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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