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Internal Analysis and Competitive Advantage, example, southwest airline…
Internal Analysis
and
Competitive Advantage
ACTIVITIES OF THE FIRMS
Source of Competitive Advantage
Main conceptual views
Activities
typically quite small, easily number in the hundreds or even in the thousands.
exp: inspecting raw material that the supplier site before they ship
Resources
more aggregate concept, numbered in double digits
exp: specific assets, well-known brand name, know-how for improving production processes or real estate and cash.
Capabilities
most aggregate concept numbered in single digit, a combination of a few resources, and a set of activities, things that are relevant for the company's performance that it is very good at doing.
exp: great customer service, or innovative product design or low cost inventory management
Analyzing sources of competitive advantage
Activities
Two challenges:
How to organize a large set of activities into meaningful subsets?
How to illustrate the relationships between these (subsets of) activities?
Two solutions:
Value Chain
Primary activities:
in-bound logistics; Supplier logistics, intermediate production, final production
out-bound logistic; Distribution logistics, marketing and sales, customer service
Support activities:
Procurement, human resources, accounting and finance, information systems, research and development
for manufacturing industry
Value Network
for service industry
Value network is an exercise that's very customized to a company. They are not arranged in any sequential value chain. But all of them are related to each other to a lesser or greater degree.
Two or more networks shouldn't have to look alike, but must be discerned and illustrated by the strategist.
Capabilities
Definition
The capacity to perform a particular activity in a reliable and at least minally satisfactory
Source of Competitive Advantage
Value Criterion
Helps increase economic value added (EVA)
Rarity Criterion
The ability to increase EVA is not commonly available to other firms
Resource
Tangible Resources
Financial
exp : Internally generated cash, Cash on hand, Borrowing capacity
Physical
Exp : Machinery , Buildings , Computing & Telecom equipent, Raw material sources
Intangible Resources
Technology
Exp : Product innovations, Creatie product, Prototypes $ model , Designs & Plans, Knowhow, Porduction processes, innovation processes, Software & IT system, Organizational routines & system
Relational
Product reputation , Brand loyalty , Costumer relationships , Alliances , Supplier & Distributor relationships, Relationships / Repuation with stakeholders
Human Capital
Skills and expertise, Training , Motivation , Creativty & Adaptabilitycommitment , Team cohesion , Leadership abilities , Coordination
Resources Matter Most
Greatest Potential to create economic value
Cometitive Advantage
Bigger role for intangibles Research shows that tangible assets
How do some firsm perform better?
if one company has unique capabilities that other firms don't
sustained competitive advantage
potential challenges
threats to rarity
imitation
other firms figure out and implement your company's product development process and routines
replication
other firms use different product development process but achieve similar result as your company
threats to value creation
non-durability
internal attributes of the firms like activity sets,resources and capabilities not durable and degrade overtime
non-relevance
the changes in environment made the activity sets,resources,and capabilities that once very important are no longer valuable or lose their relevance
barriers to imitation and replication
isolating mechanism
casual ambiguity
it is unclear where exactly a company performance advantage comes from
complexity
success depends on a very precise combination of many different elements
tacit knowledge
knowledge that cannot be easily explained and transferred to another
resource mobility barriers
by luring away key resources limit the resources mobility
property rights
define the theoretical and legal ownership of resources and how they can be used
imitation of value chain/networks
inherently difficult for other firms to replicate because it is difficult to know exactly which activities are used and how they are implemented and combine
V-R-I Framework
explain link between resources and capabilites to its ability to realized a sustained competitive advantage
to enjoy sustained competitive advantage the firms resource or capabilities must be valuable,rare and difficult to imitate
Durability and Relevance
Durability
internal strengths steadily diminish over time
solutions
plug the leaks
preserve resources
maintain activity system
retain people
keep topping up
hire new employee
training and managerial intervention
Relevance
the biggest challenge faced by companies today
the problem
core competencies become core rigidities
solution
companies need to be capable of changing sources of competitive advantage through dynamic capabilities
company perfomance
industry effect
Performance resulting from being in more/less profitable industry
company effect
performance resulting from unique attributes of the company where its often predicting 80% of company performance
inter-firm+ difference are major contributor to performance important to understand source of firm competitive advantage
competitive advantage
firm that perform better than their competitive
how to define competition
rival same industry
industry average competitor
better perfomance
long run profit performance
value added
how to analyses better performance company
accounting profit
ROE return of equity
ROCE return of capital employed
ROA return of asset
market value
stock price
economic value added(EVA)
long run profitability(NPV)
sustain competitive advantage
is one where firm performance advantage, relative to its competition is sustained over time
example
southwest airline even though the industry effect is bad but its doesn't mean that company performance its gonna be negative in the last 2 decade southwest airline have not single of negative income what can we take from here is if industry effect is bad its doesn't mean that the company revenue will be low
"leaky bucket"
by G8 : Stephen Michella Albert Caroline
