Professional Documents
Culture Documents
CH.1 2 - Stratbus Reviewer
CH.1 2 - Stratbus Reviewer
Competitiveness
• A Perilous Business World
• Strategic Competitiveness - When a firm
✓ Rapid changes in industry boundaries
successfully formulates and implements a
and markets
value-creating strategy.
✓ Conventional sources of competitive
• Strategy - An integrated and coordinated set advantage losing effectiveness
of commitments and actions designed to ✓ Enormous investments required to
exploit core competencies and gain a compete globally
competitive advantage. ✓ Severe consequences for failure
• Industry Profitability
✓ The industry’s rate of return on
invested capital relative to its cost of
capital
• An industry’s profitability results from
Industrial Organization Model
interaction among:
1. Study the external environment, especially ✓ Suppliers
the industry environment: ✓ Buyers
✓ Economies of scale ✓ Competitive rivalry among firms
✓ Barriers to market entry currently in the industry
✓ Diversification ✓ Product substitutes
✓ Product differentiation ✓ Potential entrants to the industry
✓ Degree of concentration of firms in • Firms earn above-average returns by:
the industry ✓ Cost leadership
2. Locate an attractive industry with a high ▪ Producing standardized
potential for above-average returns. products or services
✓ Attractive industry: One whose ✓ Differentiation
structural characteristics suggest ▪ Manufacturing differentiated
above-average returns. products for which customers
3. Identify the strategy called for by the are willing to pay a price
attractive industry to earn above-average premium
returns.
✓ Strategy formulation: Selection of a The Resource-Based Model of Above-Average
strategy linked with above- average Returns
returns in a particular industry. • Model Assumptions
4. Develop or acquire assets and skills needed ✓ Each organization is a collection of
to implement a chosen strategy. unique resources and capabilities that
✓ Assets and skills: those assets and provides the basis for its strategy and
skills required to implement a chosen that is the primary source of its
strategy. returns.
5. Use the firm’s strengths (its developed or ✓ Capabilities evolve and must be
acquired assets and skills) to implement the managed dynamically.
strategy. ✓ Differences in firms’ performances
✓ Strategy implementation: select are due primarily to their unique
strategic actions linked with effective resources and capabilities rather than
implementation of the chosen structural characteristics of the
strategy. industry.
6. Superior returns: earning above-average ✓ Firms acquire different resources and
returns develop unique capabilities.
• Resources - Inputs into a firm’s production Criteria for Resources and Capabilities That
process: Become Core Competencies & How Resources
✓ Capital equipment and Capabilities Provide Competitive
✓ Skills of individual Advantage
✓ employees
1. Valuable - Allow the firm to exploit
✓ Patents
opportunities or neutralize threats in its
✓ Finances
external environment
✓ Talented managers
2. Rare - Possessed by few, if any, current and
• Capabilities - Capacity of a set of resources potential competitors
to perform in an integrative manner. A 3. Costly to imitate - When other firms cannot
capability should not be: obtain them or must obtain them at a much
✓ So simple that it is highly imitable. higher cost
✓ So complex that it defies internal 4. Non-substitutable - The firm is organized
steering and control. appropriately to obtain the full benefits of
Resource Based Model the resources in order to realize a
competitive advantage
1. Identify the firm’s resources— strengths
and weaknesses compared with competitors Core Competencies
✓ Resources: inputs into a firm’s
• When the four key criteria of resources and
production process
capabilities are met, they become core
2. Determine the firm’s capabilities—what it
competencies.
can do better than its competitors.
By: Roxy <3
• Managerial competencies are especially and who have enforceable claims on a firm’s
important. performance.
• Core competencies serve as a source of ✓ Claims on the firm’s performance are
competitive advantage, create value, and enforced by the stakeholder’s ability to
provide the opportunity for above-average withhold participation essential to the
returns. firm’s survival.
✓ The more critical and valued a
Why Two Models?
stakeholder’s participation, the greater a
• Industrial Organization (I/O) Model firm’s dependency on it.
✓ Focuses on the environment outside the ✓ Managers must find ways to either
firm accommodate or insulate the organization
• Resource-Based Model from the demands of stakeholders
✓ Focuses on the inside of the firm controlling critical resources.