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Husky, Airborne and beyond…•Both firms had an “integrated set” of choices that fit together−Would Husky want to make the servicing of their systems similar to rivals, or vice versa?−Would ABF want to invest in high-quality IT?•Empirically, only one firm had a “sustainable” CA−What about the Oakland A’s?−Coke and Pepsi?
Goals for this week•Develop a notion of “sustainable” competitive advantage•Characterize “recipes” for sustainable CA − Hallmarks of assets that can generate sustainable CA− Hallmarks of activities that can generate sustainable CA•Relate these ideas to− Porter’s “Networks of Activities” (which you read)− Prahalad and Hamel’s “Core Competencies” •See them in action in our cases
Sustainable competitive advantage
Example: Google•Google makes more money in search than Bing-GOOG: $3.7 billion in profits 3Q2015-MSFT: $1 billion in Bing profits 3Q2015, after 6 uninterrupted years of losses•Does Google have a competitive advantage in internet search?-How do we know?-Is it “sustainable”?
What makes competitive advantagesustainable?•Competitive advantage is the total value you deliver to customers and suppliers that your competitors cannot deliver(our definition from last week)•Whycan’t your current or future competitors deliver this value?− You have value-generating assets that they can’t/won’t get− You do value-generating activities that they can’t/won’t do•Competitive advantage is in the assetsand/or activities•Sustainability is whyyou have those assets and do those activities while your competitors don’t
Sustainability through assets
Sustainable CA through assets (1)•You own key assets whose supply is constrained− Waterfront real estate, wireless spectrum, mineral leases− Intellectual property− Taxi medallions, liquor licenses− Long term contracts with customers, suppliers, employees− Brand (i.e., Coke, Pepsi)−Assets everyone wishes they had•Finite supply, and you alreadyhave yours, or yours is better•Similar to the same idea in barriers to entry
Sustainable CA through assets (2)•Your efficient scale is large relative to size of market− Natural monopolies (cable TV, electricity distribution)§Efficient for just 1 firm to supply entire market§Entire market already served by that single firm (you)§