The basis of competitive performance
The potential of a firm’s resources and capabilities
Limitations of the environmentled approach
Leads to predictable strategies
Positioning advantage often transient
◦ Competitive environment changes rapidly
◦ Internal capabilities adapt slowly
Advantage based on internal characteristics often more robust
◦ Some organisations perform well in ‘unattractive’ industries 2
Building Blocks of Competitive
Competitive advantage has to be based on superior capabilities in one or more of these four ‘building blocks’:
The four building blocks
Care is required over definitions:
◦ Units of output per unit of input
◦ Greater customer-perceived value
◦ Features; reliability
◦ Advances in product, process or strategy
◦ Rate of change of the other ‘blocks’?
Responsiveness to customers
◦ Identifying and satisfying needs of customers
◦ Customisation; response time
- To what degree might some be achieved at the expense of others?
Texas Instruments: too efficient?
User of the experience curve concept
◦ Unit costs declined 73% with every doubling of accumulated output
◦ Slashed the price of new products to stimulate demand and accumulate output
◦ 1960s, 70s and to 1982 rapid growth
◦ Competitors focused on additional features valued by customers ◦ Kept to its existing technology (in which it had a cost advantage), and did not adopt metal-oxide semiconductors ◦ Lost share to HP, Casio, Intel and Motorola
See “The Icarus Paradox” – Danny Miller
(how exceptional companies bring about their own downfall)
Often, but not always, powerful.
◦ Efficiency gains often depend on implementing process improvements.
◦ Little or no additional gain beyond minimum efficient scale.
◦ Innovation can change the parameters of scale efficiency. ◦ Driving down costs can impact on other sources of advantage
Reengineering or downsizing rarely worked.
Toyota’s lean production system
Drawbacks of traditional mass production
◦ Large inventory of finished goods
◦ Difficulty of fixing defects early
◦ Unable to accommodate diversity
Some elements of Toyota’s approach
◦ Reduced set-up times (1 day to 3 minutes to change dies on stamping equipment)
◦ Shorter production runs led to reduced inventories
◦ Defects were able to be traced more quickly to source 7
Return on Capital Employed for U.S.
Department Stores, 1989-1998
Source: Data from Value Line Investment Survey
Resource-Based View of the firm
(RBV) and VRIO analysis
An economic perspective stating that:
◦ Firms have unique resource endowments that are not easily traded
◦ These can confer sustained competitive advantage if they are:
Able to generate or improve market returns by exploiting opportunities or neutralising threats
Value is relative to other firms and relative to costs)
Rare (few other firms have it or a close equivalent)
Hard to Imitate (or substitute for)(costly/slow/risky)
The firm can Organise to exploit them
Barney, J. (1991), Firm resources and sustained competitive advantag
Journal of Management 17:9-120.
A taxonomy of firm resources Everything listed can be considered ‘resources’ in the RBV
Source: Hill, Jones, Galvin and Haidar, Strategic
Assessing resources with
Organised to exploit?
Competitive implications Resource
Competitive parity Resource
Temporary competitive advantage
Sustained competitive advantage
Competitive disadvantage Resource
Competitive parity 11
Resources satisfying RBV conditions
Often they tend to be:
Technical or marketing know-how
Collective managerial capability
◦ Combinations, not individual resources
◦ Linked to company history