Chapter 4 -- Internal Analysis: Resources, Capabilities, Competencies, and Competitive Advantage

1. Chapter 4 -- Internal Analysis: Resources, Capabilities, Competencies, and Competitive Advantage Text by Charles W. L. Hill Gareth R. Jones Multimedia Slides by Milton M. Pressley Univ. of New Orleans

2. Preview • Competitive Advantage • Generic Building Blocks of Competitive Advantage • Business Functions and the Value Chain • Distinctive Competencies, Resources, and Capabilities • Durability of Competitive Advantage • Why Do Companies Fail? • Avoiding Failure and Sustaining Competitive Advantage

3. Competitive Advantage: Value Creation, Low Cost, and Differentiation • Competitive Advantage • Sustained Competitive Advantage

4. 1994 Figure 4.1: PC Firms: Return on Capital Employed Relative to Industry Means

5. V-P V P-C V=Value to Consumer P=Price C=Costs of Production V-P=Consumer Surplus P-C=Profit Margin P C C Figure 4.2: Value Creation

6. Figure 4.3: Generic Building Blocks of Competitive Advantage • Competitive • Advantage: • Low Cost • Differentiation Superior Efficiency

7. Figure 4.3: Generic Building Blocks of Competitive Advantage Superior Quality • Competitive • Advantage: • Low Cost • Differentiation Superior Efficiency

8. Increased Reliability Increased Quality Increased Productivity Figure 4.4: The Impact of Quality on Profits

9. Increased Reliability Higher Prices Increased Quality Increased Productivity Lower Costs Figure 4.4: The Impact of Quality on Profits

10. Increased Reliability Higher Prices Increased Quality Higher Profits Increased Productivity Lower Costs Figure 4.4: The Impact of Quality on Profits

11. Superior Quality • Competitive • Advantage: • Low Cost • Differentiation Superior Efficiency Superior Innovation Figure 4.3: Generic Building Blocks of Competitive Advantage (Continued)

12. Superior Quality • Competitive • Advantage: • Low Cost • Differentiation Superior Efficiency Superior CustomerResponsiveness Superior Innovation Figure 4.3: Generic Building Blocks of Competitive Advantage (Continued)

13. Efficiency Lower Unit Costs Figure 4.5: Summary of the Impact of Efficiency, Quality, Innovation, and Customer Responsiveness on Unit Costs and Prices

14. Efficiency Lower Unit Costs Quality Higher Unit Prices Figure 4.5: Summary of the Impact of Efficiency, Quality, Innovation, and Customer Responsiveness on Unit Costs and Prices

15. Efficiency Lower Unit Costs Quality Higher Unit Prices Customer Responsiveness Figure 4.5: Summary of the Impact of Efficiency, Quality, Innovation, and Customer Responsiveness on Unit Costs and Prices

16. Efficiency Lower Unit Costs Innovation Quality Higher Unit Prices Customer Responsiveness Figure 4.5: Summary of the Impact of Efficiency, Quality, Innovation, and Customer Responsiveness on Unit Costs and Prices

17. Business Functions, The Value Chain, and Value Creation Figure 4.6: The Value Chain Research and Development Inputs Outputs Primary Activities

18. Business Functions, The Value Chain, and Value Creation Figure 4.6: The Value Chain Research and Development Produc- tion Inputs Outputs Primary Activities

19. Business Functions, The Value Chain, and Value Creation Figure 4.6: The Value Chain Research and Development Marketing and Sales Produc- tion Inputs Outputs Primary Activities

20. Business Functions, The Value Chain, and Value Creation Figure 4.6: The Value Chain Research and Development Marketing and Sales Produc- tion Inputs Service Outputs Primary Activities

21. Business Functions, The Value Chain, and Value Creation Figure 4.6: The Value Chain Materials Management Support Activities Research and Development Marketing and Sales Produc- tion Inputs Service Outputs Primary Activities

22. Business Functions, The Value Chain, and Value Creation Figure 4.6: The Value Chain Human Resources Materials Management Support Activities Research and Development Marketing and Sales Produc- tion Inputs Service Outputs Primary Activities

23. Business Functions, The Value Chain, and Value Creation Figure 4.6: The Value Chain Company Infra-Structure Human Resources Materials Management Support Activities Research and Development Marketing and Sales Produc- tion Inputs Service Outputs Primary Activities

24. CEO Corporate Headquarters Staff Business Functions, The Value Chain, and Value Creation • Cross Functional Goals* *More Detail in Chapter 11

25. Distinctive Competencies, Resources, and Capabilities Figure 4.7: The Roots of Competitive Advantage DistinctiveCompetencies

26. Distinctive Competencies, Resources, and Capabilities Figure 4.7: The Roots of Competitive Advantage Resources DistinctiveCompetencies

27. Resources Are: Tangible Land Buildings Plant Equipment Intangible Brand Names Reputation Patents Technical or Marketing Know-How Distinctive Competencies, Resources, and Capabilities

28. Distinctive Competencies, Resources, and Capabilities Figure 4.7: The Roots of Competitive Advantage Resources DistinctiveCompetencies Capabilities

29. Resources • Superior • Efficiency • Quality • Innovation • Customer Respon- siveness DistinctiveCompetencies Capabilities Distinctive Competencies, Resources, and Capabilities Figure 4.7: The Roots of Competitive Advantage

30. Resources Differentia-tion • Superior • Efficiency • Quality • Innovation • Customer Respon- siveness DistinctiveCompetencies Low Cost Capabilities Distinctive Competencies, Resources, and Capabilities Figure 4.7: The Roots of Competitive Advantage

31. Resources Differentia-tion • Superior • Efficiency • Quality • Innovation • Customer Respon- siveness DistinctiveCompetencies Value Creation Low Cost Capabilities Distinctive Competencies, Resources, and Capabilities Figure 4.7: The Roots of Competitive Advantage

32. Resources Differentia-tion • Superior • Efficiency • Quality • Innovation • Customer Respon- siveness DistinctiveCompetencies Value Creation Higher Profits Low Cost Capabilities Distinctive Competencies, Resources, and Capabilities Figure 4.7: The Roots of Competitive Advantage

33. Distinctive Competencies, Resources, and Capabilities (Continued) • Strategy and Competitive Advantage Figure 4.8: The Relationship Between Strategies Shape Resources & Capabilities (Competencies) Strategies Build

34. Distinctive Competencies, Resources, and Capabilities (Continued) • The Role of Luck

35. The Durability of Competitive Advantage • Barriers to Imitation • Imitating Resources • Imitating Capabilities • Capability of Competitors • Strategic Commitment • Industry Dynamism

36. Why Do Companies Fail? • Inertia

37. Why Do Companies Fail? • Inertia • Prior Strategic Commitments

38. Why Do Companies Fail? • The Icarus Paradox

39. Avoiding Failure and Sustaining Competitive Advantage • Focus on the Building Blocks of Competitive Advantage • Institute Continuous Improvement and Learning • Track Best Industrial Practice and Use Benchmarking • Overcome Inertia

40. Competitive Advantage Generic Building Blocks of Competitive Advantage Business Functions and the Value Chain Distinctive Competencies, Resources, and Capabilities Durability of Competitive Advantage Why Do Companies Fail? Avoiding Failure and Sustaining Competitive Advantage Chapter Summary Copyright 1998 by Houghton Mifflin Company. All rights reserved.