Chapter 4 Internal Analysis Resources Capabilities Competencies and

Chapter 4 Internal Analysis: Resources, Capabilities, Competencies, and Competitive Advantage Strategic Management An Integrated Approach Charles W. L. Hill Gareth R. Jones Power. Point Presentation by Charlie Cook Fifth Edition

Competitive Advantage: Value Creation, Low Cost, and Differentiation Competitive advantage is a firm’s ability to outperform its competitors (earn higher profits). The source of competitive advantage is value creation for customers. Sustained competitive advantage comes from maintaining higher profits than competitors over long periods of time. Copyright © 2001 Houghton Mifflin Company. All rights reserved. 2

Return on Capital Employed for Selected U. S. Department Stores, 1989 -1998 FIGURE 4. 1 Copyright © 2001 Houghton Mifflin Company. All rights reserved. Source: Data from Value Line Investment Survey 3

Value Creation FIGURE 4. 2 Copyright © 2001 Houghton Mifflin Company. All rights reserved. 4

Generic Building Blocks of Competitive Advantage FIGURE 4. 3 Copyright © 2001 Houghton Mifflin Company. All rights reserved. 5

The Impact of Quality on Profits FIGURE 4. 4 Copyright © 2001 Houghton Mifflin Company. All rights reserved. 6

The Impact of Efficiency, Quality, Innovation, and Customer Responsiveness on Unit Costs and Prices FIGURE 4. 5 Copyright © 2001 Houghton Mifflin Company. All rights reserved. 7

The Value Chain FIGURE 4. 6 Copyright © 2001 Houghton Mifflin Company. All rights reserved. 8

Distinctive Competencies, Resources, and Capabilities The roots of competitive advantage: FIGURE 4. 7 Copyright © 2001 Houghton Mifflin Company. All rights reserved. 9

Strategic Resources and Capabilities Tangible Intangible v Land v Brand names v Buildings v Reputation v Plant v Patents v Equipment v Technological or marketing knowhow Copyright © 2001 Houghton Mifflin Company. All rights reserved. 10

Distinctive Competencies Skills in effectively coordinating and managing resources for productive use. v Unique resources and capabilities, or v Common resources and unique capabilities. Copyright © 2001 Houghton Mifflin Company. All rights reserved. 11

Strategy and Competitive Advantage The relationship between strategies and resources and capabilities: FIGURE 4. 8 Copyright © 2001 Houghton Mifflin Company. All rights reserved. 12

The Durability of Competitive Advantage Barriers to imitation v Speed of imitation by competitors in reducing advantage v Imitation by acquiring similar resources v Imitation of capabilities (more difficult) Limits on competitors v Prior strategic commitments v Absorptive capacity for change Industry dynamism v The rapid innovation shortens product life cycles. Copyright © 2001 Houghton Mifflin Company. All rights reserved. 13

Why Do Companies Fail? What went wrong? v Inertia v Prior strategic commitments v The Icarus paradox Avoiding failure and sustaining competitive advantage: v Focus on the building v v v Copyright © 2001 Houghton Mifflin Company. All rights reserved. blocks of competitive advantage. Institute continuous improvement and learning. Track best industrial practice and use benchmarking. Overcome inertia. 14