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Lecture 3 Competitive Advantage and Competencies

Lecture 3 Competitive Advantage and Competencies - Lecture...

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Lecture 3 Competitive Advantage and Competencies
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Alternative Perspectives On Strategy Industry Effects S-C-P framework (Industry) Structure Conduct (firm strategy) Performance Cereal industry, high entry barriers, tacit collusion Firm Effects (distinctive resources & capabilities) There is room for firms to outperform their industries Nucor (mini-mill technology) Southwest Airlines (efficient airline operations)
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Profitability by Manufacturing Subsector a ; 1971-1990 Sector ROE ROA ROS Drugs 21.4% 11.8% 13.1% Printing and Publishing 15.5 7.1 5.5 Food and Kindred Products 15.2 6.6 3.9 Chemicals and Allied Products 15.1 7.5 7.2 Petroleum and Coal Products 13.1 6.5 6.5 Instruments and Related Products 12.9 7.2 6.9 Industrial Chemicals and Synthetics 12.9 6.2 6.1 Paper and Allied Products 12.5 6.0 5.1 Aircraft, Guided Missiles and Parts 12.4 4.1 3.7 Fabricated Metal Products 12.3 5.7 3.7 Motor Vehicles and Equipment 11.6 5.6 3.7 Rubber and Misc. Plastic Products 11.6 5.1 3.4 Electric and Electronic Equipment 11.5 5.4 4.4 Machinery, Expert Electrical 11.1 5.8 3.4 Stone, Clay and Glass Products 10.4 4.8 4.0 Textile Mill Products 9.3 4.3 2.5 Nonferrous Metals 8.3 3.9 3.6 Iron and Steel 3.9 1.5 1.3 Source: U.S. Federal Trade Commission, Quarterly Financial Report, various issues.
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Industry effects vs. Firm effects -10% 0% 10% 20% 30% 40% 50% Amgen Bristol- Myers Eli Lilly Forest Labs J & J Merck Pfizer ROE Pharmaceutical Industry 2003
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Both Industry and Firm Effects Matter Superior Industry Positioning and Distinctive Resources/Capabilities Industry and firm effects jointly determine firm performance Wal-Mart Rural markets , scale economies and market power over suppliers IT, efficient operations, inventory, distribution, and HR management
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Competitive Advantage Position a firm occupies against its competitors Business Level Strategy Cost Leadership Differentiation Focus Resources Capabilities Core Competencies
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Resource-based perspective It is both the resources and the efficient and innovative use of resources that give a firm competitive advantage Critical questions this perspective posits: What resources are available to a firm? How can a firm use its resources to generate efficiency, differentiation, innovation, and profitable growth? [capabilities] When do resources and capabilities generate sustainable profits? [appropriation]
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Wilderness Survival Exercise Knowledge about potential uses of the available (tangible) resources Experience and creativity Duck Tape Makeshift pan to boil water Using duck tape to repair the canoes Fixing broken fish lines with duck tape Only with creative uses of resources you can take advantage of the opportunities in the environment
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What resources are available to a firm? What are their indicators?
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