The document discusses two main approaches to developing sustainable competitive advantage (SCA): the industrial organization (I/O) approach and the resource-based view (RBV) approach. The I/O approach argues that external industry factors are most important, while the RBV contends that internal resources are key. Effective strategy requires understanding both external and internal factors. Core competencies that are rare, valuable, and difficult to imitate can provide SCA if they allow access to markets and delivery of customer value that competitors cannot duplicate.

1. Developing Sustainable
Advantage (SCA)

2. Approaches to Developing SCA
• The Industrial Organization (I/O) approach to competitive
advantage advocates that external (industry) factors are
more important than internal factors in a firm achieving
competitive advantage.
– I/O focuses on analyzing external forces and industry variables
as a basis for getting and keeping competitive advantage.
– Competitive advantage is determined largely by competitive
positioning within an industry, according to I/O advocates.
– Managing strategically from the I/O perspective entails firms
striving to compete in attractive industries, avoiding weak or
faltering industries, and gaining a full understanding of key
external factor relationships within that attractive industry.
• Porter’s Five Forces Industry Analysis and STEP
(Macroenvironment) Analysis are examples of I/O
Approaches

3. Approaches to Developing SCA
• The Resource-Based View (RBV) approach to competitive
advantage contends that internal resources are more important for
a firm than external factors in achieving and sustaining competitive
advantage.
• In contrast to the I/O theory presented in the previous chapter,
proponents of the RBV view contend that organizational
performance will primarily be determined by internal resources
that can be grouped into three all-encompassing categories:
Physical resources, human resources, and organizational resources.
– Physical resources include all plant and equipment, location,
technology, raw materials, machines;
– human resources include all employees, training, experience,
intelligence, knowledge, skills, abilities; and
– organizational resources include firm structure, planning processes,
information systems, patents, trademarks, copyrights, databases, and
so on. RBV theory asserts that resources are actually what helps a firm
exploit opportunities and neutralize threats.

4. Value Chain Analysis
© 2001 Prentice Hall
Ch. 4-4

5. Which approach is best?
• However, it is not a question of whether
external or internal factors are more
important in gaining and maintaining
competitive advantage.
– Effective integration and understanding of both
external and internal factors is the key to securing
and keeping a competitive advantage.
– Matching key external opportunities/threats
with key internal strengths/weaknesses provides
the basis for successful strategy formulation.

6. SCA
• The idea for the SCA concept was first introduced
in 1984 by George Day.
– he implied that there were certain types of strategies
that could help an organization "sustain the
competitive advantage."
• Porter (1985) moved the idea to a concept by
describing the types of competitive strategies an
organization should possess in order to achieve
long term SCA. One of Porter's major
contributions to this area is the Five Force
Analysis model.

7. Core Competencies
• Barney (1991) defined sustainable competitive
advantage as when an organization is
implementing a value creating strategy that is not
being implemented by any current or potential
competitors and when the competitors are
unable to duplicate the process“
• The sources of the advantage are known as core
competencies.
– Core competencies imply that the organization has an
advantage that is distinct and unique to that particular
firm. The organization usually has a brand or patent
which separates them from the competition.

8. Core Competencies
• Core competencies consist of the characteristics which
allow a business to recognize competitive advantage.
• Since there are many tasks and activities in a business and
competencies associated with the tasks, many businesses
have focused on competencies that primarily affect their
competitive advantage.
• Core competencies are not constant. They tend to change
as the organization changes. Therefore, it's important that
the competencies are flexible and not etched in stone. As a
business changes so will the core competencies.
• Where do organizations derive their core competencies?

9. Developing Core Competencies or
Competitive Advantage
• Hamel and Prahalad (1989) identified three factors which
are necessary to developing a business's core
competencies. The factors focus on the specified
achievements of the core competencies and any business.
The factors are:
– Provide potential access to a wide variety of markets -- the
core competencies support the creation of new products and
services.
– Focus on the perceived value with which a customer measures
a product -- the core competencies allow a business to deliver
products based on customer preference.
– Makes it difficult for competitors to duplicate -- the core
competencies create something within a company that other
competitors cannot imitate. There is a sense of uniqueness.

10. Developing SCA
• Core competencies/competitive advantages
that are:
– Hard to imitate (nonimitable)
– Unique/rare
– Not easily substitutable (nonsubstitutable)
• Become a company’s sustainable competitive
advantage

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Financial Ratio Analysis
Consolidated Balance Sheets for New Venture Fitness Drinks
Assets

12. 8-12
Financial Ratio Analysis
Consolidated Balance Sheets for New Venture Fitness Drinks (continued)
Liabilities and Owners’ Equity

13. 8-13
Financial Ratio Analysis
Ratio Analysis for New Venture Fitness Drinks