Strategic management

Assistant Professor Marlo Raveendran, Ph.D. ANDHL233, [email protected]

MGT235 - Strategic Management How to build a sustainable competitive advantage. 4.4 Competitive Advantage & External Forces

External Environment: PESTEL

Course Schedule

Value creation Resources & capabilities Strategies for value creation:

Inside the firm

Industry Analysis: Porter’s Five Forces

1

3

5

8

9

10

I. WHERE TO COMPETE II. HOW TO BUILD A SUSTAINABLE COMPETITIVE ADVANTAGE

Cost leadership Differentiation Value Innovation

III. CORPORATE STRATEGY

2

4

6 7

Headquarters

Diversification

Corporate Social Responsibility

Platforms

Learning Objectives week

Strategy basics

Where to compete — Roadmap (week 4) —

Week 4:

1. Resources & Capabilities (r/c): Basic Definitions

2. VRIO & competitive advantage

3. Example: Nintendo & innovation capability

4. Connecting: competitive advantage to external forces

5. Example: Sony & network effects

6. Example: Nintendo’s dynamic capabilities

7. Connecting: r/c to Basic Strategy

4.4 Competitive Advantage & External Forces — Topics covered in this video —

1. Disrupting a “sustainable competitive advantage” 2. The role of dynamic capabilities 3. Example: external disruption via new entrant

3. External disruption2. Dynamic Caps. 1. Disrupting SCA

Focus in this video

Strategy competitive advantage

industry success factors

resources & capabilities

Dynamic capabilities

Once we have a sustainable competitive advantage…

… we are profitable forever, right?

Changes in regulation

Innovation

Changes in consumer

preferences

Disruptions from other

sectors

1. Disrupting SCA

The elusive Sustainable Competitive Advantage

Building a competitive advantage is difficult. Maintaining it over many decades is (almost) impossible…

1. Disrupting SCA

Building a sustainable competitive advantage

Recap: - Resources and capabilities differ across firms. - Try to find resources and capabilities that are difficult

to imitate. - Identifying your firm’s core competences will help

build a sustainable competitive advantage.

Resources and capabilities change over time: - … they take time to build and develop, - … they take time to deplete.

… one more thing…

1. Disrupting SCA

How sustainable was Nintendo’s competitive advantage in the early 1990s?

Was Nintendo’s competitive advantage built on VRIO resources?

YES! They were doing great!!

1. Disrupting SCA

How sustainable was Nintendo’s competitive advantage in the early 1990s?

Was Nintendo’s competitive advantage built on VRIO resources?

- Market demand and customer preferences change. - Resources and capabilities need to adjust to technological innovation.

The problem…

1. Disrupting SCA

Building a sustainable competitive advantage: Key ingredient Dynamic capabilities

Dynamic capability: “the ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece et al. 1997)

2. Dynamic Caps. 1. Disrupting SCA

Building blocks of competitive advantage

Resources & Capabilities Dynamic capabilities +

Value - creation WTP

OC

2. Dynamic Caps. 1. Disrupting SCA

Building a sustainable competitive advantage: Key ingredient Dynamic capabilities

Dynamic capability: “the ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece et al. 1997)

= the ability to adapt your routines and operations proactively to changing environments

But change takes time!

2. Dynamic Caps. 1. Disrupting SCA

How sustainable was Nintendo’s competitive advantage in the early 1990s?

What went wrong?

3. External disruption2. Dynamic Caps. 1. Disrupting SCA

1994 - Sony enters the industry

What resources and capabilities did Sony have that Nintendo was lacking?

The industry was changing, Sony had no “baggage”

3. External disruption2. Dynamic Caps. 1. Disrupting SCA

4.4 Competitive Advantage & External Forces — Take-Aways —

- Availability of resources is important, but does not guarantee success. - Identification of and investment in core competences is

crucial for building a competitive advantage. - Development of dynamic capabilities is crucial for sustaining

it (so that core competences do not turn into core rigidities).

- Managers’ capabilities and experience can be the source of competitive advantage.

- Integration of different capabilities across a diversified company (like Sony) can create core competences relatively quickly.