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Distinctive competency
- 1. Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability Chapter 3
- 2. Internal Analysis: Identifying Strengths and Weaknesses Managers must understand – The role of resources, capabilities, and distinctive competencies in the process by which companies create value and profit – The importance of superior efficiency, innovation, quality, and responsiveness to customers – The sources of their company’s competitive advantage (strengths and weaknesses)
- 3. Distinctive Competences and Competitive Advantage • Distinctive competencies – Firm-specific strengths that allow a company to gain competitive advantage by differentiating its products and/or achieving lower costs than its rivals – Arise from unique application of resources and acquisition of capabilities
- 4. The Role ofResources • Resources – Capital or financial, physical, social or human, technological, and organizational factor endowments • Tangible and intangible • A firm-specific and difficult to imitate resource is likely to lead to distinctive competency • A valuable resource that creates strong demand for a firm’s products may lead to distinctive competency
- 5. The Role ofCapabilities • Capabilities – A company’s skills at coordinating and using its resources • Capabilities are the product of organizational structure, processes, and control systems • We must add people, particularly leadership in building the structure, etc.
- 6. Strategy, Resources, Capabilities,and Competencies
- 7. A Critical Distinction • If a firm has firm-specific and valuable resources, it must also have the capability to use them effectively to create distinctive competency • A firm can create distinctive competency without firm-specific and valuable resources if it has unique capabilities
- 8. Competitive Advantage, Value Creation, and Profitability • Profitability factors – Amount of value customers place on the company’s products – Price charged – Costs of creating the value
- 9. Value Creation andPricing Options
- 10. Comparing Toyota andGeneral Motors
- 11. Differentiation and Cost Structure: Roots of Competitive Advantage
- 12. The Value Chain • A company is a chain of activities for transforming inputs into outputs that customers value • The transformation process is composed of primary and support activities that add value to the product
- 13. The Value Chain:Primary and Support Activities
- 14. The Generic BuildingBlocks of Competitive Advantage
- 15. Exercise • Strategyin Action 3.2: Southwest Airlines • What portions of the value chain does Southwest Airlines work on to create value for its customers? • Why these portions rather than the more significant costs like fuel?
- 16. Efficiency • Thequantity of inputs it takes to produce a given output. Usually measured as outputs over inputs; examples of latter – No. of employees – Capital investment • Productivity leads to greater efficiency and lower costs – Employee productivity – Capital productivity
- 17. Quality • Superiorquality = customer perception of greater value in a specific product’s attributes – Form, features, performance, durability, reliability, style, design • Quality products = goods and services that are reliable and that are differentiated by attributes that customers perceive to have higher value
- 18. Quality (cont’d) •The impact of quality on competitive advantage – High-quality products increase the value of (differentiate) the products in customers’ eyes – Greater efficiency and lower unit costs are associated with reliable products
- 19. A Quality Mapfor Automobiles
- 20. Innovation • Theact of creating new, commercially viable products or processes – Product innovation • Creates products that customers perceive as more valuable, increasing the company’s pricing options – Process innovation • Creates value by lowering production costs • Perhaps the most important building block of competitive advantage
- 21. Responsiveness to Customers • Doing a better job than competitors of identifying and satisfying customers’ needs – Superior quality and innovation are integral to superior responsiveness to customers – Customizing goods and services to the unique demands of individual customers or customer groups
- 22. Responsiveness to Customers (cont’d) • Sources of enhanced customer responsiveness – Customer response time, design, service, after-sales service and support • Differentiates a company’s products; leads to brand loyalty and premium pricing
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- 24. Analyzing Competitive Advantageand Profitability • Benchmarking company performance against that of competitors and the company’s own historic performance • Return on invested capital ROIC = Net profit Invested capital • Net profit = Total revenues – Total costs
- 25. Definitions of BasicAccounting Terms
- 26. Drivers of Profitability(ROIC)
- 27. Ways to IncreaseROIC • Increase the company’s return on sales – Reduce cost of goods sold – Reduce spending on sales force, marketing, general, and administrative expenses – Reduce R&D spending – Increase sales revenue more than costs • Increase sales revenues from invested capital – Reduce the amount of working capital – Reduce amount of fixed capital
- 28. The Durability ofCompetitive Advantage • Barriers to Imitation – Imitating Resources – Imitating Capabilities • Capability of Competitors – Strategic commitment – Absorptive capacity • Industry Dynamism
- 29. Why Companies Fail • Inertia – Companies find it difficult to change their strategies and structures • Prior strategic commitments – Limit a company’s ability to imitate and cause competitive disadvantage • The Icarus paradox – A company can become so specialized based on past success that it loses sight of market realities – Craftsmen, builders, pioneers, salesmen