Lecture-7 Sustaining Competitive Advantage

8/7/2019 Lecture-7 Sustaining Competitive Advantage

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manecon/options/createmanecon/options/create 11

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

Lecture-7 Sustaining Competitive Advantage

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