business strategy paper

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©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 3

INTERNAL ANALYSIS: DISTINCTIVE COMPETENCIES, COMPETITIVE ADVANTAGE, AND PROFITABILITY

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OBJECTIVE § Discuss the source of competitive advantage. § Identify and explore the role of efficiency, quality, innovation, and customer responsiveness in building and maintaining a competitive advantage.

§ Explain the concept of the value chain. § Understand the link between competitive advantage and profitability.

§ Explain what impacts the durability of a company’s competitive advantage.

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©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

COMPETITIVE ADVANTAGE § Exists when a company’s profitability is greater than the average profitability of all companies in its industry.

§ Sustained competitive advantage - Exists when a company maintains its competitive advantage over a number of years. § Primary objective of strategy

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

DISTINCTIVE COMPETENCIES § Firm- Specific strengths that allow a company to differentiate its products and/or achieve lower costs than its rivals. § Arise from resources and capabilities § Resources: Assets of a company. § Tangible resources: Physical entities.

§ Land, buildings, and inventory, and money.

§ Intangible resources: Nonphysical entities created by managers and other employees. § Brand names, company reputation, and intellectual property.

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©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

DISTINCTIVE COMPETENCIES § Capabilities- Company’s skills at coordinating its resources and putting them to productive use: § reside in an organization’s rules, routines, and procedures.

§ Intangible. § lead to sustained competitive advantage if they are rare and protected from copying.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

DISTINCTIVE COMPETENCIES § Requirements § Firm-specific and valuable resource, and the capabilities to take advantage of that resource.

§ Firm-specific capability to manage resources. § Distinctive competency is strongest when a company possesses both.

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©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

WEDNESDAY

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©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

COMPETITIVE ADVANTAGE, VALUE CREATION, AND PROFITABILITY § Profitability of a company depends on the: § value customers place on its products. § price it charges for its products. § costs of creating those products. § When a company strengthens the value of its products, it can: § raise prices to reflect the value. § reduce prices to induce more customers to purchase its products.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

COMPETITIVE ADVANTAGE, VALUE CREATION, AND PROFITABILITY § Price is less than the utility value placed on the product by many customers, due to: § consumer surplus - customers capture some of that utility.

§ customer’s reservation price - each individual’s unique assessment of the value of a product.

§ competition from rivals.

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©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

VALUE CREATION AND PRICING OPTIONS § Managers must understand: § dynamic relationships among value, pricing, demand, and costs.

§ how value creation and pricing decisions affect demand.

§ how unit costs change with increases in volume.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

PRIMARY ACTIVITIES § Relate to a product’s design, creation, delivery, marketing, support, and after-sales service.

§ Research and development § Design of products and production processes. § Superior product design increases a product’s functionality and add value.

§ Production § Creation process of a good or service. § Helps lower cost structure and leads to differentiation.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

PRIMARY ACTIVITIES § Marketing and sales § Brand positioning and advertising - increase customers’ perceived value of a product.

§ Help create value by discovering customers’ needs. § Customer service § Provide after-sales service and support. § Create superior utility by solving customer problems and supporting customers after a purchase.

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©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

SUPPORT ACTIVITIES § Provide inputs that allow the primary activities to take place.

§ Materials management § Controls the transmission of physical materials through the value chain.

§ Lowers cost and creates more profit . § Human resources § Ensures value creation by making sure that the company has the right combination of skilled people.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

SUPPORT ACTIVITIES § Information systems § Electronic systems to improve efficiency and effectiveness of a company’s value creation activities.

§ Company infrastructure § Companywide context within which all the other value creation activities occur. § Organizational structure, control system and company culture