1. Competitive Advantage I: Basic Concepts

2. Strategic Model of Economic Success
Market
Attractiveness
Relative
Position
Sustainable
Advantage
Activities /
Value Chain
Drivers }
Resources &
Capabilities

3. Profitability Differences Between Industries

4. Profitability Differences within Industries

5. What makes an advantage sustainable?
DeHavilland
EMI
Xerox
Ampex
RC Cola
Bowmar
Raytheon
Boeing GE
IBM
Matsushita
Coca Cola
Texas Instruments
Samsung

6. Organizational capital
Resources
Physical capital
Human capital
Organizational capital
Physical capital = plant & equuipment, geographic location, access to raw materials, etc.
examples??
Human cap= training, experience, judgment, intelligence, relationships, and insight of people in the firm.
Org capital = structure, org, informal planning & coordination -- KEYWORD CAPABILITIES
Where does reputation, etc. fit in?

7. Framework for Analyzing Resources and Capabilities
1. Identify resources and capabilities.
Value Chain Analysis
Appraise strengths and weaknesses
2. Appraise the rent-earning potential of resources/capabilities
3. Select strategy
4. Identify gaps in resources and capabilities that need to be filled

8. VRIO Framework for Analysis
The Question of Value: Do a firm’s resources and capabilities enable the firm to respond to environmental threats and responsibilities?
The Question of Rareness: How may competing firms already possess particular valuable resources and capabilities?
The Question of Imitability: Do firms without a resource or capability face a cost disadvantage in obtaining it compared to firms that already possess it?
The Question of Organization: Is a firm organized to exploit the full competitive potential of its resources and capabilities?

10. The Challenge of Imitation
Identification difficulties
Unknown recipes
Time lags
Identification Difficulties = links between advantages and underlying resources is not clear (e.g. movies)
Unknown recipes = know the resources but can’t imitate them because they are complex, difficult to imitate(e.g. culture - WalMart, Southwest Airlines)
Time Lags -- first mover advantages -- examples ??

11. The Challenge of Imitation
Cannot be imitated
Patents
Unique locations
Difficult to imitate
Brand loyalty
Employee commitment
Reputation
Can be imitated - but may not be
Capacity pre-emption
Economies of scale
Easy to imitate
Cash
Commodities

12. Generic Strategies
Source of Advantage
Competitive
Scope

13. Types of Advantage Cost Differentiation Innovation Quality
Customer Service/Responsiveness
What resources contribute to what advantages?

14. Typical Resource Profiles
Cost Leaders
Differentiators
Scale efficient plants
Process design
Tight cost control
Structured organization and reporting system
Clear, quantitative targets
Marketing ability
Product development
Creativity
Research capability
Strong, interfunctional coordination
Qualitative measures /incentives

15. Diversification: The Basic Issues
Is the market to be entered more attractive than the organization’s existing markets?
Can the organization establish a competitive advantage within the market to be entered?

16. Motives for Diversification
Growth
Risk Spreading
Profit

17. Diversification: Three Tests
Attractiveness Test
Cost of Entry Test
Better-off Test

18. Using Diversification to Exploit Resources
Core Competences
Hot Dog Stand Analogy