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DBADBA--LECTURELECTURE--99
Sustainable Competitive AdvantageSustainable Competitive Advantage
INTRODUCTIONINTRODUCTION
SUSTAINABLE COMPETITIVE ADVANTAGESUSTAINABLE COMPETITIVE ADVANTAGE
CREATE A SCACREATE A SCA
ROUTES TO SCAROUTES TO SCA
CREATE COMPETITIVEADVANTAGECREATE COMPETITIVEADVANTAGE
RECOGNISING PATTERNSRECOGNISING PATTERNS
PORTER`S APPROACHPORTER`S APPROACH
PORTER`S APPROACH TO CAPORTER`S APPROACH TO CA
PORTER`S RECIPEPORTER`S RECIPE BEYOND PORTERBEYOND PORTER
ATTACKERS VS DEFENDERATTACKERS VS DEFENDER
CONCLUSIONSCONCLUSIONS
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INTRODUCTIONINTRODUCTION
HavingaHavinga competitiveadvantagecompetitiveadvantageisnecessary foraisnecessary fora
firmtocompeteinthemarketfirmtocompeteinthemarket
But whatismoreimportantis whethertheBut whatismoreimportantis whetherthe
competitiveadvantageissustainablecompetitiveadvantageissustainable
A firmmustidentifyitspositionrelativetotheA firmmustidentifyitspositionrelativetothe
competitioninthemarketcompetitioninthemarket
Byknowingifitisaleader,challenger, followerByknowingifitisaleader,challenger, follower
ornicher,itcanadoptappropriatestrategiestoornicher,itcanadoptappropriatestrategiesto
competecompete
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SUSTAINABLE COMPETITIVE ADVANTAGESUSTAINABLE COMPETITIVE ADVANTAGE
A goodstrategistseeksnotonlyto winthehill,A goodstrategistseeksnotonlyto winthehill,butholdontoit.butholdontoit. Subash JainSubash Jain
Sustainabilityisa frameworkforrespondingtoSustainabilityisa frameworkforrespondingtotheemergingcompetitivethreatsandmaintainingtheemergingcompetitivethreatsandmaintaining
competitiveadvantagecompetitiveadvantage..
SustainingcompetitiveadvantagerequiresSustainingcompetitiveadvantagerequireserectingbarriersagainstthecompetitionerectingbarriersagainstthecompetition
Aakerssuggestedlookingatthe following:Aakerssuggestedlookingatthe following:
How you competeHow you compete
BasisofcompetitionBasisofcompetition
Whereyou competeWhereyou compete
Whomyou arecompetingagainstWhomyou arecompetingagainst
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CREATE A SCACREATE A SCA
Weareexaminingoptions forcreatingvalue.Weareexaminingoptions forcreatingvalue.
WehavesuggestedthattheabilitytoaddvalueisWehavesuggestedthattheabilitytoaddvalueisenhancedbyoutrightdominanceorcooperationenhancedbyoutrightdominanceorcooperation
Inthecaseofoligopoly wegetan understandingoftheInthecaseofoligopoly wegetan understandingofthe
driversofmarketlevelprofits (5 forces)driversofmarketlevelprofits (5 forces) But whataboutdifferencesamongst firmsinthesameBut whataboutdifferencesamongst firmsinthesame
market. Whatmightdeterminetheabilityofaparticularmarket. Whatmightdeterminetheabilityofaparticularfirmtooutperformthemarketaverage? Toachieveafirmtooutperformthemarketaverage? Toachieveasustainablesuperiorlevelofperformance? Orgeneratesustainablesuperiorlevelofperformance? Orgenerate
rentsofability?rentsofability? Noteagainpossibleconflictsbetween ..Noteagainpossibleconflictsbetween ..
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ROUTES TO SCAROUTES TO SCA
Whatarethe firmspecificdeterminantsofrelativesuccessand failureWhatarethe firmspecificdeterminantsofrelativesuccessand failureinthe firmssearch forvalue (absoluteifyou buythe Austrianlineofinthe firmssearch forvalue (absoluteifyou buythe Austrianlineofcourse).course).
Arethereany usefulgeneralisationstobemade,lessonstobelearned,Arethereany usefulgeneralisationstobemade,lessonstobelearned,whichcanhelptoguidethestrategyprocess?whichcanhelptoguidethestrategyprocess?
Loweroverallcosts forsameprices. MoreproductiveorganisationLoweroverallcosts forsameprices. Moreproductiveorganisation
relativetorivals.relativetorivals. Higher(premium)prices forsimilarcosts. MorehighlyvaluedHigher(premium)prices forsimilarcosts. Morehighlyvalued
products (byconsumers)notnegatedbyhighercostsofproduction.products (byconsumers)notnegatedbyhighercostsofproduction.
Innovation.Innovation.
Differentiation.Differentiation.
OrganisationaleffectivenessOrganisationaleffectiveness
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CREATE COMPETITIVE ADVANTAGECREATE COMPETITIVE ADVANTAGE
Cheaper(lowercost)producer:?Cheaper(lowercost)producer:?
Better(superiorperceivedquality):?Better(superiorperceivedquality):?
Newer(moreinnovative/uptodate/fashionable):?Newer(moreinnovative/uptodate/fashionable):?
Faster(speedtomarket):?Faster(speedtomarket):? Moredesirable/distinctive (successfulbranding):?Moredesirable/distinctive (successfulbranding):?
Betterreputation:?Betterreputation:?
Firstmoveradvantages:?Firstmoveradvantages:?
Provideyourownexamplesof firmsthatcompeteProvideyourownexamplesof firmsthatcompete
successfullyonthisbasis.successfullyonthisbasis.
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RECOGNISING PATTERNSRECOGNISING PATTERNS
Advantagecomes from understandingandexploitingtheemergingAdvantagecomes from understandingandexploitingtheemergingcompetitivemarketpatterns. Thereisscope foradvantagebasedon:competitivemarketpatterns. Thereisscope foradvantagebasedon:
Search/ scanning capabilitiesSearch/ scanning capabilities
Analysis/ interpretation capabilitiesAnalysis/ interpretation capabilities
Risk taking capabilitiesRisk taking capabilities
Implementation capabilitiesImplementation capabilities
Change management capabilitiesChange management capabilities
Ownership of/ access to required complementary assets/ capabilitiesOwnership of/ access to required complementary assets/ capabilities
TheabilitytodothisdependsinturnontheeffectivenessandintegrationofTheabilitytodothisdependsinturnontheeffectivenessandintegrationoftheappropriatekeybusinessactivitiesandprocesses (distinctivecapabilities/theappropriatekeybusinessactivitiesandprocesses (distinctivecapabilities/competencies) which underliecostcompetitiveness,quality,innovation,speedcompetencies) which underliecostcompetitiveness,quality,innovation,speedtomarket, networkbuilding,andcustomerintimacy.tomarket, networkbuilding,andcustomerintimacy.
Production,marketing,logistics,supplychainmanagement,collaboration,Production,marketing,logistics,supplychainmanagement,collaboration,branding,quality,marketdevelopment,productdevelopment,andinnovation.branding,quality,marketdevelopment,productdevelopment,andinnovation.
WhichinturndependsonorganisationalprocessesandpracticessuchasWhichinturndependsonorganisationalprocessesandpracticessuchasHRM,informationanddecisionmanagement,andrelationshipmanagement.HRM,informationanddecisionmanagement,andrelationshipmanagement.
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Porters approachPorters approach
In Competitive Advantage P arguesthat firmspecificperfdependsIn Competitive Advantage P arguesthat firmspecificperfdependsbasicallyontheindividual firmsabilitytoorganiseandmanagethebasicallyontheindividual firmsabilitytoorganiseandmanagethecost/differentiationdriversinvolvedsoastoproduceacostadvantagecost/differentiationdriversinvolvedsoastoproduceacostadvantageoradifferentiationadvantage. (seenextslide)oradifferentiationadvantage. (seenextslide)
Butthisapproachhasproblemsandisincomplete.Butthisapproachhasproblemsandisincomplete.
Costadvantagemeanshavingcostsbelow average foragivenmarketCostadvantagemeanshavingcostsbelow average foragivenmarketprice whichmightcome from .price whichmightcome from .
Differentiationmeansgettingahigherprice forsimilarcostsDifferentiationmeansgettingahigherprice forsimilarcosts
Whichmightcome frombeingbetter,newer,earliertomarket,moreWhichmightcome frombeingbetter,newer,earliertomarket,moredesirable,moredistinctive,morereliable,offeringamorecostdesirable,moredistinctive,morereliable,offeringamorecosteffective solution forcustomers,orprovidingabettertotalsystemeffective solution forcustomers,orprovidingabettertotalsystem
withcomplementors (Wintel).withcomplementors (Wintel).
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Benefit advantageBenefit advantage
Differentialadvmeansbenefitadvantage. A strategybasedonthis wouldaimDifferentialadvmeansbenefitadvantage. A strategybasedonthis wouldaim
toofferasuperiorbenefittotheconsumerandobtainapricedifferentialtoofferasuperiorbenefittotheconsumerandobtainapricedifferential
which would justifythehighercostsinvolved. Thatisthere wouldbeawhich would justifythehighercostsinvolved. Thatisthere wouldbea
positivereturntotheextrainvestment.positivereturntotheextrainvestment.
ThesignificanceofcostsThesignificanceofcosts Costsarise forabusinessbecauseitacquires RESOURCES (people/Costsarise forabusinessbecauseitacquires RESOURCES (people/
machines/buildings),buildsan ORGANISATION tomobiliseandmachines/buildings),buildsan ORGANISATION tomobiliseand
coordinatethem,creates CAPABILITIES& COMPETENCIES,coordinatethem,creates CAPABILITIES& COMPETENCIES,
creates BRAND NAMES,createsa REPUTATION,establishescreates BRAND NAMES,createsa REPUTATION,establishes
POSITIONS inmarkets,creates firmspecific KNOWLEDGE,POSITIONS inmarkets,creates firmspecific KNOWLEDGE,acquires PATENTS,createssupply NETWORKS,createsacquires PATENTS,createssupply NETWORKS,creates
RELATIONSHIPS,createsaportfolioof STRATEGIC ACTIONS/RELATIONSHIPS,createsaportfolioof STRATEGIC ACTIONS/
policiesandsoon.policiesandsoon.
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Asset creationAsset creation TheseThesebenefitsbenefits arethebusinesss ASSETS.arethebusinesss ASSETS. OrganisationalassetsOrganisationalassets
PositionalassetsPositionalassets
KnowledgeassetsKnowledgeassets
NetworkassetsNetworkassets Brandassets/reputationassetsBrandassets/reputationassets
Capabilities/competencies (suchas forproductCapabilities/competencies (suchas forproductdevelopment/marketing/innovation/costmanagement)development/marketing/innovation/costmanagement)
RelationalassetsRelationalassets
PatentsPatents
Strategicassets ( suchascooperativesuppliersorStrategicassets ( suchascooperativesuppliersorcompetitors)competitors)
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Porters approach to CAPorters approach to CA Low cost/differentiationmayindeedbetheproximateLow cost/differentiationmayindeedbetheproximate
causeof CA buttheycannotbethe ultimatesource.causeof CA buttheycannotbethe ultimatesource.
Low costpositions,superiorquality,speedtomarket,orLow costpositions,superiorquality,speedtomarket,orwhatever,whatever,must come from something or other themust come from something or other theorganisation has or does.organisation has or does.
Forexamplein Ricardostimethesuperiorreturns (CA)ofForexamplein Ricardostimethesuperiorreturns (CA)ofsome farmersindeedcame fromlowercosts whichderivedsome farmersindeedcame fromlowercosts whichderivedultimately fromsuperiorquality (iemoreproductive)land,ultimately fromsuperiorquality (iemoreproductive)land,aresourcethat wasveryhardtomakemoreof!aresourcethat wasveryhardtomakemoreof!
Nowadays NokiasorDellssuperiorreturnscomeNowadays NokiasorDellssuperiorreturnscomeultimately fromsomethingsimilar,something (scarceandultimately fromsomethingsimilar,something (scarceandhardtomakemoreof) whichallowsthemtodothingshardtomakemoreof) whichallowsthemtodothingswhichenablethemtoofferabettervalue formoneywhichenablethemtoofferabettervalue formoneypropositiontoconsumers. But whatthingsexactly?propositiontoconsumers. But whatthingsexactly?
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Porters recipePorters recipeNB Ifit waspossible forPorterliterallytodescribeNB Ifit waspossible forPorterliterallytodescribehowhow toto
createandsustaincompetitiveadvantage (whichishiscreateandsustaincompetitiveadvantage (whichishis
sellingproposition)thensurelyall firmshaveequalaccesssellingproposition)thensurelyall firmshaveequalaccess
tothisknowledgeonce Porterhascodifieditinhistext.tothisknowledgeonce Porterhascodifieditinhistext.
Socansuchknowledgeliterallybeasourceof SCA? OrisSocansuchknowledgeliterallybeasourceof SCA? Orisitnotperhapssimplyadescriptionofthenecessaryitnotperhapssimplyadescriptionofthenecessary
conditions forsuch?conditions forsuch?
Isntitabitlikesayingthatifyou wantto winthe1500mIsntitabitlikesayingthatifyou wantto winthe1500m
Olympicgoldyou needtobeabletorun fast? AndhereisOlympicgoldyou needtobeabletorun fast? Andhereis
atrainingprogrammeto follow!atrainingprogrammeto follow!
FurthermoreifeveryonereadsthebookandappliestheFurthermoreifeveryonereadsthebookandappliesthe
lessonsit justraisesthestandardsrequired forsurvival!lessonsit justraisesthestandardsrequired forsurvival!
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Beyond PorterBeyond Porter
Can wenow offerabetter/deeperexplanationCan wenow offerabetter/deeperexplanation
oftherootsof (androutesto)superiorbusinessoftherootsof (androutesto)superiorbusiness
performance?performance?
Inthe90saInthe90sacapabilities/ competenciescapabilities/ competencies
approachemergedasa new orthodoxyapproachemergedasa new orthodoxy
leadingtoadistinctiveleadingtoadistinctiveresource based viewresource based view
ofthe firmandapproachtostrategy.ofthe firmandapproachtostrategy.
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The capabilities approachThe capabilities approach
Question:What thingsorqualitiescouldgiveaspecific firmasustainableQuestion:What thingsorqualitiescouldgiveaspecific firmasustainableedge (cheaper/better/ )overitsrivals?edge (cheaper/better/ )overitsrivals?
A seriesofinfluentialarticlesinthe HBRandelsewhereduringthe90sA seriesofinfluentialarticlesinthe HBRandelsewhereduringthe90ssuggestedanew approach (althoughitturnedoutitsorigins weremuchsuggestedanew approach (althoughitturnedoutitsorigins weremuchearlierPenrose,orevenearlierRicardo)earlierPenrose,orevenearlierRicardo)
RESOURCE BASED APPROACHRESOURCE BASED APPROACHExaminesthenatureandoriginsof firmspecificcompetitiveadvantage,ortheExaminesthenatureandoriginsof firmspecificcompetitiveadvantage,orthe
firmspecificdeterminantsofperformance. Ittakesasastartpointthefirmspecificdeterminantsofperformance. Ittakesasastartpointtheevidence,ofsubstantialandsustaineddifferencesintheprofitabilityof firmsevidence,ofsubstantialandsustaineddifferencesintheprofitabilityof firmsoperatinginthesamemarket. Itthenconsidershow suchadifferentialcouldoperatinginthesamemarket. Itthenconsidershow suchadifferentialcouldbesustainedincompetitiveconditions. Whydontthelaggard firmssimplybesustainedincompetitiveconditions. Whydontthelaggard firmssimplystudyandreplicatethelessonsoftheirmoresuccessfulrivals? Whydontthestudyandreplicatethelessonsoftheirmoresuccessfulrivals? Whydonttheindividualresourceownersinvolvedcapturethevaluecreated forthemselvesindividualresourceownersinvolvedcapturethevaluecreated forthemselvesratherthanitgoingtotheorganisation. Theschoolgetsitsname fromtheratherthanitgoingtotheorganisation. Theschoolgetsitsname fromtheansweritprovidestothesequestion. Basicallytheansweritprovidesistoansweritprovidestothesequestion. Basicallytheansweritprovidesisto
pointtothesimple factthateach firmhasadistinctivehistoryandthuspointtothesimple factthateach firmhasadistinctivehistoryandthusdistinctiveresources,assets,capabilitiesandcompetencies,acquiredanddistinctiveresources,assets,capabilitiesandcompetencies,acquiredanddevelopedovertime, whichdriveitsperformance.developedovertime, whichdriveitsperformance.
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Prahaladand Hamel (1990): corecompetenciesPrahaladand Hamel (1990): corecompetencies
ManagementsabilitytoconsolidatetechnologyandManagementsabilitytoconsolidatetechnologyand
productionskillsintoproductionskillsinto competenciescompetencies sothebusinesscansothebusinesscan
adaptquicklytochangingopportunities/circumstances.adaptquicklytochangingopportunities/circumstances.
Core competenciesCore competencies =collectivelearningofthe=collectivelearningofthe
organisationaboutprod/tech/markets.organisationaboutprod/tech/markets.e.g. Sonysminiaturisationskills.e.g. Sonysminiaturisationskills.
CompetenciesCompetencies havetobebuiltoveralongperiod.havetobebuiltoveralongperiod.
Theyaredifficulttoidentifypreciselyandhardtoimitate.Theyaredifficulttoidentifypreciselyandhardtoimitate.
Many firms failtoidentifytheirownMany firms failtoidentifytheirowncore competenciescore competenciesandso failtonurturethemproperly orexploitthem fully.andso failtonurturethemproperly orexploitthem fully.
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Stalk, Evans, and Shulman (1992): capabilitiesStalk, Evans, and Shulman (1992): capabilities
CompetitiveadvantageisbasedontheabilitytorespondtoevolvingCompetitiveadvantageisbasedontheabilitytorespondtoevolvingopportunities whichdependsonbusinessprocessesoropportunities whichdependsonbusinessprocessesorcapabilitiescapabilities..
Businesssuccessinvolveschoosingtherightcapabilitiestobuild,Businesssuccessinvolveschoosingtherightcapabilitiestobuild,
managingthemcarefully,andexploitingthem fully.e.g. Honda,managingthemcarefully,andexploitingthem fully.e.g. Honda,
Canon.Canon.
Chandler(1990):initialriskyinvestmentsChandler(1990):initialriskyinvestments Chandler(1990):successfulgiantssuchas IBM and Bayerderive fromChandler(1990):successfulgiantssuchas IBM and Bayerderive from
theinitialheavyandriskyinvestmentsinbuildingorganisationaltheinitialheavyandriskyinvestmentsinbuildingorganisational
knowledgeandcapabilities whichallowedthemtoexploittheknowledgeandcapabilities whichallowedthemtoexploitthe
opportunitiesavailabletoexploitscaleandscopeeconomies. Cf Sony/opportunitiesavailabletoexploitscaleandscopeeconomies. Cf Sony/
Nokia/Wal MartNokia/Wal Mart
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Collis and Montgomery (1995): competing on resourcesCollis and Montgomery (1995): competing on resources
Competitiveadvantagederives ultimately fromtheCompetitiveadvantagederives ultimately fromtheownershipofascarcevaluable resource.ownershipofascarcevaluable resource.
Superiorperformancederives fromdevelopingaSuperiorperformancederives fromdevelopingacompetitively distinctcompetitively distinct setofresourcesandsetofresourcesanddeployingthemeffectively.deployingthemeffectively.
Resourcesinvolvedcouldbephysical,intangible,Resourcesinvolvedcouldbephysical,intangible,ororganisationalprocesses.ororganisationalprocesses.
Examplegiven: Marksand Spencer(poortiming!)Examplegiven: Marksand Spencer(poortiming!)
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Sorting the terminologySorting the terminology AssetsAssets arethingsanorganisationmayhavesuchasbrandsarethingsanorganisationmayhavesuchasbrands
andpatents whichifrareandvaluablearecalledstrategicandpatents whichifrareandvaluablearecalledstrategicassets.assets.
A capabilityA capability issomethinganorganisationhaslearnedtoissomethinganorganisationhaslearnedto
do whichaffectscosts,quality,customerintimacy,do whichaffectscosts,quality,customerintimacy,newness. Capabilitiesare whatcustomersnotice whennewness. Capabilitiesare whatcustomersnotice whendealing withanorganisation. Ifthesearerareandvaluabledealing withanorganisation. Ifthesearerareandvaluablewecallthemdistinctive.wecallthemdistinctive.
A competenceA competence isdeeperseated. Thesearethingsisdeeperseated. Thesearethingsorganisationshavesuchastrainedandmotivatedstaff,organisationshavesuchastrainedandmotivatedstaff,functioning IT systems,engineeringskills, which underliefunctioning IT systems,engineeringskills, which underlieitscapabilities. Ifrareandvaluabletheyarecalledcoreitscapabilities. Ifrareandvaluabletheyarecalledcorecompetencies.competencies.
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Balanced scorecardBalanced scorecard
Tracesconnectionbetweenperformance,strategy,Tracesconnectionbetweenperformance,strategy,customerperspective,processesandassets.customerperspective,processesandassets.
KeyKeyperspectivesperspectives orgenericvaluepropositionsorgenericvaluepropositions
areproductleadership,customerintimacy,andareproductleadership,customerintimacy,andoperationalexcellence.operationalexcellence.
KeyKeyprocessesprocesses areinnovation,customerareinnovation,customermanagement,operationsandlogistics.management,operationsandlogistics.
KeyKeyassetsassets arepeople,technology,andcorporatearepeople,technology,andcorporateculture.culture.
Kaplan and Norton, HBR, 2000Kaplan and Norton, HBR, 2000..
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Distinctiveness is the keyDistinctiveness is the key NB itisnt justamatterofhavingcapabilitiesorcompetencies,butNB itisnt justamatterofhavingcapabilitiesorcompetencies,but
havingdistinctivecandc. Moreeffectivethanaverageinsomehavingdistinctivecandc. Moreeffectivethanaverageinsomearea(s)?area(s)?
Production/marketingeffectivenessProduction/marketingeffectiveness
InnovationeffectivenessInnovationeffectiveness
New productgenerationeffectivenessNew productgenerationeffectiveness StrategicthinkingeffectivenessStrategicthinkingeffectiveness
Transactional/coordinativeeffectivenessTransactional/coordinativeeffectiveness
OrganisationaleffectivenessOrganisationaleffectiveness
PeoplemanagementeffectivenessPeoplemanagementeffectiveness
ProblemsolvingeffectivenessProblemsolvingeffectiveness FinancialeffectivenessFinancialeffectiveness
Marketing/ CustomerrelationseffectivenessMarketing/ Customerrelationseffectiveness
CostmanagementeffectivenessCostmanagementeffectiveness
LearningeffectivenessLearningeffectiveness
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John Kay (1993): Distinctive capabilitiesJohn Kay (1993): Distinctive capabilities..
Inhisbestseller, The foundationsofcorporate success KayInhisbestseller, The foundationsofcorporate success Kayarguesthatthesourceofcompetitiveadvantageisthearguesthatthesourceofcompetitiveadvantageisthe
creationandexploitationofcreationandexploitationofdistinctive capabilitiesdistinctive capabilities..
ThevalueofanyadvantagecreateddependsonitsThevalueofanyadvantagecreateddependsonits
sustainabilityanditsappropriability.sustainabilityanditsappropriability.Kayidentifiesonlythreebasictypesofdistinctivecapability:Kayidentifiesonlythreebasictypesofdistinctivecapability:
Corporate ArchitectureCorporate Architecture
InnovationInnovation
ReputationReputation
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Strategic assetsStrategic assets
Kayalsodiscussesmarketdominance (monopoly)basedKayalsodiscussesmarketdominance (monopoly)based
ontheownershipofstrategicassetsasasourceofsuccess.ontheownershipofstrategicassetsasasourceofsuccess.
Naturalmonopoliessuchas utilitynetworks,orlicensedNaturalmonopoliessuchas utilitynetworks,orlicensed
monopoliessuchasthenationallottery.monopoliessuchasthenationallottery. Andthosebasedonheavysunkcosts whichdiscourageAndthosebasedonheavysunkcosts whichdiscourage
challengers forthe firstmover.challengers forthe firstmover.
ButhearguesthatinthesecaseitisessentiallystructuralButhearguesthatinthesecaseitisessentiallystructural
factorsthatcountnot firmspecificdistinctivecapabilities.factorsthatcountnot firmspecificdistinctivecapabilities.
Theremayofcourseberoom fordebateinsomeTheremayofcourseberoom fordebateinsome
cases,recall Msoftcasestudy.cases,recall Msoftcasestudy.
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ArchitectureArchitecture
Architectureislargelyabouthow you organisetogetthingsdoneasArchitectureislargelyabouthow you organisetogetthingsdoneaseffectivelyaspossible.effectivelyaspossible.
But NB italsoinfluences whatyou choosetodo (strategy)inthe firstplace.But NB italsoinfluences whatyou choosetodo (strategy)inthe firstplace.Because?Because?
Architectureisaboutorganisational form,incentivemechanisms, workArchitectureisaboutorganisational form,incentivemechanisms, workorganisation,performanceevaluation,accountability,leadership,culture,andorganisation,performanceevaluation,accountability,leadership,culture,and
governance.governance.
e.g. IBM inthe60s, Marksand Spencer(backwhen!), Liverpool FC ine.g. IBM inthe60s, Marksand Spencer(backwhen!), Liverpool FC inthe80s.the80s.
e.g. Many Japanese firms:the Japaneseemploymentsystem,itssuppliere.g. Many Japanese firms:the Japaneseemploymentsystem,itssuppliernetworks,thecloserelationsbetweenindustryand finance,thegreatnetworks,thecloserelationsbetweenindustryand finance,thegreat
emphasisoncoemphasisonco--operationandcollaboration,thedevelopmentoflongoperationandcollaboration,thedevelopmentoflongtermcommercialrelationships,andthegenerallyhigherleveloftrusttermcommercialrelationships,andthegenerallyhigherleveloftrustwhichencouragesbettercowhichencouragesbetterco--operationoperation
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Innovation as a distinctive capabilityInnovation as a distinctive capability
A capacity forloweringcostsorimprovingitsproductsorA capacity forloweringcostsorimprovingitsproductsorintroducingnew productsaheadofitscompetitors.introducingnew productsaheadofitscompetitors.
InnovationbyitselfasasourceofcompetitiveadvantageisInnovationbyitselfasasourceofcompetitiveadvantageisactuallyquiterare.actuallyquiterare.
Innovationisverydifficult. Itis uncertain,anditishardtoInnovationisverydifficult. Itis uncertain,anditishardto
manageproperly. Therearenorecipes. Itcanbedifficultmanageproperly. Therearenorecipes. Itcanbedifficultforfirms whichinvestin R&D tosecureorappropriateallforfirms whichinvestin R&D tosecureorappropriateallthereturns. Sobeingabletodoitreasonably well willthereturns. Sobeingabletodoitreasonably well willundoubtedlygiveyou anedge.undoubtedlygiveyou anedge.
Howevermany firms whichseekcompetitiveadvantagebyHowevermany firms whichseekcompetitiveadvantageby
thisroute fail.thisroute fail. Often whatappearstobecompetitiveadvantagebasedonaOften whatappearstobecompetitiveadvantagebasedona
capability forinnovationisactuallybased ultimatelyoncapability forinnovationisactuallybased ultimatelyonarchitecture.e.g. Sonyand Glaxoarchitecture.e.g. Sonyand Glaxo
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Attackers v defendersAttackers v defenders
Recentresearchby McKinseysuggeststhatallreallyRecentresearchby McKinseysuggeststhatallreallysuccessfulbusinesses (outperformers)areinnovatorsbutsuccessfulbusinesses (outperformers)areinnovatorsbutthatnotallinnovatorsaresuccessful (Apple).thatnotallinnovatorsaresuccessful (Apple).
Successcomes from creativedestruction. FromSuccesscomes from creativedestruction. From
aggressiveattackingnotdefending.aggressiveattackingnotdefending. Butsuccesscanbring culturallockinandgradualButsuccesscanbring culturallockinandgradual
decline. Few firmsaresuperiorperformers forverylongdecline. Few firmsaresuperiorperformers forverylong(10/15 yearsisalongtimenowadays).(10/15 yearsisalongtimenowadays).
Theselongertermsuccessesmanagethetrickof creativeTheselongertermsuccessesmanagethetrickof creative
destruction,generatingcreativechange whilstmaintainingdestruction,generatingcreativechange whilstmaintainingeffectivecentralcontrol. Ina word,architecture.effectivecentralcontrol. Ina word,architecture.
Book by Foster and Kaplan, 2002Book by Foster and Kaplan, 2002
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The Value of CapabilitiesThe Value of Capabilities
Distinctivecapabilitiesgeneratesuccess whichattractscompetitorsDistinctivecapabilitiesgeneratesuccess whichattractscompetitors
TheirvaluethereforedependsontheTheirvaluethereforedependsonthesustainabilitysustainability andtheandtheappropriabilityappropriabilityofthevaluetheygenerate. (seealso Collisetal HBR95)ofthevaluetheygenerate. (seealso Collisetal HBR95)
Theseinturndependonthe following factors:Theseinturndependonthe following factors:
Transparency:Transparency: how easyisittoidentifyand understand? (J.managementhow easyisittoidentifyand understand? (J.management
techniques?)techniques?)
Replicability:Replicability: how easytoimitate/replicate? A team formationsuchas4how easytoimitate/replicate? A team formationsuchas4--44--22
iseasy,but German efficiencyorBrazilian flairismoredifficult.iseasy,but German efficiencyorBrazilian flairismoredifficult.
Substitutability:Substitutability: How easyto findasubstitute for? Sonyo/mofinnovation,How easyto findasubstitute for? Sonyo/mofinnovation,
M&S supplychainorganisation, Unileversconsumermarketingcapabilities,M&S supplychainorganisation, Unileversconsumermarketingcapabilities,
Dellsonline justintimeproduction.Dellsonline justintimeproduction.
Whocapturestheincomestream fromthecapability? TheorganisationortheWhocapturestheincomestream fromthecapability? Theorganisationorthe
underlyingresourcesinvolved. Thisistheissueofunderlyingresourcesinvolved. Thisistheissueofappropriability.appropriability. Tobevaluable fortheorganisationthecapabilityhastobeimmobile/Tobevaluable fortheorganisationthecapabilityhastobeimmobile/
organisationallyspecific. Notableto walk!organisationallyspecific. Notableto walk!
Noteasilymarketable.Noteasilymarketable.
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STRATEGIES FOR MARKET LEADERSTRATEGIES FOR MARKET LEADER
Market Leadersobjectives:Market Leadersobjectives: ExpandthetotalmarketbyExpandthetotalmarketby
Findingnew usersFindingnew users
Creatingnew uses,andCreatingnew uses,and
Encouragingmore usageEncouragingmore usage ProtectitscurrentmarketsharebyProtectitscurrentmarketshareby
Adoptingdefensestrategies (see followingslides)Adoptingdefensestrategies (see followingslides)
IncreaseitsmarketshareIncreaseitsmarketshare
NotetherelationshipbetweenmarketshareandNotetherelationshipbetweenmarketshareandprofitabilityprofitability
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DEFENSE STRATEGYDEFENSE STRATEGY
A marketleadershouldgenerallyadoptaA marketleadershouldgenerallyadopta
defensestrategydefensestrategy
Sixcommonly useddefensestrategiesSixcommonly useddefensestrategies
Position DefensePosition Defense
Mobile DefenseMobile Defense
Flanking DefenseFlanking Defense
Contraction DefenseContraction Defense PrePre--emptive Defenseemptive Defense
CounterCounter--Offensive DefenseOffensive Defense
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MARKET CHALLENGER STRATEGYMARKET CHALLENGER STRATEGY
ThemarketchallengersstrategicobjectiveistogainmarketshareandtobecomeThemarketchallengersstrategicobjectiveistogainmarketshareandtobecometheleadereventuallytheleadereventually
How?How?
ByattackingthemarketleaderByattackingthemarketleader
ByattackingotherfirmsofthesamesizeByattackingotherfirmsofthesamesize
ByattackingsmallerfirmsByattackingsmallerfirms
Typesof AttackStrategiesTypesof AttackStrategies
FrontalattackFrontalattack
FlankattackFlankattack
EncirclementattackEncirclementattack BypassattackBypassattack
GuerrillaattackGuerrillaattack
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MARKET FOLLOWER STRATEGIESMARKET FOLLOWER STRATEGIES
Theodore Levittinhisarticle,Theodore Levittinhisarticle,
Innovative Imitation
Innovative Imitation arguedthataproductarguedthataproductimitationstrategymightbe justasprofitableasaproductinnovationstrategyimitationstrategymightbe justasprofitableasaproductinnovationstrategy
e.g.e.g. ProductinnovationProductinnovation----SonySony
ProductProduct--imitationimitationPanasonicPanasonic
Fourbroad followerstrategies:Fourbroad followerstrategies:
Counterfeiter(whichisillegal)Counterfeiter(whichisillegal)
Clonere.g.the IBM PC clonesClonere.g.the IBM PC clones
Imitatore.g.carmanufacturersimitatethestyleofoneanotherImitatore.g.carmanufacturersimitatethestyleofoneanother
Adaptere.g.many Japanese firmsareexcellentadaptersinitiallyAdaptere.g.many Japanese firmsareexcellentadaptersinitially
beforedevelopingintochallengersandeventuallyleadersbeforedevelopingintochallengersandeventuallyleaders
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MARKET NICHER STRATEGIESMARKET NICHER STRATEGIES
SmallerfirmscanavoidlargerfirmsbytargetingsmallerSmallerfirmscanavoidlargerfirmsbytargetingsmallermarketsornichesthatareoflittleornointeresttothemarketsornichesthatareoflittleornointeresttothelargerfirmslargerfirms
e.g. Logiteche.g. Logitech----micemice
MicrobrewersMicrobrewers----specialbeersspecialbeers
Nichersmustcreateniches,expandthenichesandprotectNichersmustcreateniches,expandthenichesandprotectthemthem
e.g. Nikeconstantlycreatednew nichese.g. Nikeconstantlycreatednew niches----cycling,cycling,walking,hiking,cheerleading,etcwalking,hiking,cheerleading,etc
Whatisthemajorriskfacedbynichers?Whatisthemajorriskfacedbynichers?
MarketnichemaybeattackedbylargerfirmsoncetheyMarketnichemaybeattackedbylargerfirmsoncetheynoticethenichesaresuccessfulnoticethenichesaresuccessful
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CONCLUSIONSCONCLUSIONS
Sustainability is a method for integratingSustainability is a method for integratingenvironmental and social issues into critical longenvironmental and social issues into critical long--termtermdecision making decisions for the companydecision making decisions for the company
Sustainability provides a mechanism through which aSustainability provides a mechanism through which a
company can maintain a competitive edgecompany can maintain a competitive edge
Sustainability is a framework for providing strategicSustainability is a framework for providing strategicand financial valueand financial value
Application of the proposed Sustainability TriangleApplication of the proposed Sustainability Trianglecan help companies answer the question can help companies answer the question WhyWhySustainabilitySustainability by addressing specific issues of by addressing specific issues ofrelevance, scope and bottom line resultsrelevance, scope and bottom line results