CHAPTER (4)

INTERNAL ANALYSIS:
Resources, Capabilities, Competencies &
Competitive Advantage

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 Group (3)
Ma Hnin Thiri Chaw (Roll no. 4)
Ma May Zin Htet (Roll no. 14)
Ma Mya Myin Kyi (Roll no. 25)
Ma May Myo Mon (Roll no. 36)
Ma May Thu Naing (Roll no. 45) { Leader }
Mg Thein Oo (Roll no. 53)
Ma Zin Hnin Phyu (Roll no. 57)
Ma Khine Hnin Hnin Thu (Roll no. 71)
Ma Yin Mar Naing Win (Roll no. 81)
Ma Ei Ei Phyo Zaw (Roll no. 90)

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 Contents

Competitive Advantage

Generic Building Blocks of Competitive Advantage

Business Functions, Value Chain & Value Creation

Distinctive Competencies, Resources & Capabilities

Durability of Competitive Advantage

Why Do Company Fail?

Avoiding Failure & Sustaining Competitive Advantage

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Competitive Advantage

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Competitive Advantage

Competitive Advantage Value Creation

Low Cost

Differentiation

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 Competitive Advantage

If its profit rate is higher than the average for its

industry, it is said that the company has a competitive
advantage.

Two basis conditions determine the company’s profit

rate:

(1) The amount of value customers place on the

company’s goods and services

(2) Company’s cost of production

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 Competitive Advantage (Cont.)
Company charged price must be less than value placed on the
goods and services under competitive pressures.

V> P = consumer surplus

A company can create more value

(1) by lowering C (Low cost)

(2) by making more attractive product through superior

design, functionality and quality (Differentiation)

Consumer place greater value on it (V increases) and

consequently consumer are willing to pay high price (P
increases). 7
 Value Creation

Superior value creation requires that the gap

between V and C should be greater than the gap
attained by competitors. 8
Generic Building Blocks of
Competitive Advantage

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 Generic Building Blocks of
Competitive Advantage

Superior Quality

Competitive
Advantage Superior Customer
Superior Efficiency Responsiveness
- Low Cost
- Differentiation

Superior
Innovation
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 Efficiency
Business - device for transforming inputs into outputs

Inputs - basic factors of production such as labor, land,

capital, management, etc.

Outputs - goods and services that the business produces

Efficiency - the quantity of inputs that it takes to produce a

given output

Efficiency = Outputs/Inputs

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 Efficiency (Cont.)
The more efficient a company, the fewer the inputs required
to produce a given output.

Efficiency helps a company attain a low-cost competitive

advantage.

Most important component - employee productivity (output /

employee)

Highest employee productivity will typically have the lowest

costs of production.

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 Quality
Quality products are goods and services that are reliable in
the sense that they do the job they were designed for and do
it well.

High product quality on competitive advantage is twofold:

First, high-quality products increases the value of those

products in the eyes of consumers.

The company can charge a higher price for its products.

For example, Toyota Vs. General Motors

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 Quality (Cont.)
Second, high quality comes from the greater efficiency and
the lower unit costs it brings.

The company charge higher prices for its product, but also
has lowers costs.

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The Impact of Quality on Profits

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 Innovation

Innovation - anything new or novel about the way a

company operates or the products it produces

Innovation includes products, production processes,

management systems, organizational structures and
strategies developed by a company. (E.g. - Toyota’s lean
production system - pioneer company).

Innovations give a company something unique -

something its competitors lack.
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 Innovation (Cont.)

When competitors succeed in imitating the innovator, the

innovating company had build up such strong brand
loyalty and supporting management processes that its
position proved difficult for imitators to attack.

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 Customer Responsiveness

Customer responsiveness - a better job than competitors

of identifying and satisfying the needs of its customers

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Customer Responsiveness (Cont.)

Sources of Enhanced Customer Responsiveness

Quality

Innovation

Customization

Shorter customer response time

Superior design

Service

After-sale service and support

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Customer Responsiveness (Cont.)

All these factors allow a company to differentiate itself.

Differentiation enables a company to build brand loyalty

and to charge a premium price for its products.

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Impact of Efficiency, Quality, Customer
Responsiveness & Innovation on Unit
Costs & Prices

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Business Functions, Value Chain
&
Value Creation

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 Business Functions

Different business functions of a company in the value

creation process:

production, marketing, R&D, service, information

systems, materials management and human resources.

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 Value Chain

It refers to the idea that a company is a chain of

activities for transforming inputs into outputs that
customers value.

The process of transforming inputs into outputs includes:

(1) Primary activities

(2) Support activities

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 Primary Activities

These activities include doing with the design, creation,

and delivery of the product, its marketing and its support
and after-sale service.

Inputs Marketing Outputs

R&D Production Service
& Sales

Primary Activities

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 Research & Development

It concerns with the design of products and production

processes.

R&D can increase the functionality of products which

makes them more attractive consumers.

As a result, there will become more efficient production

process with lower production costs and value creation.

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 Production

It is concerned with the creation of a good or service.

For physical products, it can be called as manufacturing.

For services, it means delivering to the customers.

The production function of a company creates value by

performing its activities efficiently and lower cost result.

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 Marketing & Sales

For example, Brand Positioning and Advertising

It can increase the value which the consumers perceive

to be contained in a company’s product.

It also create a favorable impression of the company’s

product in the minds of consumers.

By discovering consumer needs and communicating

them back to the R&D function of the company which
can design produce better match those needs, we can
create the value. 28
 Service

The role of service is to provide after-sale service and

support.

It can create a perception of superior value in the minds

of consumers by solving customer problems and
supporting customers after they have purchased the
product.

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 Support Activities
These activities provide inputs that allow the primary
activities to take place.

Material Management
Human Resource Function
Function Support
Activities
Company Infrastructure

Primary Activities
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Material Management Function
/ Logistics
It controls the transmission of physical materials through
the value chain from procurement through production
and into distribution.

The efficient material management function lowers the

cost and creates the value.

Lower materials mean lower costs and greater value

creation.

E.g. Wal-Mart
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 Human Resource Function

The human resource function ensures that the company

has the right mix of skilled people to perform its value
creation activities effectively.

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 Information Systems

These systems refer to electronic systems for managing

inventory, tracking sales, pricing products, selling
products, dealing with customer service inquires.

Information systems hold out the promise of being able

to alter the efficiency and effectiveness with which a
company manages its other value creation activities.

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 Company Infrastructure

It means companywide context within which all the

other value creation activities take place.

Company infrastructure includes the organizational

structure, control systems, and culture of the company.

Strong leadership and top management can continuously

shape a company’s infrastructure and the performance
of all other value creation activities within the company.

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 Cross-functional Goals

Achieving the competitive advantages requires strategies

that embrace several distinct value creation activities.

Cross-functional goals mean goals that cut across the

different value creation functions of a company. It also
requires substantial cross-functional integration.

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Distinctive Competencies,
Resources & Capabilities

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 Distinctive Competencies

Unique strength that allows a company to achieve

superior value and attain a competitive advantage.

product differentiation, cost reduction, value

creation

E.g. Toyota

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The Root of Competitive
Advantage

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Resources

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 Resources (Cont.)

Resources must be both unique and valuable.

A resource is valuable only if it helps create strong

demand for the company’s products.

E.g. Polaroid

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 Capabilities

A company’s skills at coordinating its resources and

putting them to productive use.

Capabilities are the product of its organizational

structure and control systems.

They reside in the way individuals interact, cooperate,

and make decisions within the context of an
organization.

E.g. Nucor
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 A Requirement to get Distinctive
Competencies
(1) A unique and valuable resource and the capabilities
(skills) necessary to exploit that resource.

(2) A unique capability to manage common resources.

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Strategy & Competitive Advantage

A company needs to pursue strategies that

build on its existing resources and capabilities (its

competencies)

build additional resources and capabilities (develop

new competencies)

E.g. Walt Disney & 3M

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 The Relationship between
Strategies and Resources and
Capabilities
Shape

• Functional level
Resources &
• Business level
Capabilities Strategies
• Corporate level
(Competencies)
• International level

Build
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 The Role of Luck

Scholars argued: Luck plays a critical role in determining

competitive success and failure.

This luck argument devalues the importance of planned

strategy.

It states that in coping with uncertainty some companies

just happened to stumble on the correct strategy.

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 The Role of Luck (Cont.)

Otherwise, they just happened to develop or possess the

right kind of resources and capabilities by accident
rather than by design.

From long-term perspective: This luck argument is

unconvincing explanation for the persistent success of a
company.

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 The Role of Luck (Cont.)

In deed, competition is a process in which companies

are continually trying to outdo each other in their ability
to achieve the generic blocks of competitive advantage.

Substantial competitive advantage cannot be driven by

luck but by conscious effort.

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Durability of Competitive
Advantage

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How long will a competitive advantage last
once it has been created?

Barriers to
Imitation

Durability of
Competitive
Advantage

Capability
Industry
of
Dynamism
Competitors

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 Barriers to Imitation

A company with a competitive advantage will earn

higher than average profits.

These profits send a signal to rivals that the company is

in possession of some valuable distinctive competency.

So, competitors can identify and imitate that

competency.

The speed of imitation depends on the durability of a

company’s competitive advantage.
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Barriers to Imitation (Cont.)

So, the critical issue is time.

E.g. China & U.S.

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Barriers to Imitation (Cont.)

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Imitating Resources & Capabilities

Imitating resources is the easiest distinctive

competencies to imitate by depending on possession of
unique and valuable tangible resources.

Resources are visible to competitors and can often be

purchased on the open market.

But, intangible resources can be more difficult to imitate.

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Imitating Resources & Capabilities
(Cont.)
So, patent system should be made for prevention of
imitation.

These capabilities are based on the way decisions are

made and process managed deep within a company.

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 Capability of Competitors

• A company’s commitment to a particular way

of doing business - to developing a particular
set of resources and capabilities.
Strategic • When a company has already had long-
Commitment established commitments to a particular way
of doing business, there may be slow to
imitate an innovating company’s competitive
advantage.

• The ability of an enterprise to identify, value,

Absorptive assimilate and utilize new knowledge.
• To overcome internal inertia

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 Industry Dynamism

A dynamism industry environment is one that is

changing rapidly.

The most dynamic industries to be those with a very

high rate of product innovation.

The rapid rate of innovation means that product life

cycles are shortening.

Competitive advantage can be very transitory (or)

temporary.
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WHY DO COMPANIES FAIL?

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 Why do Companies Fail?

A company can lose its competitive advantage but still

not fail because it can earn average profits.

Three related reasons for failure:

Inertia

Prior Strategic Commitments

The Icarus Paradox

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 Inertia

Companies find it difficult to change their strategies

and structures in order to adapt to changing competitive
conditions.

E.g. IBM

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 Why do companies find it so difficult to
adapt to new environmental conditions?

They are difficult to change because a certain

distribution of power and influence is embedded within
the established decision-making and management
processes of an organization.

It means changing the established decision-making in

the organization means changing its existing distribution
of power and influence would diminish resist such
change.

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 Prior Strategic Commitments

A company’s prior strategic commitments not only limit

it ability to imitate rivals, but may also cause
competitive disadvantage.

E.g. IBM

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 The Icarus Paradox

It is the root of competitive failure.

A company can become so specialized and inner-

directed that it loses sight of market realities and
the fundamental requirements for achieving
competitive advantage.

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 Miller identifies four major
categories among the rising and
falling companies
Pioneers Salesmen
enamored of their own became so convinced of their
originally brilliant innovations ability to sell anything

continued to search for paid low attention to product

additional brilliant innovations development and

ended up producing novel manufacturing excellence

but completely useless spawned a proliferation of

products unattractive, inferior products

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 Miller identifies four major
categories among the rising and
falling companies

Craftsmen Builders
achieved early success built successful

became so obsessed became so enchanted with

lost sight of market realities diversification for it own sake

Continued to diversify far

beyond the point at which it
was profitable to do so

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Avoiding Failure & Sustaining
Competitive Advantage

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 Avoiding Failure & Sustaining
Competitive Advantage
Focus on the Building Blocks of Competitive Advantage

Institute Continuous Improvement and Learning

Track Best Industrial Practice and Use Benchmarking

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Focus on the Building Blocks of
Competitive Advantage
Continue focusing on the four generic building blocks of
competitive advantage:

(1) Efficiency

(2) Quality

(3) Innovation

(4) Customer responsiveness

Develop distinctive competencies that contribute to

superior performance in these areas.
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Institute Continuous Improvement
& Learning
Today’s source of competitive advantage may soon be
rapidly imitated by capable competitors, or it may be
made obsolete by the innovations of a rival.

A company can maintain a competitive advantage over

time is to continually improve its efficiency, quality,
innovation, and customer responsiveness.

The way to do so is recognize the important of learning

within the organization.

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Institute Continuous Improvement
& Learning (Cont.)
They are constantly upgrading the value of their
distinctive competencies or creating new competencies.

The objective is to learn from prior mistakes and to seek

our ways to improve their processes over time.

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Track Best Industrial Practice &
Use Benchmarking
One of the best ways to develop distinctive
competencies is to identify best industrial practice and to
adopt it.

Benchmarking is the process of measuring the company

against the products, practices, and services of some of
its most efficient global competitors.

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 Overcome Inertia

A further reason for failure is an inability to adapt to

changing conditions because of organizational inertia.

Overcoming the barriers to change within an

organization is one of the key requirements for
maintaining a competitive advantage.

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