Sustainability of Competitive advantage

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description

For business and management decision

Transcript of Sustainability of Competitive advantage

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Sustainability of a competitive advantage is a function of:› the rate of core-competence

obsolescence due to environmental changes, e.g., technology

› the availability of substitutes for the core competence

› the imitability of the core competence, e.g., diffusion of an innovation

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General

Env

iron

men

t

General

Environment

Gen

eral

Environm

ent

Sociocultural

Global

Technological

Polit

ical

/Leg

al

Dem

ogra

phic Econom

ic

IndustryEnvironment

CompetitorEnvironment

what firm might choose to do

Opportunities and threats

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identify what they can do (over time)

Unique resources, capabilities, and core competencies

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Discovering CoreDiscovering CoreCompetenciesCompetencies

ResourcesResources• TangibleTangible• IntangibleIntangible

CapabilitiesCapabilities

CoreCoreCompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessCompetitiveness

Four CriteriaFour Criteriaof Sustainableof Sustainable

AdvantagesAdvantages

• ValuableValuable• RareRare• Costly to ImitateCostly to Imitate• No substitutableNo substitutable

ValueValueChainChain

AnalysisAnalysis

• OutsourceOutsource

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Discovering CoreDiscovering CoreCompetenciesCompetencies

Resources• Tangible• Intangible

Tangible Resources

• Financial• Physical• Human

resources• Organizational

Intangible Resources

• Technological• Innovation• Reputation

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Discovering CoreDiscovering CoreCompetenciesCompetencies

CapabilitiesCapabilities

Capabilities are what a firm does, and represent the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective

markets for capabilities are imperfect

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Discovering CoreDiscovering CoreCompetenciesCompetencies

CoreCoreCompetenciesCompetencies

Core competencies are resources and capabilities that serve as a source of competitive advantage over rivals

Core competencies distinguish a company competitively and make it distinctive

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Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages

•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutable

Discovering CoreDiscovering CoreCompetenciesCompetencies

Valuable: Capabilities that help a firm neutralize threats or exploit opportunities

Rare: Capabilities that are not possessed by many others

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Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages

•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutable

Discovering CoreDiscovering CoreCompetenciesCompetencies

Costly to imitate: capabilities that other firms cannot develop easily, usually due to

• Unique historical conditions - e.g., founder, culture

• Causal ambiguity - capabilities hidden• Social complexity - capabilities

distributed

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Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages

•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutable

Discovering CoreDiscovering CoreCompetenciesCompetencies

Nonsubstitutable: capabilities that do not have strategic equivalents

• Invisible to competitors• Firm specific knowledge • Trust-based working relationships

between managers and nonmanagerial personnel

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Resources• Inputs to a firm’s

production process

Capability• A nonstrategic

team or resource

Core Competence• A strategic

capability

The source of

Does it satisfy the criteria of sustainable competitive advantage?

Yes

No

Capability• An integration of a

team of resources

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Valuab

le?

Rare?

Costly

to Im

itate?

Nonsu

bstitu

table

CompetitiveConsequences

PerformanceImplications

No No No NoCompetitiveDisadvantage

Below AverageReturns

Yes No NoYes/No

CompetitiveParity Average Returns

Yes Yes NoYes/No

Temporary Com-petitive Advantage

Above Average to Average Returns

Yes Yes Yes YesSustainable Com-petitive Advantage

Above Average Returns

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Questions?

Thank You