INTERNAL ANALYSIS: DISTINCTIVE COMPETENCIES, SUSTAINABLE COMP. ADV. & PROFITABILITYPORTER VS. RESOURCE BASED VIEW OF THE FIRMDISTINCTIVE COMPETENCIESRESOURCESWHAT MAKES RESOURCES VALUABLE?GOOD NEWS & BAD NEWSDYNAMIC CAPABILITIESRBV AND VALUE CREATIONCONSUMER SURPLUSTOYOTA EXAMPLEGENERIC COMPETITIVE STRATEGIESVALUE CHAINVALUE CHAIN IIVALUE CHAIN IIIBUILDING BLOCKS OF COMPETITIVE ADVANTAGEINNOVATIONCOMPETITIVE ADVANTAGE AND PROFITABILITYDURABILITY OF COMPETITIVE ADVANTAGEWHY COMPANIES FAILSTEPS TO AVOID FAILUREINTERNAL ANALYSIS: DISTINCTIVE COMPETENCIES, SUSTAINABLE COMP. ADV. & PROFITABILITYBus 189, 2-14-2012CHAPTER 3, HILL & JONESDR. MARK FRUINPORTER VS. RESOURCE BASED VIEW OF THE FIRM•EXTERNAL ANALYSIS = INDUSTRY ANALYSIS–5 FORCES MODEL = INDUSTRY “DYNAMICS” (DESCRIPTIVE, NOT ANALYTICAL–SUPERIOR POSITION (IN INDUSTRY) = COMPETITIVE SUCCESS–GENERIC COMPETITIVE STRATEGIES SUCCESS BASED ON INDUSTRY STRUCTURE & POSITION•INTERNAL ANALYSIS = ORG ANALYSIS FROM RESOURCE BASED POINT OF VIEW–FIRM AS A COLLECTION OF RESOURCES–FIRM THAT BEST COMBINES, MOBILIZES & MANAGES RESOURCES WINS–RBV = R-C-C-DC (LONG TERM ORG PROCESS & CHANGE)DISTINCTIVE COMPETENCIES•INVOLVE MANAGERIAL CHOICE & DISCRETION•INVOLVE CREATING SUPERIOR ORGANIZATIONAL PROCESSES–WHICH TAKE RESOURCES, TIME & EFFORT–WHICH RARELY OCCUR RIGHT AWAY & EASILY–WHICH INVOLVE AN INFINITE NUMBER OF FEEDBACK LOOPS, MORE CHOICES AND CONTINUOUS DISCRETION•NECESSARILY INVOLVE A MAJORITY OF ORGANIZATIONAL MEMBERS–STRATEGIC INTENT–STRETCH GOALSRESOURCES•TANGIBLE•INTANGIBLE•CREATE LITTLE VALUE UNLESS THEY ARE USED, SO USE RESOURCES•USING THEM, CONVERTS THEM INTO CAPABILITIES–CAPABILITIES ARE PRODUCTS OF FIRM STRUCTURE, PROCESSES & CONTROL SYSTEMS OR SO THE BOOK SAYS; ACTUALLY, IT’S THE REVERSE IN MY OPINION–RESIDE NOT IN INDIVIDUALS, BUT ARE EMBODIED IN ORGANIZATIONSWHAT MAKES RESOURCES VALUABLE?•BOOKS SAYS, “RESOURCES ARE VALUABLE WHEN THEY ARE FIRM-SPECIFIC AND DIFFICULT TO IMITATE”•CONFUSING BECAUSE RESOURCES HAVE LITTLE VALUE ON THEIR OWN•WHEN RESOURCES ARE CONVERTED TO CAPABILITIES AND USED EFFECTIVELY = VALUE IS CREATED•OLYMPIC RING MODEL OF RESOURCE VALUE = SCARCITY, DEMAND, APPROPRIABILITY, NON- SUBSTITUTABILITY AND “ADHESABILITY”/ “ENABLING-ABILITY”GOOD NEWS & BAD NEWS•THE GOOD NEWS IS THAT RESOURCES BECOME VALUABLE TO THE EXTENT THEY ARE SPECIALIZED & DEDICATED–ASSET SPECIFICITY (GOOD ECONOMIST WORD)•THE BAD NEWS IS THAT RESOURCES ARE VALUABLE TO THE EXTENT THAT THEY ARE SPECIALIZED & DEDICATED –IF WRONG CHOICES MADE, HARD TO GO BACK–PATH DEPENDENCY; ESCALATING COMMITMENT–AS SOON AS YOU DRIVE OFF THE LOT, YOUR NEW CAR IS WORTH 20% LESSDYNAMIC CAPABILITIES•AS BUSINESS ENVIRONMENT CHANGES, CAPABILITIES & COMPETENCIES HAVE TO CHANGE TOO, •WE DON’T WANT ANY OLD CAPABILITIES, BUT DYNAMIC CAPABILITIES–CAPABILITIES THAT CAN BE ADAPTED TO CHANGING CONDITIONS–FLEXIBILITY, ADAPTABILITY, RESILIENCY–BUT ORGANIZATIONAL INERTIA MAKES FLEXIBILITY/ ADAPTABILITY HARD TO REALIZE, ESPECIALLY IN LIGHT OF INDUSTRY LIFE CYCLE CHANGES & HARD CHARGING FAST FOLLOWERS/LATE COMERSRBV AND VALUE CREATIONPROFITABILITY BASED ON THREE FACTORS:-THE VALUE CUSTOMERS PLACE ON PRODUCT/SERVICE OFFERINGS-THE PRICE COMPANIES CHANGE FOR PRODUCTS-THE COSTS OF CREATING/MAKING/ DELIVERING THOSE PRODUCTSCONSUMER SURPLUS•PRICE CHARGED IS TYPICALLY LESS THAN UTILITY VALUE TO CUSTOMERS•“EXTRA” UTILITY FROM CUSTOMER PT OF VIEW = CONSUMER SURPLUS•THE MORE UTILITY THAT CONSUMERS GET FROM FIRM OFFERINGS, THE MORE PRICING OPTIONS FIRM HASTOYOTA EXAMPLE•TOYOTA CREATES MORE UTILITY VALUE FOR CONSUMERS•FOUND IN HIGHER QUALITY, GREATER SATISFACTION & MORE INNOVATION•TOYOTA CAN CHARGE HIGHER PRICES THAN ITS RIVALS IN SPITE OF THE FACT THAT ITS COSTS ARE LOWER!!•FROM PORTER GENERIC COMPETITIVE STRATIES POINT OF VIEW, IS THIS COST LEADERSHIP OR DIFFERENTIATION?GENERIC COMPETITIVE STRATEGIES•COST LEADERSHIP OR LOWER COST STRUCTURES GIVES FIRMS MORE PRICING OPTIONS•DIFFERENTIATION CREATES MORE UTILITY/VALUE AND ALLOWS MORE PRICING CHOICESVALUE CHAIN•HOW ONE COMPANY’S INPUTS ARE CONVERTED INTO OUTPUTS•INTERCONNECTED CHAINS/SETS OF ACTIVITIES–FROM UPSTREAM TO DOWNSTREAM–PRIMARY VERSUS SECONDARY ACTIVITIES•R&D•PRODUCTION•MARKETING & SALES•CUSTOMER SERVICEVALUE CHAIN II•SUPPORT ACTIVITIES (OFTEN SHOWN AS A SECONDARY VALUE CHAIN)•IN MANY CASES, IT’S HARD TO DISTINGUISH PRIMARY AND SECONDARY ACTIVITIES; OLD IDEA ASSOCIATED WITH MFG FIRMS•IN KNOWLEDGE BASED FIRMS, WHAT’S PRIMARY AND SECONDARY?–LOGISTICS–HUMAN RESOURCES–INFORMATION SYSTEMS–COMPANY INFRASTRUCTURE•ORG STRUCTURE•CONTROL SYSTEMS•COMPANY CULTUREVALUE CHAIN III•WHAT BOOK DOESN’T SAY•LINKAGE & FEEDBACK BETWEEN STEPS IN VALUE CHAIN JUST AS IMPORTANT AS WHAT HAPPENS WITHIN STEPS–FIRST ORDER FIT–SECOND ORDER FIT–THIRD ORDER FIT•IN COMPLEX FIRMS, COMPLEX VALUE CHAINS–IN M-FORM FIRMS, FOR EXAMPLE, LITTLE DISTINCTION BETWN PRIMARY & SUPPORT ACTIVITIES; SAME FOR SERVICE INDUSTRIESBUILDING BLOCKS OF COMPETITIVE ADVANTAGE•= FUNCTIONAL LEVEL STRATEGIES –DON’T BE CONFUSED; SEE CHAPTER 4•EFFICIENCY = OUTPUT/INPUT•EFFICIENCY NOT JUST IN PRODUCTION, BUT IN R&D, HR, LOGISTICS, SALES, ETC.•QUALITY AS EXCELLENCE & QUALITY AS RELIABILITY•SOURCES OF QUALITY AS COMPETITIVE ADVANTAGE = POSTWAR JAPAN & TQM–KAIZEN OR CONTINUOUS IMPROVEMENTINNOVATION•PRODUCT INNOVATION–iPOD, INTEL PENTIUM CHIP•PROCESS INNOVATION–LEAN PRODUCTION OR TPS–WALMART’S IT-SYSTEM FOR INVENTORY CONTROL & LOGISTICS•INCREMENTAL INNOVATION–KAIZEN–KAIZEN X TIME = CONSIDERABLE, ACCUMULATED PROGRESS-->HARD TO REPLICATE COMPT. ADV.–TENDENCY TO OVERLOOK INCREMENTAL INNO IN FAVOR OF RADICAL & DISRUPTIVE INNOVATION•RADICAL INNOVATION•DISRUPTIVE (DISCONTINUOUS) INNOVATIONCOMPETITIVE ADVANTAGE AND PROFITABILITY•LEARN & ANALYZE DUPONT FORMULA–SLIGHTLY DIFFERENT FROM APPENDIX, CHPT 1 & HOW TO DO CASE ANALYSIS CHAPTER–WHERE ROIC = NOPLAN/IC (depreciation + adjusted taxes)•ROIC (RETURN ON INVESTED CAPITAL) DECOMPOSED INTO TWO MAJOR COMPONENTS:–RETURN ON SALES •(NET PROFIT/SALES)–COGS/SALES–SG&A/SALES–R&D/SALES–CAPITAL TURNOVER•(SALES/INVESTED CAPITAL)–WORKING CAPITAL/SALES–PPE/SALESDURABILITY OF COMPETITIVE ADVANTAGE•OR SUSTAINABLE COMPETITIVE ADVANTAGE = DURABILITY or LONGEVITY•BARRIERS TO IMITATION–INDUSTRY DYNAMISM A BIG FACTOR–IMITATING/DUPLICATING RESOURCES