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Resource-Based View. IO vs. RBV. Business Level Strategy. How do we support the corporate strategy? How do we compete in a specific business arena? Three types of business level strategies: Low cost producer Differentiator Focus Four areas of focus, objectives of business-level strategy

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Business level strategy
Business Level Strategy

  • How do we support the corporate strategy?

  • How do we compete in a specific business arena?

  • Three types of business level strategies:

    • Low cost producer

    • Differentiator

    • Focus

  • Four areas of focus, objectives of business-level strategy

    • Generate sustainable competitive advantages

    • Develop and nurture (potentially) valuable capabilities

    • Respond to environmental changes

    • Approval of functional level strategies

Business level strategy1
Business-Level Strategy

  • The primary objective of business-level strategy is to create “sources of sustainable competitive advantage”.

  • What is sustainable competitive advantage?

    • There are many definitions, used by different people in different ways.

    • What follows is a practical description. But first, we need to back up a bit…

Sustainable competitive advantage
Sustainable Competitive Advantage

  • An asset is anything the firm owns or controls.

    • Loosely, “Asset” is to Accounting as “Resource” is to Management.

  • Types of assets:

    • Physical: plant equipment, location, access to raw materials

    • Human: training, experience, judgment, decision-making skills, intelligence, relationships, knowledge

    • Organizational: Culture, formal reporting structures, control systems, coordinating systems, informal relationships

Sustainable competitive advantage1
Sustainable Competitive Advantage

  • A capability is usually considered a “bundle” of assets or resources to perform a business process (which is composed of individual activities)

    • E.g. The product development process involves conceptualization, product design, pilot testing, new product launch in production, process debugging, etc.

  • All firms have capabilities. However, a firm will usually focus on certain capabilities consistent with its strategy.

    • For example, a firm pursuing a differentiation strategy would focus on new product development. A firm focusing on a low cost strategy would focus on improving manufacturing process efficiency.

  • The firm’s most important capabilities are called competencies.

Competencies vs core competencies vs distinctive competencies
Competencies vs. Core Competencies vs. Distinctive Competencies

  • A competency is an internal capability that a company performs better than other internal capabilities.

  • A core competency is a well-performed internal capability that is central,not peripheral, to a company’s strategy, competitiveness, and profitability.

  • A distinctive competence is a competitively valuable capability that a company performs better than its rivals.

Examples distinctive competencies
Examples: Distinctive Competencies Competencies

  • Toyota, Honda, Nissan

    • Low-cost, high-quality manufacturing capability and short design-to-market cycles

  • Intel

    • Ability to design and manufacture ever more powerful microprocessors for PCs

  • Motorola

    • Defect-free manufacture (six-sigma quality) of cell phones

Where are we
Where are we? Competencies

  • We are discussing sustainable competitive advantage, and have defined Competencies:

    • AssetsCapabilitiesCompetenciesCompetitive Advantage

  • Next is competitive advantage.

    • A competitive advantage is simply an advantage you have over your competitors.

    • A competency will produce competitive advantage provided:

      A) it produces value for the organization, and

      B) it does this in a way that cannot easily be pursued by competitors.

Sustainable competitive advantage2
Sustainable Competitive Advantage Competencies

  • However, we said the primary objective of business-level strategy was to create sources of sustainable competitive advantage (SCA).

  • How do we know SCA when we see it? What is it? When is it considered “sustainable”?

  • To produce SCA, the capability must:

    • Produce value

    • Be rare

    • Imperfectly imitable, i.e. not be easily imitated or substituted

    • Be exploitable by the organization

Sustainable competitive advantage3
Sustainable Competitive Advantage Competencies

  • The Question of Value:

    • Capabilities are valuable when they enable a firm to conceive of or implement strategies that improve efficiency and effectiveness.

    • Value is dependent on type of strategy:

    • To be valuable, the capability must either

      • Increase efficiency (outputs / inputs)

        • Information system reduces customer service agents required, or increases the number of calls the same number of agents can answer

      • Increase effectiveness (enable some new capability not previously held)

        • Opening a new regional campus enables outreach to a new market of students

Sustainable competitive advantage4
Sustainable Competitive Advantage Competencies

  • The Question of Rareness:

    • Valuable resources or capabilities that are shared by large numbers of firms in an industry are therefore not rare, and cannot be a source of SCA.

    • Given the following, which are rare?

      • A web server

      • An MIS instructor

      • A state-of-the-art stamping press

    • None of these are rare. Some researchers think only organizational assets or resources are rare (such as culture). What do you think?

Sustainable competitive advantage5
Sustainable Competitive Advantage Competencies

  • The Question of Imitability

    • Valuable, rare resources can only be sources of SCA if firms that do not possess them cannot obtain them. They must be “imperfectly imitable”, i.e. impossible to perfectly imitate them.

    • Ways imitation can be avoided:

      • Unique Historical Conditions (Caterpillar, e.g.)

      • Causal Ambiguity (why resources create SCA is not understood, even by the firm owning them)

        • Imitating firms cannot duplicate the strategy since they do not understand why it is successful in the first place.

      • Social Complexity (trust, teamwork, informal relationships, causal ambiguity where cause of effectiveness is uncertain)

        • E.g. A competitor steals all the scientists in an R&D lab and relocates them to a new facility. But, the “dynamics”, “culture” and “atmosphere” are not the same.

Sustainable competitive advantage6
Sustainable Competitive Advantage Competencies

  • The Question of Substitutability

    • There must be no equivalent resources that can be exploited to implement the same strategies.

    • Forms of substitutability:

      • Duplication: Although no two management teams are the same, they can be strategically equivalent, produce the same results.

      • Substitution: Very different resources can be substitutes, e.g.

        • A charismatic leader with a clear vision vs. a strategic planning dept.

        • A superior marketing strategy for a recognized brand name.

        • A superior technical support group for an intelligent diagnostic software package

Sustainable competitive advantage7
Sustainable Competitive Advantage Competencies

  • The Question of Exploitation:

    • Later research qualified this as another critieria for SCA. Is a firm organized to exploit the full competitive potential of its resources and capabilities?

    • Are systems in place to enable firms to support the execution of a particular strategy?

      • Xerox, e.g

Notes on sustainable
Notes on “Sustainable” Competencies

  • Sustainable is not measured in calendar time.

  • Sustainable does not mean the advantage will last forever.

  • Sustainable suggests the advantage lasts long enough that competitors stop trying to duplicate the strategy that makes the advantage sustained.

Economic performance
Economic Performance Competencies