Why is SCA important? How to gain SCA?

1. Business Strategy Session - 3
Internal Analysis: Distinctive Competencies, Competitive
Advantage & Profitability
Oct 14th 2016
Author: Anik Saha
© Anik Saha

2. Agenda
Roots of Competitive Advantages
Build Strategy to gain Competitive Advantages
Value Creation and Sustainability
Fundamental Principles of Competitive Advantages
Analyzing Performance of Strategic success
Building Sustainable Competitive Advantage
Preventing Failures
2 © Anik Saha

3. 3
Roots of Competitive Advantage
Distinctive Competitiveness, Competitive advantage, Value Creation, Profitability
Sustained Competitive Advantage (SCA) :
Ability to Generate Profitability above
Average in Related Industry over Long Period
Resources Capabilities Competencies
© Anik Saha

4. 4
Resources
Brand/ ReputationEmployees
Equipment Capital
Land, Building Knowledge, Skills
Intellectual Properties
Tangible Resources Intangible Resources
Drives Operational Efficiency and Reduce Cost
Key Resources build ‘Barriers of Imitation’, SCA and drive Profitability
© Anik Saha

5. 5
Capabilities
Efficient Processes, Skills to Leverage Resources to Productive Use
Org
Structure
Processes Control
Systems
Talent
Acq. &
Maint.
Corporate
Culture
High Employee Productivity, Lower Opex and Create Strong Market Demand
© Anik Saha

6. 6
Build Strategy to Leverage Resource, Capabilities to Gain SCA
Resource
Distinctive
Competencies
Capabilities
Strategies
Competitive
Adv.
Grow
Profitability
Build
Build
Shape
Distinctive Competencies & Strategies gets reciprocally developed to drive SCA
© Anik Saha

7. 7
Value Creation & Profitability
$
Cf
Vf
Va
Pa
Incentive to customer = Vf – Pf
Value Generated to customer = Vf – CfPf
Value in Use VIU= (Vf – Va) – (Pf – Pa)
At VIU = 0, Pf = VIU Price = Pa + (Vf – Va)
Profit Generated = Pf – Cf
At VIU Price, VIU = 0 and Both Options Generate Same Incentive to Customer
Option 1: As Benefit Grows, Economies of Scale
Reduces Cost
Vf = Benefit Pf = Price C = Cost
Option2: Maximize Vf by Investment, Innovation
or Efficiency
The Objective : Maximize Higher Value Generation (Vf – Cf) Than Competition
© Anik Saha

8. 8
Value Creation Through Cost Efficiency
R&D Production Customer ServiceMtkg & Sales
Reduce Cost Structure Or Increase Perceived Benefits
LogisticsOrg. Infrastructure Information Systems HR
• Enhance Feature/
Functionality
• Elegance of Design
• Efficient Production
Operations
• Creation of goods or
service delivery
• Brand Positioning
helps improved
perceived benefits
• Excellent Post sales
support improves
perceived benefits on
lower downtime
• Org. structure,
control systems, Org.
culture, leadership
drive productivity
• Tracking Inventory,
Sales, Pricing,
Processes increases
Productivity
• Mix of right skills
• Enablement Increases
Productivity
• Motivation, compensations
• Efficient material mgmt
reduces inventory cost
• Stock & sell model or
Assembly at site
© Anik Saha

9. 9
Fundamental Principles of Competitive Advantage
Innovations
Efficiency Superior Quality
Customer Responsiveness
• Productivity Improvement drives
better returns
• Operations, Processes, skills
included
• Physical & Functional attributes
delivering higher benefits over
competition
• Positioning in Perceptual Map or
Quality Map (reliability vs.
excellence) helps increasing
perceived benefits
• Creating benefits through CSAT
Example SLA: 99.9997%
• Technological Innovations to showcase
least downtime
• Proactive alerts
• In services, reduce time taken to deliver
each customer; better queue mgmt
• Innovation in both Product/ Processes
• Prod Innovation drives realization of
more benefits
• Process innovation drives lower Opex
© Anik Saha

10. 10
Examples of Perceptual Map
*www.entreprenure.com
*www.learnmarketing.net
*https://lucythebusybee.wordpress.com/tag/perceptual-map/
*https://strategicthinker.wordpress.com/perceptual-map/ © copyrights: Anik Saha

11. 11
Business Models, Value Chain & Generic Distinctive Competencies
SCA,
Profitability
Business Model
Distinctive
Competencies Strategies
Business Model Leverages Competencies,
Creates Value Chain with Strategic Planning
towards Goal and Delivers SCA through
Quality, Efficiency, Cost Effectiveness
© Anik Saha

12. 12
Example of Business Model
© Anik Saha

13. 13
Analyzing Competitive Advantage & Profitability
Profitable than
Competition?
Strategies able
to Deliver
Result?
Cost structure
in Control?
Resources
Utilization
Maximized?
Measure Business Performance with Financials
ROIC
ROS
Capital
Turnover
COGS/ Sales
SG&A/Sales
R&D/Sales
WC/Sales
PPE/Sales
© Anik Saha

14. 14
Sustainability of Competitive Advantage
Barriers to Imitation Capability of Competitors
Industry Dynamics
• Durability of Competitive advantage diminishes
as competition imitates
• Longer time to imitate, less vulnerable
competitive advantage
• Barriers to imitation determines time
• Tangible & Intangible resources easy to imitate
except brand value
• Patent immunity diminishes with workarounds
• Capabilities like decision making, processes,
cross-functional integration tough to imitate
• Commitment to existing business model
or strategy determines adaptability to
new shifts
• Execution of Change management crucial
to adaptability
• Low absorptive capacity limits large
enterprises to imitate innovative,
efficient players
• Competitive Adv. short-lived by faster pace of
innovation, constantly changing industry dynamics
• Difficult to sustain competitive adv with
Commodity based low end solutions
• Continuous investments to build new barriers
helps to sustain advantage for certain periods
© Anik Saha

15. 15
Avoiding Failures for SCA
Organizational/ Business inertia prevents exploring Market shifts
Slow pace of decision making culture prevents faster response to business demands
Existing distribution of decision making hierarchy/ authority slows execution
Prior Strategic commitments, resource investments slows
Icarus Paradox : Obsession to Strength stops response to market shifts
© Anik Saha

16. 16
Steps to Prevent Failures
Continuous check to Principles of Competitive Advantage
Continuous Learning, Market sensing, Skill development
Follow best industry practices and benchmark
Overcome Inertia
Be present at right time & place with right resources
© Anik Saha

17. 17
Acknowledgement
Strategic Management by Charles W. L. Hill/ Gareth R.
Jones, Published by CENGAGE Learning
© Anik Saha