This document discusses corporate strategy components and issues, including scope, objectives, development strategy, resource allocation, and sources of synergy. It also covers competitive advantage, defining it as creating value for customers that exceeds a firm's costs. Firms can achieve competitive advantage through cost leadership or differentiation. The value chain is discussed as analyzing where value is added across a firm's activities from raw materials to final consumers. Core competencies, which provide competitive advantage, are expertise in areas that can be applied widely and are difficult for competitors to imitate.

1. Competitive Advantage
Session 3
Jan 21, 2010

2. Corporate Strategy Components and Issues
Strategy components Key issues
Scope, mission & intent • What business/es should the firm be in?
• What customer needs, market segments and / or technologies
should be focused on?
• What is the firm’s enduring strategic purpose?
Objectives • Performance dimensions?
• Target level of performance to be achieved on each dimension?
• Time frame?
Development strategy • How can a firm achieve a desired level of growth over time?
• Can desired growth be attained by expanding the firm’s current
businesses? Or diversify into new businesses or product markets
to achieve its future growth objectives?
Resource allocation • Firm’s limited financial resources allocation across its businesses
to produce highest returns
• Of the alternative strategies that each business might pursue,
which will produce the greatest returns for the money invested?
Sources of synergy • What competencies, knowledge and customer based intangibles
might be developed and shared across the firm’s businesses?
• What operational resources, facilities or functions might the
firm’s businesses share to increase their efficiency?

3. Competitive Advantage
Competitive advantage grows out of value a firm is able to
create for its buyers that exceeds the firm's cost of creating
it. Value is what buyers are willing to pay, and superior
value stems from offering lower prices than competitors for
equivalent benefits or providing unique benefits that more
than offset a higher price. There are two basic types of
competitive advantage: cost leadership and differentiation.
Michael Porter, Competitive Advantage, 1985, p.3

4. A firm is said to have a (sustained) competitive
advantage when it is implementing a value
creating strategy not simultaneously being
implemented by any current or potential
competitors and when these other firms are
unable to duplicate the benefits of this strategy.
(Barney, 1991 )

5.  Core Competencies (Roots of CA)
Expertise in a critical functional area or aspect of a
particular business that helps provide a company’s
unique competitive advantage or simply put “what a
company does best”.
Three tests to identify core competencies:
1. Provides potential access to wide variety of markets
2. Makes significant contribution to end user value
3. Difficult for competitors to imitate

6.  Core Competencies
Expertise in a critical functional area or aspect of a
particular business that helps provide a company’s
unique competitive advantage or simply put “what a
company does best”.

7. Total Customer Satisfaction
Customer Expectations
Delivering High Customer Value
 Value proposition
 Value-delivery system
Measuring Satisfaction (Tools)
Defining Customer Value and
Satisfaction

8. Competitive Advantage
The Nature of High Performance Business
Sources of Competitive Advantage
Core Competencies
Value Chain

9. Strategy and Coherence
Strategy
(Positioning)
Resources
and
Capabilities
Organization
Design

10. Competitive Advantage
Firms either:
Confront adversity and overcome it through
innovation and application or
Decline and decay as a result of self-satisfaction and
complacency which dulls sensitivities and ability to
recognize that change is inevitable
Example, clogs to clogs in 4 generations.

11. Tools for Building Competitive Advantage
Resources are inputs into a firm’s production
processes:
Tangible Resources Intangible Resources
Financial resources Technological resources
Physical resources Innovative resources
Human resources Reputation
Organizational resources
Capabilities are the capacity for a set of
resources to perform a task or activity in an
integrative manner

12. Competitive Advantage
 Core Competencies
Bundle of skills and technologies that enables a company to
provide a particular benefit to customers.
(Hamel & Prahalad)
 Competitive Advantage
A firm is said to have a (sustained) competitive advantage
when it is implementing a value creating strategy not
simultaneously being implemented by any current or
potential competitors and when these other firms are
unable to duplicate the benefits of this strategy.
(Barney, 1991 )

13. Core Competencies Require VRIS-O
Value – do a firm’s resources and capabilities allow a firm
to respond to its environment?
Rare – how many rival firms already possess this
resource/capability?
Inimitable – do firms face a cost disadvantage in
obtaining this resource/capability compared to firms that
already have it?
Non-substitutable – are there strategic alternatives?
Organization – is the firm organized to exploit the full
potential of its resources/capabilities?

14. CRITICAL FACTORS FOR COMPETITIVE
ADVANTAGE
COMPETITIVE
ADVANTAGEVALUE
RARENESS
INIMITABILITY
ORGANIZATIONAL
CLIMATE
Non-substitutable

15. Cost Disadvantages of Imitation
Inimitability is critical for a resource/capability to
become a core competence
Firms trying to imitate another firm’s core
competence are at a cost disadvantage relative to
rivals due to
 Unique historical conditions
 Casual ambiguity
 Social complexity
 Patents

16. Building Blocks of Competitive Advantage
Efficiency
Innovation Quality
Customer
Responsiveness
Lower Costs
Higher Prices

17. Competitive Advantage via Efficiency
Manufacturing Econ of scale/Learning
Flexible manufacturing
Marketing
Build brand loyalty
Infrastructure Commitment to efficiency
Human Resources Train skills/teams
Performance incentives
R&D Design for manufacturing
Process innovation
Materials mgt
(Supply Chain). JIT etc.

18. Competitive Advantage via Quality
Manufacturing Trace defects to source
Input from employees
Marketing Focus on customer
Customer feedback on quality
Infrastructure Measure & commit to quality
Human Resources Train quality (TQM)
Quality incentives
R&D Design for manufacturing
Process & product innovation
Materials mgt
(supply Chain ). Help suppliers implement TQM

19. Competitive Advantage via Innovation
Manufacturing Design for manufacturing
Inputs on process innovation
Marketing Customer focus for product innovation
Infrastructure Invest in R&D tools
Overall project management
Human Resources Hire talented innovators
Incentives/opportunities for innovation
R&D Cooperate with other functions in
process and product innovation
Materials mgt. No primary responsibility

20. Competitive Advantage via Customer
Responsiveness
Manufacturing Customization through flexible mfg
Marketing Know the customer
Customer feedback to functions
Infrastructure Commit to customer
responsiveness
Information systems for feedback
Human Resources “Customer focused” training
Employee incentives and security
R&D Customers in innovation process
Materials mgt. Build responsive logistics systems

21. First developed by McKinsey and Co. in
1960s as a tool to evaluate competition based
on the view that business is a system which
links raw materials (supply) with customers
customers (demand) and comprising 6 basic
elements or subsystems:
The Value Chain
Raw material
Consumer or
user
Retail
distribution
Production Wholesale
distribution
After-sale
service

22. Degree of competition
 Number of competitors
 Their profitability
 Their degree of integration
 Their cost structure
 The existence and nature of any barriers to entry
Where, in the total system, value is added
Analysis of each subsystem

23. Where is the system’s marketing leverage?
 Control of a scarce resource e.g. patent, brand
name etc.
The location of economic leverage
 Fully integrated vs. owning one subsystem.
Analysis of each subsystem

24. WHO buys and who consumes? Demographics,
socioeconomic criteria
WHAT do people buy? Variety, design, quality,
performance, price
WHERE do people buy? Purchase channels, direct
vs. indirect selling
WHEN do people buy? Seasonal, regular,
irregular, associated with another activity
HOW do people buy? Involvement (impulse
etc.), quantity, sources
Analysis of consumer or user

25. Where in the system are company’s
measurable strengths and weaknesses
Raw material Consumer or
user
Retail
distribution
Production Wholesale
distribution
After-sale
service
How does company compare in
raw materials?
• Do they have advantage in supply?
• Degree of integration?
How does company compare in
technology?
• What is their rate of product,
process improvement?
• How good is process efficiency?
• Advantages in location of facilities?
How does company compare in
cost and profit?
• Raw material costs?
• Processing costs?
• Profit?
• Return on investment?
• Access to capital?
How does company compare in
channels?
• In which channels are company sales
concentrated?
• Do products reach point of sale
faster or more efficiently?
How does company compare in
distributors?
• Have they more, larger or more
effective distributors?
• Share of channel’s sales?
How does company compare in
economics?
• Compensation of distributors ?
• Distribution costs?
• Service costs?
How does company compare in
products?
• Have they greater variety, better
design or quality, lower prices,
superior performance?
• Share of market?
How does company compare in
customers?
• Who are core buyers; core customers?
• Do these customers buy more
frequently in larger quantities or more
consistently?
• How is company’s product used?
• Who are core competitors?
How does company compare in
service?
• Doe s company have a service
advantage - type, quality, quantity?

26. Where in the system are company’s
measurable strengths and weaknesses
Raw material Consumer or
user
Retail
distribution
Production Wholesale
distribution
After-sale
service
How does company compare in
pricing?
• Do they have price advantage
(price/quality relationship)?
• Are they price leaders?
How does company compare in
economics?
• Service costs?
• Cost of consumer marketing?

27. The Value Chain
The concept was later firmly established by Michael Porter
as an important diagnostic technique in Competitive
Advantage (1985).
Hamel and Prahalad, and Bartlett and Ghoshal further
elaborated on value improving activities.

28. Porter’s Value Chain
Firm Infrastructure
Human Resource Management
Technology development(Innovation)
Materials Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
&Sales
Service
Primary Activities
Support
Activities

29. The Value Chain
The additional insights and work done by Senge on learning
Organization led Norman and Remirez to expand the
concept into one of value constellation; incorporating those
activities which involve the entire organization for value
improvement . These are called value enhancement
Activities.

30. Porter’s Value Chain
Firm Infrastructure
Human Resource Management
Technology development(Innovation)
Materials Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
&Sales
Service
Primary Activities
Organizational entrepreneurship
Organizational Learning
Cross functional synergy
Core competence building
Organizational creativity,
Innovation and imagination
Value Enhancement Activities
Central Activities
Support Activities

32. Learning Organization
According to Peter Senge,
In future it is knowledge that will determine
competitive performance and the organization
with the greatest capacity to learn will dominate
the chosen sphere of activity.

33. Learning Organization
A learning organization is one skilled in acquiring,
creating, transferring and retaining knowledge –
as well as transforming that knowledge into
improved performance or innovative products
and services

34. Learning Organization
Explicit
Knowledge
Tacit

35. Knowledge Management
According to Arthur D. Little,
Knowledge management could be through four integrated
dimensions:
• Content
• Culture
• Process
• Define knowledge objectives, organizational core knowledge and
describe future knowledge needs
• Identify available knowledge
• Save knowledge
• Disseminate knowledge
• Use knowledge

36. Knowledge Management
• Infrastructure
• Knowledge adapted to company’s needs should be:
• Accessible
• Flexible
• Up-to-date
• Strategically relevant information identified
through knowledge audit.