1. 1 Internal Analysis: Resources, Capabilities, Competencies, and Competitive Advantage

2. 2 What is a competitive advantage?  Competitive advantage is a firm’s ability to outperform its competitors (earn higher profits or ROIC).  The source of competitive advantage is value creation for customers.  Sustained competitive advantage comes from maintaining higher profits than competitors over long periods of time.

3. 3 Return on Capital for Selected U.S. Department Stores, 1996-2001

4. 4 Value Creation

5. 5 Generic Building Blocks of Competitive Advantage

6. 6 The Impact on Unit Costs & Prices

7. 7 The Value Chain

8. 8 Distinctive Competencies, Resources, and Capabilities  The roots of competitive advantage:

9. 9 Strategic Resources and Capabilities  Tangible Land Buildings Plant Equipment  Intangible Brand names Reputation Patents Technological or marketing know- how  Capabilities are the way resources are used.

10. 10 Distinctive Competencies  A bundle of skills and technologies for effectively coordinating and managing resources for productive use. Unique resources and capabilities, or Common resources and unique capabilities.  If a firm has firm-specific and valuable resources it must also have the capability to use them effectively to create a distinctive competency  A firm can also create a distinctive competency without firm-specific and valuable resources if it has unique capabilities

11. 11 Key points about distinctive or core competencies  A bundle or collective set, not merely a single or individual skills  Built up based on various stages of learning  Normally, a company has a limited number of core competencies  A core competence can be used in different markets  The contribution to customer benefit is disproportionate.  They are dynamic & future oriented.

12. 12 Example of core competencies Core competency  Sony: Miniaturisation  Wal Mart: Logistics  Federal Express: Call handling/tracking  EDS: Systems integration  Honda: engine technology Customer benefit  Pocketability  Choice, availability etc  On-time delivery  Seamless information flow  Reliability etc.

13. 13 Strategy and Competitive Advantage  The relationship between strategies and resources and capabilities:

14. 14 The Durability of Competitive Advantage  Barriers to imitation Almost any competence can be duplicated Speed of imitation by competitors is the key factor in reducing advantage Imitation by acquiring similar resources Imitation of capabilities and intangibles is more difficult  Limits on competitors Prior strategic commitments Absorptive capacity for change Causal ambiguity  Industry dynamism Rapid innovation shortens product life cycles.

15. 15 Why Do Companies Do Poorly?  Competitive Disadvantage Inertia The Icarus paradox Lock-in/lock-out Bad luck  Avoiding failure and sustaining competitive advantage: Focus on the building blocks of competitive advantage. Institute continuous improvement and learning. Track best industrial practice and use benchmarking. Overcome inertia.

16. 16 Strategic Factor Markets  Value creation is not possible without ex ante limits to competition  Resources or capabilities can only be acquired through A) Superior information B) Luck, or both.  To sustain value, resources must be difficult to copy AND immobile  According to Lewin & Phelan, all value arises from scarcity.

17. 17 Exercise  Break into groups of 3-5. Analyze the position of the UNLV College of Business in the market for business education Does your B-school have a competitive advantage? If so, on what is it based and how sustainable is it? If not, what are the inhibiting factors? How might the internet change things? Is the internet an opportunity or threat for UNLV?

18. 18 Closing Case  Cisco systems What is their competitive advantage? How did the implementation of e-business infrastructure help to create value? How secure is Cisco’s competitive advantage? Was Cisco more or less profitable than its rivals during the tech slump?