Stramgt 258 Strategic Management: Strategy and Organization

1. Stramgt 258Strategic Management: Strategy and Organization 3. Positional Advantage and Capabilities Kao Corporation

2. Low Cost and Perceived Quality Higher perceived quality Competitive advantage ultimately manifests itself in your placement in this space Lower cost John Roberts

3. Low Cost and Perceived Quality Higher perceived quality Seek to develop CAs that place you in a unique position in this space, away from the competition (and from where it can reach)! A B C Lower cost John Roberts

4. Competitive Advantage • CA may come from capabilities (what you can do) or position (who and where you are) or both. Either may be sustainable, but equally either can be subject to erosion. • Real power comes from combinations that are mutually re-enforcing. • For example, having positional advantage allows you the time and resources to build capabilities that then strengthen the position. John Roberts

5. Creating Long-Term Profit from CAs • Barriers exist preventing others from duplicating: • Capabilities: rivals cannot duplicate the capability • Position: rivals are blocked from an equivalent position • This is the question of sustainability and one reason we worry about logic John Roberts

6. Strategic Capabilities • The most valuable capabilities are unique • Such capabilities are inherently less understandable: • Tacit • Ambiguous to rivals, analysts, and managers • Embodied in organization: • Products or technologies are consequences, not causes • Unique capabilities often emerge over time • How to manage?: • Manage the development process, not its consequence John Roberts

7. Misapplying Capabilities • Managers over-extend the applicability of their capabilities: • The “competency trap” • New rivals offer challenges that your organization did not develop capabilities to deal with: • “Blind spots” among established firms John Roberts

8. Strategic Position • There are many forms of valuable strategic position. For example: • Sunk costs • Brand • Reputation • Distribution channels • Switching costs • Geographic incumbency • Network externalities (standards) John Roberts

9. Positional Advantage Pitfalls • Robust versus fragile strategic positions • Insulates firm from capability-creating competition • Firm attributes success to capabilities rather than position: • Unwarranted diversification or product/market expansion John Roberts

10. Sustainable Capabilities • Capabilities are sustainable due to causal ambiguity: • Complex interplay of routines, structures and individuals • Firm only captures value if embodied in organization not individuals John Roberts

11. Sustainable Positional Advantages • A positional advantage is sustainable to the extent that it is not susceptible to erosion by: • Environmental change • Existing or potential rivals’ behavior. Those with same capabilities need to: • Make significant (unrecoverable) investments in time or capital to match the firm’s cost or quality John Roberts

12. Resources as a Source of CA? • If the firm is succeeding just because it controls some (marketable) resource, then either it has to worry that the rents will all accrue to the resource or else it has to be concerned that it is not the best owner of the resource and could realize more value by selling it. • Non-marketed resources may be a different story, but in many cases these may actually be better seen as capabilities. John Roberts

13. Understanding your CA • It is crucial to understand the true nature of your competitive advantage and its sources. • Guide competitive moves • Guide investments in CA • Too often (we have arguably seen some examples already) managers do not have this understanding. This leads to really bad decisions. John Roberts

14. Strategic Expansion • Expansion into new (geographic or product) markets should seek to leverage and extend your firm’s existing competitive advantages or underused (nonmarketable) resources. • Otherwise, how are you going to add value? • This places even greater importance on understanding these and the extent to which they can be realized in the new context. John Roberts

15. Lessons from Kao • Arguably, Kao did not really understand the nature of its CA in Japan and it certainly did not understand how, if at all, it could leverage these internationally. • These are tied up in its relations with the channel participants and its organizational design • They are not easily exported/replicated by Kao, any more than they are easily copied by others in Japan John Roberts