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SMMCG6[BS-3]LN5&LN6, 432003 - Coggle Diagram
SMMC
G6
[BS-3]LN5&LN6
Competitive Advantage & Firm Performance
Firm Performance
Driving factor
Industry effects
Perfomance resulting from being in a more/less profitable industry
Company effects
Perfomance resulting from unique attributes of the company
More important effect
E.g: Southwest Airlines
averaged net margins of 5.8%
Competitive Advantage
A firm's ability to produce more efficiently than its competitors, leads to greater profit margins
Competitive Advantage
Cost advantage
Variable costs
Mkt Expenses
Operating Expenses
Differentiation Advantage
Product Differentiation
Service Quality
Brand Reputation
Marketing Advantage
Distribution
Sales effort
Brand awareness
Measuring Better Perfomance
Accounting profits & backward looking
Stock market value
Net present value (NVP) base on free cash flow
Economic value added
Customer surplus + Producer surplus
Sustained competitive advantage
The key and raises two important questions for any analysis of CA
What are the attributes that make firms different in their performance?
How can a company acquire or develop these attributes?
How can these performance advantages be made durable?
How can they be made to last?
Sources of competitive advantage
Micheal Porter
Activities
The difference of the firm
Activities choose to undertake
Executes each activities to effective
Synergies are exploited
Typically quite small
Resources
Tangible
Intangible
Capabilities
Combination of resources and activities to weaves them all together
Value chain
Typical manufacturing firms
Raw materials or components
In-bound logistics and deliver to customers
Marketing and after selling service
Primary activities
Research and development
Human resource management
Procurement
Corporate infrastructure
Support activities
Value network
Service industries
The linkages between activities are identified as a conscious choice
Sustained competitive advantage
Potential challenges
Replication
other firms use different product development processes but achieve similar results
Imitation
other firms will figure out and implement Apple’s product development processes and routines
Internal attributes
To be durable and not degrade or erode
Isolating mechanisms
1.Causal ambiguity
Exactly a company’s performance advantages come from
2.complexity
These elements can be combined in very many different ways,
and success depends on a very precise combination
3.Tacit knowledge
Knowledge that is tacit – as opposed to explicit or codified – is knowledge that cannot be easily explained and transferred to another.
4.Time compression diseconomies
By luring away key resources ＆ resource mobility
5.Property rights
Trademarks that cover its brands and logos, copyrights over software and other creative content, and patents on its various technologies
Resource and Capabilities
Resource
Tangible resource
Financial resource
Physical resource
Intangible resource
Technology
Product innovation, prototypes, and designs
Relationship
Reputation and relationships with customers or the alliances and relationship with suppliers and distributors and the stakeholders
Human capital
Relate not only raw talent and the skills of employees, but also how they are trained, motivated, and organized to perform
Capabilities
Definition
The capacity to perform a particular activity in a reliable and at least minimally satisfactory manner
Three aspects of definition
The capabilities are the capacity of the firm to actually do something
capability must be reliable and the company should be able to repeatedly perform the activity in a consistent way
Having a capability doesn't necessarily assume that the activity will be performed in superlative manner
Example
Apple
Great marketing capability
Deploy and combine resource like its brand and reputation ,talented stores, web developers and viral marketers
capability development
Produce customers-friendly, easy-to-use products and known for introducing cool innovative products
Two criteria
It must create value in the business
It must be rare
Competitive Advantage (Extensive Expertise)
VRI Framework (Prof Jay)
Link between firm resources and its ability
Valuable, Rare and Inimitable
It said few about durability and relevance of the resources of the firm
Strategic management more foucs on isolating mechanisms for sustainability
two solutions for durability challenge
to plug the leaks - resources, activity, system and retain people
try to top up what is being lost
challenge of relevance is the biggest one faced by companies today
problem - existing resources of competitive advantage are not useful in future
problem - core rigidities - no longer valuable
solution- dynamic capabilities
Conclusion
Competitive advantage is important because firm effects are a significant factor in explaining company performance
Three key ways of analyzing resources of competitive advantage
they must be RARE
create economic VALUE
activities, resources and capabilties
Four potential challenges
rarity resources - barriers to imitation and replication
creation economic value- activities, resources and capabilities remain durable and relevant
Christina
Eric
David
Vivane
Loy
