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[BS-3] Internal Analysis and Competitive Advantage, Apple Inc., Potential…
[BS-3] Internal Analysis and Competitive Advantage
Competitive Advantage & Firm Performance
Competitive Advantage
Requirements
Features
distinctive & unique
Ability
intellectual underpinnings
Goal
to outperform its competition
:warning: Quibble
:question:good performance = high performer:question:
Examination
:-1:Stock Market Value
not incorporate tacit internal information
:-1: NPV
such projections represent a scenario for planing purpose
:-1: Accounting Profit
backward-looking, unknown to future performance
:+1: EVA
"crux"
： whether a company has a competitive advantage
over average：competitve advantage
Sustained Competitive Advantage
Heterogeneity
WHAT makes the differences between companies?
HOW can these performance advantage be made durable?
Firm Performance
Two Main Effects
Industry effects
durable features of industry
outperform others within the same industry
:red_flag: Company effects
particular attributes of companies
predict 80% of the explained differences in the firm performance
how are they able to perform better than their competition
3 main conceptual points
The second approach
Resources
what different and specific assets that one firm owns and another one doesn't.
well-known brand name, know-how or real estate?
The first approach
Activities
how firms executes each activities so that it is more or less effective
how the activities are connected and exploited
2 challenges
divide
more manageable and organized
solutions
value chain
2 more items...
value network
2 more items...
relationship
where the synergies are generated and where coordination might be unnecessary
differences between firms is the activities that each firm chooses to undertake
Michael Porter
The third approach
Capabilities
things that are relevant for the company's performance
customer sevice
innovative product design
low cost
example
Sustained Competitive Advantage
Executive Expertise:Competitive Advantage
Competetive Advantages
Constant change and improvement
Sean Chou - Catalytic
Internal metric
competitive field
customers wanted
competitive field & customers wanted
new things and new ideas
people
current status quo
right people & right culture
channel relationships
mingled at first
cooperative at last
Kurt Bock - Country Finantial
changing
program
platform
system
Albert Goldstein - Avant
Brand
provide value
Constantly question
cannibalize yourself
critically challenge every assumption
reality changes quickly
Technology & Analytics
analytical capability
Scale
fairly quickly
VRI framework
(Valuable, rare, inimitable)
Explains the link between a firm's resources or capabilities and its ability to realize a sustained competitive advantage.
Durability
To preserve your resources, maintain your activity system, retain your people.
Relevance
Companies need to be capable of changing sources of competitive advantage through dynamic capabilities.
Resources & Capabilities
Resources
Tangible
Financial
cash
Cash on hand
Borrowing capacity
Physical
Machinery
Buildings
Computing&Telecom equipment
Raw material sources
Retail outlets
Warehouses
Real estate
Inventory
Intangible
Relational
Product reputation
Brand royalty
Customer relationships
Alliances
Suppliers & Distributor relationships
Relationships / Raputation with staleholders
Human Capital
Skills and expertise
Traning
Motivation
Creativity & Adaptability
Commitment
Team cohension
Leadership abilities
Coordination
Technology
Product innovations
Creative products
Prototypes & models
Designs & plans
Knowhow
Production processes
Innovation processes
Software & IT system
Organizational routines & system
relatively more important to company
Matter most
Increase the price-cost wedge
potential to create economic value
"rare" resourse
difficult to own or access exclusively for firms
company competitive advantage
have rival things
Capabilities
the capacity to perform a particular activity in a reliable and at least minimally satisfactory manner
capacity of the frim to actually do something, perform some inportant activity
reliable
repeatedly perform in a consistent way
not necessarily assume activity will be performed in a superlative manner
Example: Apple Incorporated
Entails deploying, combining and linking resources
Results from learning, encoded in organizational routines
Need not a map to a functional area
create competitive advantage
Value criterion
increase EVA(economic value added)
Rarity criterion
not commonly available to increase EVA for other firms
Managerial foresight
Path dependence
History
Luck
Apple Inc.
does specific things
combines in unique ways: steps and its product development process
great technologies
unique human capital
culture
marketing capabilities
Potential Challenges
threats to the rarity
Imitation
Other firms will figure out and implement your product development processes and routines.
Replication
Other firms use different product development processes but achieve similar results.
threat to create value
non durability or non-relevant
It is possible that the environment might change.
Barriers to imitation and replication
Isolating mechanisms
Complexity
Elements can be combined in many different ways, and success depends on a very precise combination of these different elements.
Tacit knowledge
A knowledge that cannot be easily explained and transferred to another.
causal ambiguity
it is unclear where exactly a companies performance advantages come from
Property rights
Property rights or physical resources such as a mining lease or exclusive real estate.
Resource mobility barriers
Luring away key resources to limit the mobility.
:moneybag: Stock
cumulative returns of 4,000% (1990-2014)
2 times the return of S&P 500 index
others：bankruptcy
Case Introduction
Coffee
coffee berries
pulping
covered with parchment
sold
money
less 8 to 10 percent
Variety of coffee
Arabica variety
Robusto variety
Coorg
shade-grown coffee
key factors
growing region
soil
climate
air
care
methods in farming
processing of berries
Starbucks
Seattle in 1987
25000 stores
integral
cafe experience
Example 1：Southwest Airlines
:fire:
:fire:
:fire:
Example 2：
What's important?
outform from their closest competitors
develop and sustain a competitive advantage
CEO-Howard Schultz
:red_flag: align heterogeneity from internal attributes to the external environment
:red_cross: negative margins & struggling
💯 net margins around -1%
G5
Emily
Winnie
Sunny
Stella
Jessica
:flags:
