Download Competitive Advantage Management Level

Competitive Advantage
Management Level – Paper E2
Project and Relationship Management
Lecture - 006
Vidya Rajawasam
ACMA CGMA MBA
Competitive Advantage
We have discussed the Position
based view and Resource
Based View related to
Sustainable Competitive
Advantage
Competitive Advantage
In this lecture we will discuss the
Resources / Competencies
and Porters Value Chain
Analysis
Competitive Advantage
 Resources and Competencies
It is clear that in order to develop RBV
strategies, the organization must identify its
internal resources and capabilities.
In order to identify the above resources and
capabilities, the organization needs to carry
out internal analysis.
Competitive Advantage
 Resources and Competencies
The internal analysis was discussed in
previous lectures, when we discussed the
Rational approach .
The findings of the internal analysis highlights
the strengths and weaknesses of an
organization.
Competitive Advantage
 Resources and Competencies
The findings will then be used to feed the
Corporate Appraisal, which is commonly
known as SWOT Analysis.
Competitive Advantage
 Resources and Competencies
There are two techniques used to identify
the internal resources and competencies.
Those are;
– Resources Audit
– Porter’s Value Chain Analysis
Competitive Advantage
 Resources Audit
The resources audit seeks to identify what
resources and competencies available to
an organization.
Resources are generally grouped under
four headings.
Competitive Advantage
 Resources Audit
The Four types of Resource groups ;
o Physical or operational resources
i.e. Land & Buildings, Machinery, IT
systems
o Human Resources
i.e. Labour, Organizational knowledge
Competitive Advantage
 Resources Audit
The Four types of Resource groups ;
o Financial resources
i.e. Cash, Positive Cash flows, access to
debt or equity.
o Intangible Resources
i.e. Patents , goodwill
Competitive Advantage
 Resources Audit
The Resources can be further categorized
into;
o Basic resources
i.e. similar to those of competitors, which
can be easily copied or easy to obtain.
o Unique resources
i.e. these resources are different from
competitors and difficult to obtain.
Competitive Advantage
 Resources Audit
If the resources of the organization is are
more unique, the organizations
competitive position will be more stronger.
The key factor here is to know what
resources are available to the organization
and how the available resources helps the
organization in strategy formulation.
Competitive Advantage
 Resources Audit
If the resources of the organization is are
more unique, the organizations
competitive position will be more stronger.
The key factor here is to know what
resources are available to the organization
and how the available resources helps the
organization in strategy formulation.
Competitive Advantage
 Resources Audit
The Competencies can be categorized into;
o Threshold competencies
i.e. attainment avoids Competitive
disadvantage.
Includes the procedures, processes and
products that is necessary to enter into
a particular market.
Competitive Advantage
 Resources Audit
The Competencies can be categorized into;
o Core competencies
i.e. attainment provides the basis for
Competitive advantage over others
within a market.
Having core competencies also provide
the ability to change the competitive
forces in the market to organization’s
advantage.
Competitive Advantage
 Resources Audit
Overtime core competencies can become
threshold competencies, due to new
developments in customer expectations
and also when organizations battle for
competitive advantage.
Competitive Advantage
 Resources Audit
The competence audit analyses how
resources are being deployed to create
competences.
And also analyzes how competencies are
being linked to processes to create value.
An organizations success usually found in
this level.
Competitive Strategy
Review MCQs
A company manufactures range of frozen desserts.
The products are marketed as high end products
and sold through expensive supermarket chains.
The brand is well recognized as fresh, organic and
unusual. Which strategies are adapted by the
organization?
a.
b.
c.
d.
Cost leadership
Market leader
Market dominator
Differentiation
Competitive Strategy
Review MCQs
A company manufactures range of frozen desserts.
The products are marketed as high end products
and sold through expensive supermarket chains.
The brand is well recognized as fresh, organic and
unusual. Which strategies are adapted by the
organization?
a.
b.
c.
d.
Cost leadership
Market leader
Market dominator
Differentiation
Competitive Strategy
Review MCQs
The threshold competencies are?
a. Does not represent
processors/procedures.
b. Provides competitive advantage
c. Can be used to change competitive forces
in the market.
d. Attainment avoids competitive
disadvantage.
Competitive Strategy
Review MCQs
The threshold competencies are?
a. Does not represent
processors/procedures.
b. Provides competitive advantage
c. Can be used to change competitive forces
in the market.
d. Attainment avoids competitive
disadvantage.
Competitive Advantage
 Resources Audit
The Distinctive
Capabilities/Competencies,
As per Kay(1997) distinctive capabilities are
arising from four sources;
1) Competitive architecture. These
represent the relationships that make up
the organization. These can be sub
divided into three categories;
Competitive Advantage
 Resources Audit
1) Competitive architecture. The three
categories are;
a) Internal architecture : relations with
employees.
b) External architecture: relations with
suppliers and customers.
c) Network Architecture : relationships
among group of collaborating firms.
Having above strong relations will provide
distinctive capabilities.
Competitive Advantage
 Resources Audit
The Distinctive Capabilities/Competencies,
As per Kay(1997) distinctive capabilities are
arising from four sources;
2). Reputation; The high level of esteem, the
public have with the firm.
With regard to customers, the reason to
buy the product/service and remain loyal
to the firm.
Competitive Advantage
 Resources Audit
The Distinctive Capabilities/Competencies,
As per Kay(1997) distinctive capabilities are
arising from four sources;
2). Reputation;
With regard to investors, suppliers and
employees, the reason to be involved
and provide exceptional levels of support.
Competitive Advantage
 Resources Audit
The Distinctive Capabilities/Competencies,
As per Kay(1997) distinctive capabilities are
arising from four sources;
2). Reputation;
Kay argues that the reputation must to be
built and maintained over time. The
process requires detailed attention with
reference to firms products, procedures and
processors.
Competitive Advantage
 Resources Audit
The Distinctive Capabilities/Competencies,
As per Kay(1997) distinctive capabilities are
arising from four sources;
3). Innovative ability;
The firms ability to develop new
products/services or solutions.
This capability provides the edge over
competitors and enable the firm to enjoy
high margins.
Competitive Advantage
 Resources Audit
The Distinctive Capabilities/Competencies,
As per Kay(1997) distinctive capabilities are
arising from four sources;
3). Innovative ability;
This capability frequently demands
collaboration among staff, customers
and suppliers.
Basically it builds upon the relationship
architecture of the firm
Competitive Advantage
 Resources Audit
The Distinctive Capabilities/Competencies,
As per Kay(1997) distinctive capabilities are
arising from four sources;
4). Ownership of strategic assets;
This capability is related to the barriers to the
entry.
The firm may have a unique source of
materials or processors or exclusive
legal rights to a market or to an
invention.
Competitive Advantage
 Resources Audit
Distinctive Capabilities/Competencies,
As per Stalk et al,(1992) there are four
principles of capabilities-based competition;
1). Business processors;
The business processors are the building
blocks of strategy, not products or
markets.
Competitive Advantage
 Resources Audit
Distinctive Capabilities/Competencies,
As per Stalk et al,(1992) there are four
principles of capabilities-based competition;
2). Competitive success;
The competitive success depends on firms
ability to transform business processors
into strategic capabilities.
These developed business processors, allows
the firm to provide superior values to
customers.
Competitive Advantage
 Resources Audit
Distinctive Capabilities/Competencies,
As per Stalk et al,(1992) there are four
principles of capabilities-based competition;
3). Group wide investments;
Creating strategic capabilities requires group
wide investments.
These investments will transcend from
traditional functions / business unit
boundaries.
Competitive Advantage
 Resources Audit
Distinctive Capabilities/Competencies,
As per Stalk et al,(1992) there are four
principles of capabilities-based competition;
4). The Champion;
There has to be a dynamic, result oriented
leader to champion the capabilities based
strategy.
He will be the Chief Executive Officer/CEO.
Competitive Advantage
 Resources Audit
Distinctive Capabilities/Competencies,
The Superior competitive performance is based
on competencies to outperform rivals. There
are five dimensions to this;
1). The speed ;
The firms ability to develop and incorporate
new ideas and technologies into its
products/services.
Competitive Advantage
 Resources Audit
Distinctive Capabilities/Competencies,
The Superior competitive performance is based
on competencies to outperform rivals. There
are five dimensions to this;
2). Consistency ;
The firm should consistently satisfy the
customer needs by all of its innovations.
Competitive Advantage
 Resources Audit
Distinctive Capabilities/Competencies,
The Superior competitive performance is based
on competencies to outperform rivals. There
are five dimensions to this;
3). Acuity ;
The firms ability to see its environment
clearly and forecast for the changing
needs.
Competitive Advantage
 Resources Audit
Distinctive Capabilities/Competencies,
The Superior competitive performance is based
on competencies to outperform rivals. There
are five dimensions to this;
4). Agility ;
The firms ability to adapt on many fronts
simultaneously.
Competitive Advantage
 Resources Audit
Distinctive Capabilities/Competencies,
The Superior competitive performance is based
on competencies to outperform rivals. There
are five dimensions to this;
5). Innovativeness ;
The firms ability to generate and combine
business ideas in a novel way.
Competitive Advantage
 Porters’ Value Chain
This is the second model used in internal
analysis.
He argues that an internal position of an
organization can be analyzed by looking at
how various activities of the organization are
performed.
Some activities may add value and some
may not add value in the view of the
customer.
Competitive Advantage
 Porters’ Value Chain
Porter has introduced a Value Chain Model in
order to identify the value creating
activities of a firm.
What are the value creating activities?
These are physically and technologically
distinct activities that an organization
performs. These activities add value to the
final product/service.
Competitive Advantage
 Porters’ Value Chain
The Value Chain Model
This model identifies several value creating
activities.
The related activities are; procure input ,
process the input, add value to the inputs
and generate outputs that is valued by the
customers.
Competitive Advantage
 Porters’ Value Chain Model
Competitive Advantage
 Porters’ Value Chain
The value chain activities can be used to
develop the competitive strategy of an
organization.
The Value chain model can be used to;
• reduce costs, increase margins.
• Improve work activities to obtain
competitive advantage by exploiting
linkages.
Competitive Advantage
 Porters’ Value Chain
Linkages.
Value activities are independent activities
which are connected via linkages.
Due to this connectivity, the performance of
one activity may affect the cost and
effectiveness of another activity.
Example : Better quality production reduces
the need for after sales service.
Competitive Advantage
 Porters’ Value Chain
Linkages.
The IS/IT can identify the importance of value
creating activity linkages and provide
better coordination among them to create
customer value.
The competitors can easily imitate the value
creation activities, but they will not be able
to easily copy the linkages within and in
between value creating activities.
Alternative Approaches to Strategy
Review MCQs
What is not part of Porter’s primary
value creation activities?
a.
b.
c.
d.
Finance
Procurement
Operations
Marketing & Sales
Alternative Approaches to Strategy
Review MCQs
What is not part of Porter’s primary
value creation activities?
a.
b.
c.
d.
Finance
Procurement
Operations
Marketing & Sales
Alternative Approaches to Strategy
Review MCQs
What is not part of Distinctive
capabilities / core competencies?
a.
b.
c.
d.
Competitive architecture
Ownership of strategic assets
Marketing & Sales
Innovative ability
Alternative Approaches to Strategy
Review MCQs
What is not part of Distinctive
capabilities / core competencies?
a.
b.
c.
d.
Competitive architecture
Ownership of strategic assets
Marketing & Sales
Innovative ability
Competitive Advantage
Lecture Summary
We have discussed the
 Resources
 Competencies
 Porter’s Value chain
Competitive Advantage
Management Level – Paper E2
Project and Relationship Management
Lecture - 006
Vidya Rajawasam
ACMA CGMA MBA