1. CHAPTER (4)
INTERNAL ANALYSIS:
Resources, Capabilities, Competencies &
Competitive Advantage
1

2. 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)
2

3. 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
3

4. Competitive Advantage
4

5. Competitive Advantage
CompetitiveAdvantage Value Creation
Low Cost
Differentiation
5

6. 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
6

7. 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

8. Value Creation
Superior value creation requires that the gap
between V and C should be greater than the gap
attained by competitors. 8

9. Generic Building Blocks of
Competitive Advantage
9

10. Generic Building Blocks of
Competitive Advantage
Superior Quality
Competitive
Advantage
- Low Cost
- Differentiation
Superior Efficiency
Superior Customer
Responsiveness
Superior
Innovation
10

11. 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
11

12. 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.
12

13. 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
13

14. 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.
14

15. The Impact of Quality on Profits
15

16. 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.
16

17. 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.
17

18. Customer Responsiveness
Customer responsiveness - a better job than competitors
of identifying and satisfying the needs of its customers
18

19. Customer Responsiveness (Cont.)
Sources of Enhanced Customer Responsiveness
Quality
Innovation
Customization
Shorter customer response time
Superior design
Service
After-sale service and support
19

20. 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.
20

21. Impact of Efficiency, Quality, Customer
Responsiveness & Innovation on Unit
Costs & Prices
21

22. Business Functions, Value Chain
&
Value Creation
22

23. 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.
23

24. 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
24

25. Primary Activities
These activities include doing with the design, creation,
and delivery of the product, its marketing and its support
and after-sale service.
R&D Production
Marketing
& Sales
ServiceInputs Outputs
Primary Activities
25

26. 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.
26

27. 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.
27

28. 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

29. 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.
29

30. Support Activities
These activities provide inputs that allow the primary
activities to take place.
Material Management
Function
Human Resource Function
Company Infrastructure
Primary Activities
Support
Activities
30

31. 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
31

32. 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.
32

33. 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.
33

34. 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.
34

35. 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.
35

36. Distinctive Competencies,
Resources & Capabilities
36

37. 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
37

38. The Root of Competitive
Advantage
38

39. Resources
39

40. 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
40

41. 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
41

42. 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.
42

43. 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
43

44. The Relationship between
Strategies and Resources and
Capabilities
• Functional level
• Business level
• Corporate level
• International level
Resources &
Capabilities
(Competencies)
Strategies
Shape
Build
44

45. 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.
45

46. 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.
46

47. 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.
47

48. Durability of Competitive
Advantage
48

49. How long will a competitive advantage last
once it has been created?
Durability of
Competitive
Advantage
Barriers to
Imitation
Capability
of
Competitors
Industry
Dynamism
49

50. 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.
50

51. Barriers to Imitation (Cont.)
So, the critical issue is time.
E.g. China & U.S.
51

52. Barriers to Imitation (Cont.)
52

53. 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.
53

54. 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.
54

55. Capability of Competitors
• A company’s commitment to a particular way
of doing business - to developing a particular
set of resources and capabilities.
• When a company has already had long-
established commitments to a particular way
of doing business, there may be slow to
imitate an innovating company’s competitive
advantage.
Strategic
Commitment
• The ability of an enterprise to identify, value,
assimilate and utilize new knowledge.
• To overcome internal inertia
Absorptive
55

56. 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.
56

57. WHY DO COMPANIES FAIL?
57

58. 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
58

59. Inertia
Companies find it difficult to change their strategies
and structures in order to adapt to changing competitive
conditions.
E.g. IBM
59

60. 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.
60

61. 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
61

62. 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.
62

63. Miller identifies four major
categories among the rising and
falling companies
Pioneers
enamored of their own
originally brilliant innovations
continued to search for
additional brilliant innovations
ended up producing novel
but completely useless
products
Salesmen
became so convinced of their
ability to sell anything
paid low attention to product
development and
manufacturing excellence
spawned a proliferation of
unattractive, inferior products
63

64. Miller identifies four major
categories among the rising and
falling companies
Craftsmen
achieved early success
became so obsessed
lost sight of market realities
Builders
built successful
became so enchanted with
diversification for it own sake
Continued to diversify far
beyond the point at which it
was profitable to do so
64

65. Avoiding Failure & Sustaining
Competitive Advantage
65

66. 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
66

67. 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.
67

68. 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.
68

69. 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.
69

70. 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.
70

71. 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.
71

72. 72