Chapter-III:Internal

analysis, distictive
competencies,
competitive
advantage and
profitability
 Content
• Distinctive competencies and
competitive advantage
• The value chain
• Building blocks of competitive
advantage
• Analyzing competitive
advantage and profitability

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• Distinctive competencies are
firm specific strengths that
allow a company to differentiate
its products and achieve
substantially lower costs than
its rivals to gain competitive
advantage

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• It comes from two sources
1. Resources (Tangible and
intangible)
2. Capabilities: it refer to a
company’s skills at
coordinating its resources and
putting them to productive
use.
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 Strategic Resources and
Capabilities
• Tangible • Intangible
– Land – Brand names
– Buildings – Reputation
– Plant – Patents
– Equipment – Technological or
marketing know-
how

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 Value Creation

FIGURE 4.2
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 Distinctive Competencies,
Resources, and Capabilities
• The roots of competitive advantage:

FIGURE 4.7
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 The value chain
• The value chain disaggregates a
firm into its strategically relevant
activities in order to understand
the behavior of cost and the
existing and potential source of
differentiation

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 The Value Chain

FIGURE 4.6
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• Each value chain consists value
activities and the margin.
• Margin is the difference between total
value and the collective cost of
performing the value activities.
• Value is the amount buyers are willing
to pay for what a firm provides them.
• Value activities are divided in to two
broad types.

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1.Primary activities like, inbound
logistic, out bound logistic,
operations, marketing & sales and
services.
2. Support activities like, firm
infrastructure, human resource
management, technology
development and procurement.

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• The dotted line reflects the fact that
procurement, technology
development, and human resource
management can be associated with
specific primary activities as well
as support the entire chain.
• Firm infrastructure is not
associated with particular primary
activities but supports the entire
chain
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 Identifying value activities
• Primary activities
1. Inbound logistics: Activities
associated with receiving, storing
and disseminating inputs to the
product, such as material
handling, warehousing, inventory
control, vehicle scheduling, and
returns to suppliers.

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 2. Operations
 activities associated with
transforming inputs in to the
final product form such as
machining, packaging, assembly,
equipment maintenance, testing,
printing and facility operations.

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 3. Outbound logistics
• Activities associated with
collecting, storing and physically
distributing the product to buyers,
such as finished good
warehousing, material handling,
delivery vehicle operation, order
processing and scheduling.

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 4. Marketing and sales
• activities associated with
providing a means by which
buyers can purchase the product
and inducing them to do so, such
as advertising, promotion, sales
force, quoting, channel selection,
channel relation and pricing.

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 5. Service
• Activities associated with
providing service to enhance or
maintain the value of product,
such as installation, repair,
training, parts supply and product
adjustment.

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 Support activities
1.Procurement: it refers to the
function of purchasing inputs used
in the firm’s value chain, not to
the purchased inputs themselves.
• Purchased inputs include raw
materials, supplies and other
consumable items as well as
machinery, laboratory equipment,
office equipment and buildings.

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 2.Technology development
• Every value activity embodies
technology, know how,
procedures, or technology
embodied in process equipment.
• it accounts for the cost of
technology development

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 3.Human resource
management
• It consists of activities involved in the
recruiting, hiring, training, development
and compensation of all types of
personnel.
4. Firm infrastructure: it consists of a
number of activities including, general
management, planning, finance,
accounting, legal, government affairs
and quality management.

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 Generic Building Blocks of
Competitive Advantage

FIGURE 4.3
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 The Impact of Quality on Profits

FIGURE 4.4
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 The Impact of Efficiency, Quality,
Innovation, and Customer
Responsiveness on Unit Costs and Prices

FIGURE 4.5
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