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[BS-3] Internal Analysis and Competitive Advantage, Group2 Team members…
[BS-3] Internal Analysis and
Competitive Advantage
Module 3 Overview Lecture
Strategy Fit
Internal Analysis
External Envoronment
Competitive Advantage
Three main topics
Competitive Advantage
Firm effects in performance
Intellectual underpinnings in the heterogeneity
Sustained Competitive Advantage
Inimitability and Immobility
Durability and Relevance
Sources of Competitive Advantage
Activities, Resources, Capabilities, Value chains and Value networks
Example: STARBUCKS
3-1.1 Competitive Advantage & Firm Performance
Company Performance
Industry effects
Performance resulting from being in a more/less profitable industry
Company effects
predicting nearly 80% of the explained differences in firm performance
Performance resulting from unique attributes of the company
Some companies outperform others in the same industry
Ex. Southwest Airlines
Stock cumulative return of 4,000% between 1990 and 2014
Averaged net margins of 5.8%
Examples of high performance firms
Competitive Advantage
Definition
Competition
Industry average competitor
Some competitors in the same group of industries
“Better performance”
Long run profit performance
Economic value added
Competitive advantage
A company perform better than its competition
“Better” performance - Measurement methods
Compare accounting profits
ROA, ROE, ROCE
Collect accounting data regularly
Performance data tend to be backward-looking
Cannot fully explain current competitive advantage
Cannot fully bring better performance in the future
Stock market value
Stock price x No. Shares
Company actually operates
Might not contain hidden internal information
Subject to irrational swings
Long run profitability (NPV)
Project company future free cash flows or cash profits
Economic Value Added (EVA)
competitive advantage
Companies with EVA greater than their industry average
The difference between the value generated by the average customer and the cost generated by the company
Difficult to accurately determine the value of products created by consumers
Sustained Competitive Advantagei
Understand the company's internal attributes
How differences help them develop a competitive advantage
Understand the differences between companies in the industry
Understand the meaning of competitive advantage and sustained competitive advantage
3-2.1 Activities of the Firm
SOURCES OF COMPETITIVE ADVANTAGE
Resources
One firm owns and another one doesn't
Know how for improving production processes
Capabilities
The company's performance that it is very good at doing
If a company has unique capabilities that other firms don't, then this will set it apart from its competitors
Activities
The focus of analysis
What differentiates one firm from another then is the set of activities that it chooses to undertake or not to undertake
How it executes each activities so that it is more or less effective
How the activities are linked up and their synergies are exploited
Summary
Capability may result from a combination of a few resources, and a set of activities or processes that weaves them all together
Example:good soccer teams
Resources
A great manager or a set of star players
The fanbase and reputation and brand of the team
Capabilities
The success of FC Barcelona and even the Spanish national team
Keep possession of the ball and move it around quickly using the tiki-taka style of play
Other teams
Absorb pressure in defense
Mount fast counter-attacks
Look to good coaching and management
Activities
Pass the ball accurately
Good at getting free and open space for a pass
Dribble the ball well
Team players aren't too selfish with the ball
Summary
Capabilities are essentially aggregations of a set of resources and activities
Capabilities:Tiki-taka
Activities
Quick passing, effective communication, lots of practice
Resources
Talented players and knowledgeable coaches
Activities within Companies
Activities
Two challenges
Organize activities into meaningful subsets
value chain
The full range of activities needed to create a product or service
Typical manufacturing firms
2 more items...
value network
Draw connections between the sets of activities
Service industries
Difference between value chain and value network
Value chain approach is unclear about the relationships among the various support activities, and between those activities and the primary activities
Value network is less generic in the sub categories of activities used and how they are connected with each other
Building a value network is very customized to a company
A value network must be discerned and illustrated the categories of activities and their relationships by the strategist
Let these interactivity relationships become quite clear and explicit
illustrate the relationships between activities
Starbucks Case
The business of coffee
Environment
Shade-grown
Preserves the habitat and wild animals
In developing countries
Method to process coffee
Wet pulping
Parchment
Dry in the sun
Dried berries
Affect coffee quality
Growing region
variety
Arabica
Robusto
Processing of berries
Roasted method
Skills and equipment
Profit
Less than 8 to 10 percent of the retail price goes to the grower
The internal details of Starbucks
Key issues
What internal features or strengths is Starbucks competitive advantage built
Key for Starbucks to sustain its competitive advantages
Human resource policies
Prevent the company's best talent job-hopping
The complexity of the company's entire operation
Makes it difficult for others to replicate.
Resources and capabilities
Expertise
Roasting technology
Coffee sourcing capabilities
Brand name
Management of the company's human capital
Constantly innovating and adapting
Value chain.
From sourcing beans to making coffee
Customer experience
As a third place besides work and home
What will ensure that Starbucks' competitive advantage will be sustained in the long run
Competitive Advantage
Long-run competitive advantage come from people
Relative to the roles that our channel
Coopetition :arrow_right: Cooperation
Division of labor
Keep doing so much to improve
:red_cross: We're number one
Having the right people and culture
Building sustainable competitive advantage
Brand can be it over long periods
The key to sustaining competitive advantage is innovation, constant change and improvement
Constantly question every decision every known answer
Willing to critically challenge every assumption
3-3.1 Sustained Competitive Adventage
four potencial challenges
replication
threats to the rarity of the firms internal attribute
non-durability
imitation
non-relevant
threats to the firm's ability to continue to produce economic value added
how to sustain
require internal attributes
resources
durable,neither degrade nor erode over time
capabilities
activities sets
the ways to prevent imitation and replication
isolating mechanisms
resource mobility barriers
resources that have agency and can choose where they want to be
complexity
success depends on a precise combination of different elements
small mistakes in the combinations can have major consequences.
property rights
a good way to be seen as an effective barrier to imitation and replication
casual ambiguity
unclear where exactly a companies performance advantages come from
tacit knowledge
a knowledge that cannot be easily explained and transferred to another
a literature about resource analysis
resource-based view(RBV)
VRI framework
analyzing competitive advantage
explains the link between a firm's resources or capabilities and its ability to realize a sustained competitive advantage
whether the resource or capability is
valuable
rare
inimitible
devided into three categories
temporary competitive advantage
V+R
sustained competitive advantage
V+R+I
competitive parity
V
to ensure the durability and relevance
durability
leaky bucket
a metaphor of durability
bucket
company
water
its sources of competitive advantage
constantly faces the prospect of losing water
To any company, it faces the prospect that it's internal strengths may steadily diminish over time.
two solutions to this threat
attempt to plug the leaks
preserve resources
maintain activity system
retain people
new hires can replace lost talent
try to continuously top up and add to the bucket to replace what is being lost
training and managerial intervention can strengthen the firm's activity systems and capabilities
relevance
be capable of changing their sources of competitive advantage through so-called dynamic capabilities
Group2
Team members
李咨頤 Dorothy
廖柔嘉 Judy
楊怡雯 Wendy
Leader/陳仟容 Karen
周芷萱 Susan
阮皓瑄 Nancy
陳睿瑩 Irene
3-2.2Resources and Capabilities
resources
tangible
financial resources
cash
borrowing capacity
physical resources
buildings
machinery
real estate
intangible
technology
relationship
human capital
capabilities
the capacity of the firm
should be repeatedly perform that activity in a consistent way.
note that having a capability doesn't necessarily assume that the activity will be performed in a superlative manne
