Sustaining Superior

Performance:
Commitment & Capabilities

Section 2 Group 1
Abhilash Dutta FT172001
Abhishek Singh Rana
FT172002
Alok Pathak FT172009
Ankur Rao FT172016
Bhanu Prashast FT172024
Harshit Sodhani
FT172031
COMPETITIVE ADVANTAGE
Competitive advantage refers to
opening up the widest possible gap
between the benefits delivered to
customers and the costs incurred by the
organization.
A competitive advantage is generally
necessary for sustained superior
performance however it is far from
sufficient.
PIMS database - ROI over ten years
1971-80
692 business units top ROI 39% bottom
Section 2 - Group 1
THREATS TO SUSTAINABILITY
A superior product market position is likely to yield sustained
superior performance if it satisfies two conditions:
1. Scarcity
Example : Air Vs Diamond
. Breathable air is available in such abundant quantities.
. Gem-quality diamonds are much scarcer.
. This implied difference in scarcity values accounts for most of the
sustained difference.
Threats : Imitation & Substitution

2. Appropriability
. Appropriabilityis the capacity of the firm to retain the added value
it creates for its own benefit.
Threats : Holdup & Slack

Section 2 - Group 1
THREAT OF IMITATION
Imitation is the most direct and obvious threat to sustainability.
Imitation is endemic.
Patenting usually fails to deter imitation
Imitation tends to cost a third less than innovation and tends to be
a third quicker.
Summary
Imitation is a serious threat to sustainability
Figure out which players will be most affected by the
organizations strategic choice
Assess their likely responses and, to the extent that those
responses appear threatening.
When the number of competitors to be considered is larger, or
when the analysis focuses on the long run :
Impediment to imitation can be early mover advantage
First mover advantage may be beneficial but also risky

Section 2 - Group 1
Five Principles of Early Mover
Advantage
1. Private information
Better information kept private.
Imitation is inhibited as it is costly for would-be imitators to tap into it
2. Size Economies
Advantage of being large.
1.Scale Economies : Advantages of being large in a particular business at
a particular point in time.
2.Learning Economies : Advantages of being large in a particular
business over time.
3.Scope Economies : Advantages of being large across interrelated
businesses.
.Would-be imitator's fear that if it tried to match the early mover's size,
supply might exceed demand by enough to make it rue the effort.

3. Enforceable Contracts/Relationships
.Early movers may be able to enter contracts or establish or relationships
on better terms.
Section
.Competitors may desist from 2imitation
- Group 1as they are at disadvantage
THREAT OF SUBSTITUTION
Change in customer preferences may erode established customer
bases.
Substitution is less direct a threat to scarcity value.
1. Substitution threats are less likely to be confined to direct
competitors.
2.Successful substitution involves finding a way around scarcity, it
is an indirect attack .
. Substitution is a bigger threat then scarcity since it is often
overlooked by companies.
. Substitution depends on the mismatch between established
positions and market opportunities to override early mover
advantage.
. Substitution threats are likely to be most frequent in technology-
intensive, fashion-intensive and other creative industries.
Examples: MainframeSection
Computer Industry
2 - Group 1 , PBX industry etc.
THREAT OF HOLD UP
Holdup is a problem in negotiation rather than competition,
conventionally defined.
Superior competitive position depends on the continued
cooperation of complementors.
Example: NFL survived substitutes like WFL USFL.
1. NFL evolved practices to thwart holdup by the players
2. Players were signed for multiyear contracts
3. Rights to draft rookies
4. Restrictions on free agency
5. Revenue sharing among owners prevented bidding wars
6. Players formed the NFL players association
7. Owners could not thwart holdup and player salaries climbed
170%
8. Players share of revenue jumped
Section from1 35% to 55%
2 - Group
THREAT OF SLACK
Slack measures the extent to which the scarcity value realized by the
organization falls short of its potential .
Holdup concerns portion of pie to owners and non-owners.
Slack affects the total size of pie available to owners and non-owners.
Slacks stems from organizational problems
Example: Xerox- slack represented 20% of the companies sales
revenues
1. The ratio of shareholder enrichment R/E over the 70s and early 80s
was -220%.
. Reasons for slack buildup :
1. High innovation intensity hard to monitor
2. Incomplete information to monitor
3. Growth of employees
4. How to manage
5. Information, aligning goals of 2
Section employees
- Group 1with companies and moral
BUILDING SUSTAINABLE COMPETITIVE
ADVANTAGE
Two ways to build sustainable advantages:
1. Resource Commitment (Measured by degree of
Irreversibility)
Economic indicators of irreversibility: Significant Sunk Costs,
Opportunity Costs and Time Lags.
Sunk costs create irreversibility through lock-in.
Opportunity costs create irreversibility through lock-out.
Altering a firms endowment of resources.
2. Capability development
To reflect on what organizations do.
Activities the organization can undertake within some predictable
proficiency.
Differences in proficiency across companies in the same industry.
Section 2 - Group 1
Section 2 - Group 1