the gap attained by competitors. 8
  9. 9. Generic Building Blocks of Competitive Advantage 9
  10. 10. Generic Building Blocks of Competitive Advantage Superior Quality Competitive Advantage - Low Cost - Differentiation Superior Efficiency Superior Customer Responsiveness Superior Innovation 10
  11. 11. Efficiency Business - device for transforming inputs into outputs Inputs - basic factors of production such as labor, land, capital, management, etc. Outputs - goods and services that the business produces Efficiency - the quantity of inputs that it takes to produce a given output Efficiency = Outputs/Inputs 11
  12. 12. Efficiency (Cont.) The more efficient a company, the fewer the inputs required to produce a given output. Efficiency helps a company attain a low-cost competitive advantage. Most important component - employee productivity (output / employee) Highest employee productivity will typically have the lowest costs of production. 12
  13. 13. Quality Quality products are goods and services that are reliable in the sense that they do the job they were designed for and do it well. High product quality on competitive advantage is twofold: First, high-quality products increases the value of those products in the eyes of consumers. The company can charge a higher price for its products. For example, Toyota Vs. General Motors 13
  14. 14. Quality (Cont.) Second, high quality comes from the greater efficiency and the lower unit costs it brings. The company charge higher prices for its product, but also has lowers costs. 14
  15. 15. The Impact of Quality on Profits 15
  16. 16. Innovation Innovation - anything new or novel about the way a company operates or the products it produces Innovation includes products, production processes, management systems, organizational structures and strategies developed by a company. (E.g. - Toyota’s lean production system - pioneer company). Innovations give a company something unique - something its competitors lack. 16
  17. 17. Innovation (Cont.) When competitors succeed in imitating the innovator, the innovating company had build up such strong brand loyalty and supporting management processes that its position proved difficult for imitators to attack. 17
  18. 18. Customer Responsiveness Customer responsiveness - a better job than competitors of identifying and satisfying the needs of its customers 18
  19. 19. Customer Responsiveness (Cont.) Sources of Enhanced Customer Responsiveness Quality Innovation Customization Shorter customer response time Superior design Service After-sale service and support 19
  20. 20. Customer Responsiveness (Cont.) All these factors allow a company to differentiate itself. Differentiation enables a company to build brand loyalty and to charge a premium price for its products. 20
  21. 21. Impact of Efficiency, Quality, Customer Responsiveness & Innovation on Unit Costs & Prices 21
  22. 22. Business Functions, Value Chain & Value Creation 22
  23. 23. Business Functions Different business functions of a company in the value creation process: production, marketing, R&D, service, information systems, materials management and human resources. 23
  24. 24. Value Chain It refers to the idea that a company is a chain of activities for transforming inputs into outputs that customers value. The process of transforming inputs into outputs includes: (1) Primary activities (2) Support activities 24
  25. 25. Primary Activities These activities include doing with the design, creation, and delivery of the product, its marketing and its support and after-sale service. R&D Production Marketing & Sales ServiceInputs Outputs Primary Activities 25
  26. 26. Research & Development It concerns with the design of products and production processes. R&D can increase the functionality of products which makes them more attractive consumers. As a result, there will become more efficient production process with lower production costs and value creation. 26
  27. 27. Production It is concerned with the creation of a good or service. For physical products, it can be called as manufacturing. For services, it means delivering to the customers. The production function of a company creates value by performing its activities efficiently and lower cost result. 27
  28. 28. Marketing & Sales For example, Brand Positioning and Advertising It can increase the value which the consumers perceive to be contained in a company’s product. It also create a favorable impression of the company’s product in the minds of consumers. By discovering consumer needs and communicating them back to the R&D function of the company which can design produce better match those needs, we can create the value. 28
  29. 29. Service The role of service is to provide after-sale service and support. It can create a perception of superior value in the minds of consumers by solving customer problems and supporting customers after they have purchased the product. 29
  30. 30. Support Activities These activities provide inputs that allow the primary activities to take place. Material Management Function Human Resource Function Company Infrastructure Primary Activities Support Activities 30
  31. 31. Material Management Function / Logistics It controls the transmission of physical materials through the value chain from procurement through production and into distribution. The efficient material management function lowers the cost and creates the value. Lower materials mean lower costs and greater value creation. E.g. Wal-Mart 31
  32. 32. Human Resource Function The human resource function ensures that the company has the right mix of skilled people to perform its value creation activities effectively. 32
  33. 33. Information Systems These systems refer to electronic systems for managing inventory, tracking sales, pricing products, selling products, dealing with customer service inquires. Information systems hold out the promise of being able to alter the efficiency and effectiveness with which a company manages its other value creation activities. 33
  34. 34. Company Infrastructure It means companywide context within which all the other value creation activities take place. Company infrastructure includes the organizational structure, control systems, and culture of the company. Strong leadership and top management can continuously shape a company’s infrastructure and the performance of all other value creation activities within the company. 34
  35. 35. Cross-functional Goals Achieving the competitive advantages requires strategies that embrace several distinct value creation activities. Cross-functional goals mean goals that cut across the different value creation functions of a company. It also requires substantial cross-functional integration. 35
  36. 36. Distinctive Competencies, Resources & Capabilities 36
  37. 37. Distinctive Competencies Unique strength that allows a company to achieve superior value and attain a competitive advantage. product differentiation, cost reduction, value creation E.g. Toyota 37
  38. 38. The Root of Competitive Advantage 38
  39. 39. Resources 39
  40. 40. Resources (Cont.) Resources must be both unique and valuable. A resource is valuable only if it helps create strong demand for the company’s products. E.g. Polaroid 40
  41. 41. Capabilities A company’s skills at coordinating its resources and putting them to productive use. Capabilities are the product of its organizational structure and control systems. They reside in the way individuals interact, cooperate, and make decisions within the context of an organization. E.g. Nucor 41
  42. 42. A Requirement to get Distinctive Competencies (1) A unique and valuable resource and the capabilities (skills) necessary to exploit that resource. (2) A unique capability to manage common resources. 42
  43. 43. Strategy & Competitive Advantage A company needs to pursue strategies that build on its existing resources and capabilities (its competencies) build additional resources and capabilities (develop new competencies) E.g. Walt Disney & 3M 43
  44. 44. The Relationship between Strategies and Resources and Capabilities • Functional level • Business level • Corporate level • International level Resources & Capabilities (Competencies) Strategies Shape Build 44
  45. 45. The Role of Luck Scholars argued: Luck plays a critical role in determining competitive success and failure. This luck argument devalues the importance of planned strategy. It states that in coping with uncertainty some companies just happened to stumble on the correct strategy. 45
  46. 46. The Role of Luck (Cont.) Otherwise, they just happened to develop or possess the right kind of resources and capabilities by accident rather than by design. From long-term perspective: This luck argument is unconvincing explanation for the persistent success of a company. 46
  47. 47. The Role of Luck (Cont.) In deed, competition is a process in which companies are continually trying to outdo each other in their ability to achieve the generic blocks of competitive advantage. Substantial competitive advantage cannot be driven by luck but by conscious effort. 47
  48. 48. Durability of Competitive Advantage 48
  49. 49. How long will a competitive advantage last once it has been created? Durability of Competitive Advantage Barriers to Imitation Capability of Competitors Industry Dynamism 49
  50. 50. Barriers to Imitation A company with a competitive advantage will earn higher than average profits. These profits send a signal to rivals that the company is in possession of some valuable distinctive competency. So, competitors can identify and imitate that competency. The speed of imitation depends on the durability of a company’s competitive advantage. 50
  51. 51. Barriers to Imitation (Cont.) So, the critical issue is time. E.g. China & U.S. 51
  52. 52. Barriers to Imitation (Cont.) 52
  53. 53. Imitating Resources & Capabilities Imitating resources is the easiest distinctive competencies to imitate by depending on possession of unique and valuable tangible resources. Resources are visible to competitors and can often be purchased on the open market. But, intangible resources can be more difficult to imitate. 53
  54. 54. Imitating Resources & Capabilities (Cont.) So, patent system should be made for prevention of imitation. These capabilities are based on the way decisions are made and process managed deep within a company. 54
  55. 55. Capability of Competitors • A company’s commitment to a particular way of doing business - to developing a particular set of resources and capabilities. • When a company has already had long- established commitments to a particular way of doing business, there may be slow to imitate an innovating company’s competitive advantage. Strategic Commitment • The ability of an enterprise to identify, value, assimilate and utilize new knowledge. • To overcome internal inertia Absorptive 55
  56. 56. Industry Dynamism A dynamism industry environment is one that is changing rapidly. The most dynamic industries to be those with a very high rate of product innovation. The rapid rate of innovation means that product life cycles are shortening. Competitive advantage can be very transitory (or) temporary. 56
  58. 58. Why do Companies Fail? A company can lose its competitive advantage but still not fail because it can earn average profits. Three related reasons for failure: Inertia Prior Strategic Commitments The Icarus Paradox 58
  59. 59. Inertia Companies find it difficult to change their strategies and structures in order to adapt to changing competitive conditions. E.g. IBM 59
  60. 60. Why do companies find it so difficult to adapt to new environmental conditions? They are difficult to change because a certain distribution of power and influence is embedded within the established decision-making and management processes of an organization. It means changing the established decision-making in the organization means changing its existing distribution of power and influence would diminish resist such change. 60
  61. 61. Prior Strategic Commitments A company’s prior strategic commitments not only limit it ability to imitate rivals, but may also cause competitive disadvantage. E.g. IBM 61
  62. 62. The Icarus Paradox It is the root of competitive failure. A company can become so specialized and inner- directed that it loses sight of market realities and the fundamental requirements for achieving competitive advantage. 62
  63. 63. Miller identifies four major categories among the rising and falling companies Pioneers enamored of their own originally brilliant innovations continued to search for additional brilliant innovations ended up producing novel but completely useless products Salesmen became so convinced of their ability to sell anything paid low attention to product development and manufacturing excellence spawned a proliferation of unattractive, inferior products 63
  64. 64. Miller identifies four major categories among the rising and falling companies Craftsmen achieved early success became so obsessed lost sight of market realities Builders built successful became so enchanted with diversification for it own sake Continued to diversify far beyond the point at which it was profitable to do so 64
  65. 65. Avoiding Failure & Sustaining Competitive Advantage 65
  66. 66. Avoiding Failure & Sustaining Competitive Advantage Focus on the Building Blocks of Competitive Advantage Institute Continuous Improvement and Learning Track Best Industrial Practice and Use Benchmarking 66
  67. 67. Focus on the Building Blocks of Competitive Advantage Continue focusing on the four generic building blocks of competitive advantage: (1) Efficiency (2) Quality (3) Innovation (4) Customer responsiveness Develop distinctive competencies that contribute to superior performance in these areas. 67
  68. 68. Institute Continuous Improvement & Learning Today’s source of competitive advantage may soon be rapidly imitated by capable competitors, or it may be made obsolete by the innovations of a rival. A company can maintain a competitive advantage over time is to continually improve its efficiency, quality, innovation, and customer responsiveness. The way to do so is recognize the important of learning within the organization. 68
  69. 69. Institute Continuous Improvement & Learning (Cont.) They are constantly upgrading the value of their distinctive competencies or creating new competencies. The objective is to learn from prior mistakes and to seek our ways to improve their processes over time. 69
  70. 70. Track Best Industrial Practice & Use Benchmarking One of the best ways to develop distinctive competencies is to identify best industrial practice and to adopt it. Benchmarking is the process of measuring the company against the products, practices, and services of some of its most efficient global competitors. 70
  71. 71. Overcome Inertia A further reason for failure is an inability to adapt to changing conditions because of organizational inertia. Overcoming the barriers to change within an organization is one of the key requirements for maintaining a competitive advantage. 71
  72. 72. 72