Strategic Analysis Report
Sam1994
DevelopingCompetitiveAdvantage.pptx
Corporate Strategy.
Week 7: Lecture
Developing Competitive Advantage.
Understand Competitive Advantage
Creating Advantage – Key Steps & Process
VRIN analysis
Comparative analysis
Learning Outcomes.
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Understanding Advantage
Competitive Advantage is:
“The ability to outperform rivals on significant CSFs, thus earning superior returns.” (Grant, 2013).
Porter (1985): “There are two basic types of competitive advantage: cost leadership and differentiation.”
Kay (1993): advantage is delivered by distinct capabilities & strategic assets.
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Step 1: Identify industry context (e.g. CSFs) (refer to Week 4)
Step 2: Identify the key resources and capabilities (refer to Week 6)
Step 3: Appraise the key resources and capabilities
VRIO analysis
Comparative analysis
Step 4: Develop strategy – e.g. SAFe criteria
Turning Resources/Capabilities into Competitive Advantage.
Extent of advantage depends on how well resources & capabilities match industry CSFs & how much better than competitors.
Creating Advantage – Context.
Where is the industry in its life cycle?
What is the industry structure?
What are industry CSFs?
How do existing competitors compete?
How do we Compete?
Creating advantage means answering some key contextual questions:-
What is our SWOT position?
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PREREQUISITES FOR SUCCESS.
What do Customers Want?
How does the Firm Survive Competition?
Analysis of Demand
Analysis of Competition
Who are our customers?
What do they want?
What drives competition?
What are Its main dimensions?
How intense is competition?
How can we obtain a superior competitive position?
CRITICAL SUCCESS FACTORS
Industry Critical Success Factors.
(Source: Grant, 2013).
Resources versus Capabilities.
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COMPETITIVE ADVANTAGE
STRATEGY
INDUSTRY SUCCESS FACTORS
ORGANISATIONAL CAPABILITIES
ORGANISATIONAL RESOURCES
TANGIBLE
Financial
Physical
INTANGIBLE
Technology
Reputation
Culture
HUMAN
Specialised skills & Knowledge
Communication & interactive abilities
Motivation
(Source: Grant, 2013).
Advantage, Strategy and Capability.
Valuing Resources & Capabilities.
THE PROFIT EARNING POTENTIAL OF A RESOURCE OR CAPABILITY
SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE
THE EXTENT OF THE COMPETITIVE ADVANTAGE ESTABLISHED
APPROPRIABILITY
Scarcity
Relevance
Durability
Transferability
Replicability
Property Rights
Relative Bargaining
Power
Embeddedness of Resources
(Source: Grant, 2013).
Four key criteria by which capabilities can be assessed in terms of a basis for achieving sustainable competitive advantage are:
value,
rarity,
inimitability and
non-substitutability
1 Jay Barney: ‘Firm resources and sustained competitive advantage’, Journal of Management, vol. 17 (1991), no. 1, pp. 99–120.
VRIN1
VRIN Analysis & Competitive Advantage.
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VRIN Criteria for Testing Capabilities.
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V – Value of Strategic Capabilities.
Strategic capabilities are of value when they:
enhance opportunities & neutralise threats,
provide value to customers
provide potential competitive advantage at a cost that allows an organisation to realise acceptable levels of return.
The question of value: Do a firm’s resources and capabilities enable it to respond to environmental threats or opportunities?
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R – Rarity.
The question of rarity: Do capabilities exist that no (or few) competitors possess?
Rare capabilities are those possessed uniquely by one organisation or by a few others only.
(e.g. a company may have patented products, have supremely talented people or a powerful brand.)
Rarity could be temporary.
(e.g.: patents expire, key individuals can leave or brands can be de-valued by adverse publicity)
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I – Inimitability.
The question of inimitability: Is a resource or capability difficult for competitors to imitate?
Inimitable capabilities are those that competitors find difficult to imitate or obtain.
Advantage can be built on unique resources - e.g key individuals - but may not be sustainable (key people can leave!).
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N - Non-Substitutability.
The question of non-subsitutability: Is the risk of capability substitution low?
Competitive advantage may not be sustainable if there is a threat of substitution.
This can be product or service substitution from a different industry/market. E.g. postal services partly substituted by e-mail.
Competence substitution. For example, a skill substituted by expert systems or IT solutions
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| Valuable? | Rare? | Difficult to imitate? | Non-substitutable? | Competitive implications | Economic performance |
| YES | YES | YES | YES | Sustainable advantage | Above normal profits |
Examples of valuable competences in different companies
Amazon: the brand; product range
| Valuable? | Rare? | Difficult to imitate? | Non-substitutable? | Competitive implications | Economic performance |
| YES | YES | NO | NO | Temporary advantage | Above normal profits |
AMT Coffee: fair trade product offering; organic foods
| Valuable? | Rare? | Difficult to imitate? | Non-substitutable? | Competitive implications | Economic performance |
| YES | NO | NO | NO | Competitive parity | Normal profits – downward risk |
Nokia: ability to design mobile phone handsets; global distribution channels
Example: Business model of the clothing retailer Zara
Source: Frynas, J. G. and Mellahi, K. Global Strategic Management 3e (Oxford University Press, 2014)
Zara’s success in achieving extremely fast product cycles was supported by in-house textile manufacturing subsidiary and close relationships with sewing workshops in Spain and Portugal
Comparative Analysis.
An Australian survey of top managers found that 67% of managers see their firms as above average in their competitiveness; but 60-70% rely on rumours, personal contacts, sales staff, and newspapers for the information they use to arrive at strategic decisions.
However: resources and capabilities can only be judged to be valuable or rare if a firm compares itself with the competitors.
Therefore, an integral part of an internal firm analysis must be a comparison with your competitors.
Competitor intelligence and benchmarking can help the firm to compare itself with its peers.
Competitor intelligence is aimed at both learning about competitors’ strengths and weaknesses and their likely future strategies and initiatives as well as assessing the strengths and weaknesses of the firm’s own resources and capabilities relative to other firms.
Competitor Intelligence.
Competitor intelligence is the systematic collection of information about rivals in order to assist the development of firm strategies.
Intelligence onion.
The aim of benchmarking is to find better practice processes which show higher levels of performance and which can be copied or adapted internally by the organization.
Benchmarking.
Benchmarking is the search for industry best practices that will lead to the superior performance of a company.
Benchmarking.
Industry/sector benchmarking - comparing performance against others in the same industry/sector vs. set performance indicators.
Best-in-class benchmarking - comparing performance/capabilities against ‘best-in-class’ performance – even in a very different industry. (E.g. BA benchmarked its refuelling operations against Formula 1).
Understanding how you compare with others – typically competitors. Two approaches:
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Example: Benchmarking the Facebook page for luxury brands
Example: Benchmarking the Facebook page for police departments
Improving Advantage Strategies
How to improve? A number of ways are possible:-
It’s a good idea to focus on improving capabilities & addressing CSFs.
Logical Incrementalism – “steady as she goes”.
Acquire/Develop Unique Resources & capabilities
Improve competitive advantage through focusing on current industry CSFs
Disrupt industries and invent new CSFs.
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Evaluating Advantage Strategies: The SAFe Criteria.
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Example: Suitability of an expansion strategy
Go it alone, or merge, or ally?
Acceptability – asks the ‘3 R’s’:
Risk.
Return.
Reactions (of stakeholders)
Feasibility asks whether an organisation has the resources/capabilities in practice to deliver a strategy:
1. Do the resources and capabilities currently exist?
2. If not, can they be obtained?
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Finally - The TOWS or SWOT Matrix.
SWOT or TOWS analysis can indicate directions for strategic improvements.
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