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Summary of Chapter
1.
Distinctive competencies are the firm-specific strengths of a company. Valuable distinctive
competencies enable a company to earn a profit rate that is above the industry average.
2.
The distinctive competencies of an organization arise from its resources (its financial,
physical, human, technological, and organizational assets) and capabilities (its skills at
coordinating resources and putting them to productive use).
3.
In order to achieve a competitive advantage, a company needs to pursue strategies that build
on its existing resources and capabilities and formulate strategies that build additional
resources and capabilities (develop new competencies).
4.
The source of a competitive advantage is superior value creation.
5.
To create superior value, a company must lower its costs or differentiate its product so that
it creates more value and can charge a higher price, or do both simultaneously.
6.
Managers must understand how value creation and pricing decisions affect demand and how
costs change with increases in volume. They must have a good grasp of the demand
conditions in the company’s market and the cost structure of the company at different levels
of output if they are to make decisions that maximize the profitability of their enterprise.
7.
The four building blocks of competitive advantage are efficiency, quality, innovation, and
responsiveness to customers. These are generic distinctive competencies. Superior
efficiency enables a company to lower its costs; superior quality allows it to charge a higher
price and lower its costs; and superior customer service lets it charge a higher price.
Superior innovation can lead to higher prices, particularly in the case of product
innovations, or lower unit costs, particularly in the case of process innovations.
8.
If a company’s managers are to perform a good internal analysis, they need to be able to
analyze the financial performance of their company, identifying how the strategies of the
company relate to its profitability, as measured by the return on invested capital.
9.
The durability of a company’s competitive advantage depends on the height of barriers to
imitation, the capability of competitors, and environmental dynamism.
10. Failing companies typically earn low or negative profits. Three factors seem to contribute to
failure: organizational inertia in the face of environmental change, the nature of a
company’s prior strategic commitments, and the Icarus paradox.
11. Avoiding failure requires a constant focus on the basic building blocks of competitive
advantage, continuous improvement, identification and adoption of best industrial practice,
and victory over inertia.