1. Week 4 : Sustainable Competitive Advantage
Saib Dianati
BUSN9229

2. Sustainable Competitive Advantage
Achieving Sustainable Strategic Competitive Advantage
Firms achieve strategic competitiveness and earn above-average returns when their core competencies are effectively
Acquired (S)
Bundled (S)
Leveraged (S)
Over time, the benefits of any value-creating strategy can be duplicated by competitors

3. Key to Sustainable Competitive Advantage: Internal Environment
Examine unique resources, capabilities, and competencies: S and W (sustainable competitive advantage)
Examine opportunities and threats

4. The Context of Internal Analysis
Effective analysis of a firm’s internal environment (learning what the firm can do ) requires:
Fostering an organizational setting in which experimentation and learning are expected and promoted
Using a global mind-set
Thinking of the firm as a bundle of heterogeneous resources and capabilities that can be used to create an exclusive market position

5. Components of Internal Analysis

6. Creating Value A product’s performance characteristics (S)
By exploiting their core competencies or competitive advantages, firms create value
Value is measured by
A product’s performance characteristics (S)
The product’s attributes for which customers are willing to pay (S)
Firms create value by innovatively bundling and leveraging their resources and capabilities

7. Creating Competitive Advantage
Core competencies, in combination with product-market positions, are the firm’s most important sources of competitive advantage
Core competencies of a firm, in addition to its analysis of its general, industry, and competitor environments, should drive its selection of strategies

8. The Challenge of Internal Analysis
To develop and use core competencies, managers must have (S)
Courage
Self-confidence
Integrity
The capacity to deal with uncertainty and complexity
A willingness to hold people (and themselves) accountable for their work

9. Resources, Capabilities and Core Competencies
Resources (S)
Are the source of a firm’s capabilities
Are broad in scope
Cover a spectrum of individual, social and organizational phenomena
Alone, do not yield a competitive advantage

10. Resources, Capabilities and Core Competencies
Resources (S)
Are a firm’s assets, including people and the value of its brand name
Represent inputs into a firm’s production process, such as:
Capital equipment
Skills of employees
Brand names
Financial resources
Talented managers

11. Resources Tangible resources Intangible resources Financial resources
Physical resources
Technological resources
Organizational resources
Intangible resources
Human resources
innovation resources
Reputation resources

12. Tangible Resources (S)
Financial Resources • The firm’s borrowing capacity • The firm’s ability to generate internal funds
Organizational Resources • The firm’s formal reporting structure and its formal planning, controlling, and coordinating systems
Physical Resources • Sophistication and location of a firm’s plant and equipment • Access to raw materials
Technological Resources • Stock of technology, such as patents, trade-marks, copyrights, and trade secrets

13. Intangible Resources (S)
Human Resources • Knowledge
• Trust
• Managerial capabilities
• Organizational routines
Innovation Resources • Ideas
• Scientific capabilities
• Capacity to innovate
Reputational Resources • Reputation with customers
• Brand name
• Perceptions of product quality, durability, and reliability
• Reputation with suppliers
• For efficient, effective, supportive, and mutually beneficial interactions and relationships

14. Capabilities (S)
Are the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state
Emerge over time through complex interactions among tangible and intangible resources
Often are based on developing, carrying and exchanging information and knowledge through the firm’s human capital

15. Capabilities (S) The foundation of many capabilities lies in:
The unique skills and knowledge of a firm’s employees
The functional expertise of those employees
Capabilities are often developed in specific functional areas or as part of a functional area

16. Examples of Capabilities

17. Core Competencies
Core Competencies
Resources and capabilities that serve as a source of a firm’s competitive advantage:
Distinguish a company competitively and reflect its personality
Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities

18. Core Competencies
Core Competencies
Activities that a firm performs especially well compared to competitors
Activities through which the firm adds unique value to its goods or services over a long period of time

19. Four Criteria of Sustainable Competitive Advantage
Four Criteria of Sustainable Competitive (S) Advantage1
Valuable
Rare
Costly to imitate
Non-substitutable

20. Four Criteria of Sustainable Competitive Advantage
Valuable Capabilities • Help a firm neutralise threats or exploit opportunities
Rare Capabilities • Are not possessed by many others
Costly-to-Imitate Capabilities
Historical: A unique and a valuable organizational culture or brand name • Ambiguous cause: The causes and uses of a competence are unclear
• Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers
Nonsubstitutable Capabilities • No strategic equivalent

21. Building Sustainable Competitive Advantage
Valuable capabilities
Help a firm neutralize threats or exploit opportunities
Rare capabilities
Are not possessed by many others

22. Building Sustainable Competitive Advantage
Costly-to-Imitate Capabilities (S)
Historical
A unique and a valuable organizational culture or brand name
Ambiguous cause
The causes and uses of a competence are unclear
Social complexity
Interpersonal relationships, trust, and friendship among managers, suppliers, and customers

23. Building Sustainable Competitive Advantage
Non-substitutable Capabilities
No strategic equivalent

24. Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage

25. Internal and external environment effects on SCA
Factors that have a positive effect on SCA:
Organisational culture
Differentiation strategy
Internet retailing
Marketing programs
Speed of designing developing and producing new products

26. Impact of SWOT in achieving CSA
Test the relationship between SW and competitive advantage
Test the relationship between OT and competitive advantage
Strong correlation between competitive advantage and SWOT analysis.
Significant factors for CSA were: time, speed, quality and flexibility.
Specific Factors: Other regions/countries; mergers and acquisitions; cost strategies in interest and loan issues

27. Strength and Opportunity to help identify : Sustainable competitive advantage
Strengths:
Many diverse product lines: Attributes; durability reliability: costly to imitate &nonsubstitute
Broad market coverage: Valuable
Manufacturing competence: capital equipment: physical resources: costly to imitate
Good marketing skills: knowledge valuable and rare
R&D skills: technical resources: valuable and rare, unique
IS skills high level: Technological resources: valuable and rare, unique
Human resource competencies: employee skills, unique
Brand name reputation: brand name: reputation resources: valuable & rare
High level Management skills: Courage, integrity: Talented and capable: valuable, unique
Good financial management: financial resources: valuable
Others?

28. Strength and Opportunity to identify : Sustainable competitive advantage
Opportunities:
Expand core business: Valuable: costly to imitate
Exploit new market segments Valuable
Widen product range: costly to imitate; Valuable
Expand into foreign markets: Valuable
Apply R&D in new areas: Costly to imitate; rare
Make profitable new acquisitions’: Valuable;
Seek fast market growth: Valuable
Expand product line: Valuable
Serve additional customer groups: Valuable
Diversify into related products: Valuable
Find markets with faster growth: Valuable

29. Weaknesses and Threats to identify : Sustainable competitive advantage
Obsolete narrow product line
Rising manufacturing costs
Decline in R&D innovations
Poor marketing plan
Poor materials management
Loss of customer goodwill
Inadequate IS
Inadequate Human resources
Loss of brand name
Growth without direction
Bad management
Infighting among divisions
poor organisational structure
Poor financial management

30. Weaknesses and Threats to identify : Sustainable competitive advantage
Attacks on core business
Increase in competition
Change in consumer taste
Fall in barriers to entry
Rise in substitutes
Increase industry rivalry
Potential for takeover
Changes in demographic factors
Changes in economic factors
Downturn in economy
Rising labor costs
Slower market growth

31. In Sum Components of internal analysis:
To establish Sustainable Competitive Advantage
Use the Four Criteria of Sustainable Advantage:
Valuable
Rare
Costly to imitate
Non substitutable
& Link these to the SWOT: Focus on the S & O

32. Reference List
1.Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2004). Strategic Management: Competitiveness and Globalization: Chapter three: The internal environment, Cengage South-Western.