1. Building Competitive Advantage
Chapter 4
Building Competitive Advantage

2. The Value Chain
Idea that a company is a chain of activities for transforming inputs into outputs that customers value
Consists of primary and support activities

3. Figure 4.5: The Value Chain

4. Another Illustration of the Value Chain
Support Activities
Material Management (logistics)
Human Resources
Information Systems
Company Infrastructure
Primary Activities
Research and Development
Production
Marketing and Sales
Customer Service

5. The Value Chain Exhibit 3.6
Source: M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, Used with permission of The Free Press, a division of Simon & Schuster, Inc. © 1985, 1988 by Michael E. Porter. All rights reserved.
Exhibit 3.6

6. The Value Network Exhibit 3.7
Source: M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, Used with permission of The Free Press, a division of Simon & Schuster Inc. © 1985, 1988 by Michael E. Porter. All rights reserved.
Exhibit 3.7

7. Functional Level Strategies
Managers pursue improvement in business functions by:
Increasing efficiency
Increasing quality
Increasing innovation
Achieving superior customer responsiveness

8. Functional Level Strategies (Cont’d)
Increasing efficiency
R&D efficiency
Production efficiency (economies of scale, lean production, marketing efficiency, customer defection rate, material management, human resources strategy- self managing teams, information systems)
See the next slide

10. Functional Level Strategies (Cont’d)
Increasing quality
TQM and six sigma approach
Requires mgt commitment
Employees (black belt)
Quality improvement methodologies to detect flaws
Developing a metric to measure quality
Employee participation in quality improvement
Suppliers quality perspective
Organization-wide approach of quality approach

11. Functional Level Strategies (Cont’d)
Increasing innovation
Innovation and failures
How to overcome failures?
Product development based on customer needs
Development costs are kept in check
Time to market is minimized
Availing the services of heavy weight managers

12. Functional Level Strategies (Cont’d)
Increasing customer responsiveness
Customer focus approach
Wal-mart, four season hotel
Satisfying customer needs
Customization

13. Distinctive Competencies
A unique firm-specific strength that allows a company to better differentiate or achieve lower cost than rivals
Arise from Resources and Capabilities

14. Resources
Financial, physical, social or human, technological, and organizational factors that create value to customers.
Can be Tangible or Intangible
Example:
Tangible = land, building, equipment
Intangible = brand names, reputations

15. Capabilities
A company’s skills at coordinating its resources and putting them into productive use.
Capacities are needed to utilize resources

16. Durability
When a company has superior profitability, other companies are inclined to imitate the successful strategy.
Durability of competitive advantage depends on the ease or difficulty to copy distinctive competencies.
Barriers of Imitation are the factors that make copying difficult for competitors.
Even if a company’s distinctive competencies are protected by higher barriers to imitation, it should act as if rivals are continually trying to nullify its source of advantage

17. Resource-Based View of Competitive Advantage
Suggests that competitive advantage is attained through firm resources that are:
Valuable - they enable a firm to implement strategies that improve its efficiency and effectiveness
Rare - not available to other competitors
Imperfectly imitable - not easily implemented by others
Non-substitutable - not able to be replaced by some other non-rare resource
Source: Barney, Jay B. (1991), "Firm Resources and Sustained Competitive
Advantage". Journal of Management, Vol. 17, No. 1, pp

18. Figure 4.6: Strategy, Resources, Capabilities, and Competencies