Tutorial 04

Internal resources and capabilities as falling into five
general categories:
 Financial
 Physical
 Human
 Knowledge-based
 General organizational
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)

Sustainable Competitive Advantage exists
when a firm enjoys a long – lasting business
advantage compared to rival firms

The ability of a resource or capability to lead
to a sustainable competitive advantage
depends on the answers to six questions
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FCA,ACMA,MBA (USQ - AUS)
1)
Does the resource or capability have value in
the market?
 These types of resources allow a firm to exploit opportunities
and/or neutralize threats.
 Example:
 Sony has developed the capability to
design, manufacture, and sell miniaturized
electronics.
This capability has value to customers.
Sony has applied this capability to
numerous market opportunities such as
stereos, tape players, disc players,
televisions, and video cameras.
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FCA,ACMA,MBA (USQ - AUS)
2)
Is the resource or capability unique?
 If an organization is the only one with a particular resource
or capability, then it may be a source of competitive
advantage.
 Example:
 LG were pioneers in producing Frost Free Refrigerators for
the convenience of their customers. Keeping food fresh is
very important for the health and well-being of your
family. LG understands the importance for their customers
to get the best value from their food and the best value
for their money, and have developed cutting-edge
technology to make their refrigerators help to achieve
these goals.
 Note that uniqueness does not mean that only one
organization possesses a capability or resource only that
few firms do.
 If numerous organizations possess a particular resource or
capability, then the situation is described as “competitive
parity”-no company has the advantage.
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FCA,ACMA,MBA (USQ - AUS)
3)
Is there a readily available substitute for the
resource or capability?
 Sometimes competing organizations may not have the exact resource or
capability, but they have easy access to another resource or capability that
will help them to accomplish the same results.
 Example
 A company may have resources which are
extremely limited in the country. However,
competitors have been able to acquire this
needed raw material at almost the same
cost by importing through foreign vendors.
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4)
Do organizational systems exist that allow
realization of potential?
 For potential to be realized, the firm must also be organized to
take advantage of it.
 Example:
 Companies such as Wal-Mart and Disney are masters at exploiting
their sources of competitive advantage.
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FCA,ACMA,MBA (USQ - AUS)
5)
Is the organization aware of and realizing the
advantages?
 One of the great differentiators between successful and unsuccessful companies is the
ability of managers to recognize and tap into resource advantages.
 An organization may have employees that have great potential in an area, but the
organization does not know it.
 The company may have the ability to produce a product that is highly unique and
valuable to a particular market segment, but the firm does not realize it.
 In fact, an organization may even have systems in place that would allow
realization of potential.
 Nevertheless, managers have to be able to identify sources of competitive advantage
and take positive actions for potential to be realized.
 At this point, an organization is using its systems and knowledge to take advantage of a
unique and valuable resource or capability.
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FCA,ACMA,MBA (USQ - AUS)
6)
Is the resource or capability difficult or costly
to imitate?
 Competing firms face a cost disadvantage in imitating a resource
or capability.
 The more difficult or costly a resource or capability is, the more
valuable it is in producing a sustainable competitive advantage.
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Firm Resources &
Capabilities
•Financial
•Physical
•Human
•Knowledge & Learning
•General
Organizational
• Does the resource or capability have value in the market?
• Is the resource or capability unique?
• Is there a readily available substitute for the resource or
capability ?
• Do organizational systems exist that allow realization of
potential?
• Is the organization aware of and realizing the advantages?
Resource or capability
has potential lead to
competitive advantage or
core competency
Actual Source of
Competitive Advantage
• Is the resource or capability difficult or costly to imitate?
The Competitive
Advantage or Core
Competency is
sustainable
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
Tangible Resources
 Tangible Resources are organizational assets that can be seen , touched ,
and/or quantified
 Examples
 Plants
 Money
 Products
 These resources tend to be easy to imitate.
 Although some products can be patented, a patent provides a measure
of protection only until it runs out
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FCA,ACMA,MBA (USQ - AUS)

Intangible Resources
 Intangible Resources are organizational assets that are hard to quantify
 Examples
 Knowledge
 Skills
 Abilities
 Stakeholder Relationship
 Reputations
 Intangible resources and capabilities are the hardest to imitate.
 Therefore intangible resources and capabilities are often the ones most
likely to lead to competitive advantage.
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
The resources and capabilities that lead to competitive
advantage are different in each industry, and can also change
over time.

Some times resource advantages within nations can lead to
significant competitive advantages for the firms that compete
there.
 Example:
 India is second only to the United States in the number of scientists
and Engineers its schools produce.
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)


Global Insight
India's emerging competitive Advantage in services
India has not yet caught the fancy of foreign investors-even though its population exceeds 1 billion, and its gross
domestic product (GDP) of $500 billion ranks it as the eleventh-largest economy in the world. Political turmoil
obviously explains why many global companies are hesitant to invest in India. Nevertheless, India has a potential
source of competitive advantage that could fuel significant economic growth and foreign investment in the future.
India's competitive potential does not lie in the same fields as other low income developing countries. Rather
than enjoying competitiveness in natural-resource industries or low-skill , labor-intensive manufacturing, India is
revealing surprising strength in skill-intensive tradable services, including soft ware development, informationtechnology (IT)-enabled services, product/project engineering and design, biotechnology, pharmaceuticals,
media, entertainment, and health care. New clusters are emerging in these activities in cities such as Bangalore
and Hyderabad, where vibrant Indian firms are being joined by well-known multinationals. One interesting
example is General Electric, which is investing $100 million in Bangalore to build its 1argest R& O lab in the world,
employing twenty-six hundred scientists, including more than three hundred with Ph.D. degrees. It was while
inaugurating this lab that GE's past CEO, Jack Welch, said: "The real treasure of India is its intellectual capital. The
real opportunity of India is its incredibly skilled work force. Raw talent here is like nowhere else in the world."
India has received much attention recently on the prowess of its software industry, prompting Bill Gates to
proclaim that "India is likely to be the next software superpower." For the better part of a decade, India's software
Industry has been growing at 50 percent annually. By 2000, the software sector's output had grown to $8 billion,
and exports had risen to $6.2 billion. More than eight hundred firms provided a range of software services,
targeted mostly at foreign customers. The United States accounted for nearly 60 per cent of Indian software
exports; followed by Europe, with 23.5 percent; and Japan, with just 3.5 percent.
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
Human Resource
 Human resources need to be managed
effectively so that learning and
innovation are the result.
 If human resource development is
neglected or misguided, learning and
innovation will cease, and the
organization will eventually wear
down, thus breaking out of the loop.
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
Knowledge and Learning
 Knowledge creation and innovative activities should be channeled
so as to produce better processes and more-innovative products
and services.
 If this does not happen, the value of a company's brand will be
eroded, and its reputation may suffer.
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
General Organizational
 Finally, brand names, organizational reputation, and stakeholder
relationships should be carefully guarded and developed in order
to produce strong financial results.
 The point here is that all of the resource areas are
interdependent, and an organization can't afford to neglect any of
them.
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FCA,ACMA,MBA (USQ - AUS)

Financial Resources
 Financial resources can be a source of advantage, although they rarely
qualify as “unique" or “difficult to imitate."
 Nevertheless, strong cash flow, how levels of debt, a strong credit rating,
access to low-interest capital, and a reputation for creditworthiness are
powerful strengths that can serve as a source of strategic flexibility.
 Firms that are in a strong financial position can be more responsive to new
opportunities and new threats, and are under less pressure from
stakeholders than are their competitors who suffer financial constraints.
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FCA,ACMA,MBA (USQ - AUS)

This is a useful tool in identifying potential sources of
competitive advantage.
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FCA,ACMA,MBA (USQ - AUS)


A representation of organizational processes , divided into
primary & support activities that create value for
customers
Value-adding activities are a source of strength or
competitive advantage if they meet the requirements
such as




Value,
Uniqueness,
Non Substitutability, and
Inimitability
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Inbound Logistics


Operations


Primary activities of the value chain including those associated with acquiring inputs used in the product
Primary activities of the value chain that refer to transforming inputs into the final product
Outbound Logistics

Primary activities of the value chain related to storing and physically distributing a final product to
customers

Marketing & Sales

Primary activities of the value chain associated with customers purchasing the product & processes
through which they are induced to do so

Service

Primary activities of the value chain associated with providing service to enhance or maintain product
value such as repairing parts
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
Resource Procurement
 Support activities of the vale chain related to the purchase of inputs for the primary
processes and support activities of the firm

Technology Development
 Support activities of the vale chain associated with learning processes that result in
improvements in organizational function performance

Human Resource Management
 Support activities of the vale chain associated with human based activities such as
recruiting & training

Administration
 Support activities of the vale chain consisting of general management activities such as
planning & accounting
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
The dotted lines connecting most of the support activities with the primary
activities demonstrate that the support activities can be associated with each
of the primary activities as well as support the complete chain.

Administration is the only exception, since it applies
to the complete chain instead of to any one unit.

Margin/ Profit
 This is found at the right side of the chain, an indication that firms can achieve higher
profit margins through the development of competencies and superior resources
based on their value-chain activities.
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

An organization can develop a competitive advantage

in any of the primary or support activities, or

in the way they are combined, or

in the way internal activities are linked to the external environment.
An organization can develop a competitive advantage in any of the primary or
support activities.

For each area, the relevant question is, "How much value is produced by this area
vs. our cost of producing that value?"

This analysis of value and costs is then compared with competing firms.
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)

The humans that make up an
organization are its lifeblood - its
unique and most valuable asset.

Most of the other factors of
production such as

properties,

machinery, and

even special knowledge
Our true "core competency" today
is not manufacturing or services,
but the global recruiting and
nurturing of the world's best
people and the cultivation in them
of an insatiable desire to learn, to
stretch and to do things better
every day.
may be duplicated over the long term,
but every human being is totally
unique.
General Electronic
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
Common title for the highest ranking
manager in a firm is called as “CEO”.

Most of the research evidence
indicates that CEOs have a significant
impact on the strategies and
performance of their organizations.

In fact, in some cases a CEO can be a
source of sustainable competitive
advantage.
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)

A CEO such as

Michael Eisner at Disney,

the retired Jack Welch at GE, or

Bill Gates at Microsoft
can leave little doubt that much of the success or failure of an organization is
dependent on the person at the top.

Just as excellent leadership can have an enormous positive influence; poor leadership
can have a powerful negative influence.

Example

Coca-Cola enjoyed many years of double-digit growth under the leadership of Roberto Goizueta.
However, since his death in 1997, the company has "fizzled."
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
Generally refers to Leadership behaviors associated with
 Creating organizational vision ,
 Establishing core values,
 Developing strategies and a management structure fostering
organizational learning and
 Serving as a steward for the firm
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FCA,ACMA,MBA (USQ - AUS)
1) Creating Organizational Vision

Visionary Leadership pertains to envisioning what the
organization should be like in the future , communicating the
vision , and empowering followers to enact it

Visionary leadership can be divided
into three stages:
I. Envisioning what the organization
should be like in the future
II. Communicating this vision to
followers, and
III. Empowering these followers to
enact the vision.
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FCA,ACMA,MBA (USQ - AUS)
2)
Establishing Core Values
 The underlying philosophies that guide decisions and behavior in a
firm called as organizational values
 leaders influence the social system in their organizations is through
the core values they bring to the organization
 A strong value system can be a
source of competitive
advantage.
 However, putting too much
emphasis on a particular factor
can also be dangerous.
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FCA,ACMA,MBA (USQ - AUS)
3)
Developing Strategies and structure

Strategic leaders are directly responsible for
overseeing the development of strategies
the organization should follow.

Effective strategy development implies a
strong awareness of the resource and
capabilities that an organization
•
•
•
has or
can develop or
acquire
that will lead to a sustainable competitive
advantage.
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FCA,ACMA,MBA (USQ - AUS)
4)
Fostering Organizational Learning

True role of a leader is to harness the creative energy of the individual,
so that the organization as a whole learns over time.

A learning environment is created by helping organizational members
question their assumptions about the business and its environment:
 what customers want,
 what competitors are likely to do,
 which technology choices work best, and

how to solve a problem.
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5)

Serving As a Steward
Finally, effective leaders are stewards for their firms: they care
about the company and the society in which it operates; both
voluntary and involuntary stakeholders.

Leaders must feel and convey a passion for the organization,
its contribution to society, and its purpose.
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
Commander-style leadership.
 The CEO formulates strategy and
then directs top managers to
implement it.

Change-style leadership
 The CEO formulates strategy, and
then plans the changes in structure,
personnel, information systems, and
administration required to
implement it.
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
Collaborative-style leadership.
 The CEO initiates a planning session with executive and division
managers.
 After each participant presents ideas, the group discusses and agrees to
a strategy.
 Participants are then responsible for implementing strategy in their
areas.

Cultural-style leadership.
 After formulating a vision and strategy for the company, the CEO and
other top-level managers mold the organization's culture so that all
organizational members make decisions that are consistent with the
vision.
 In this approach, the culture inculcates organizational
members into unity of purpose and action.
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
Crescive-style leadership.
 Under this leadership model, lower-level
managers are encouraged to formulate and
implement their own strategic plans.
 The CEO's role is to encourage innovation
while still filtering out inappropriate
programs.
 Unlike the other models, the Crescive model
of leadership makes use of the creative
energies of all members of the organization,
which is consistent with the philosophy of
Total Quality Management (TQM).
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)

Managers are capable of adapting to changing environments
and strategies, it is not likely that they are equally effective in
all situations
Examples
 low-cost strategies are focus on firms efficiency and engineering.
 differentiation strategies focus on creating unique product through
innovation
 Growth strategies may be best implemented by managers with
greater sales and marketing experience, willingness to take risks, and
tolerance for ambiguity.
 Radical Restructuring is focus on creating major changes to a firm’s
direction, strategies, structures & plans
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FCA,ACMA,MBA (USQ - AUS)

Leaders, managers, directors, and employees can all be
sources of competitive advantage. However, the way they are
organized can also lead to competitiveness.

Organizational Structure reports relationships and the division
of people into groups,
 teams,
 forces, and
 departments
within an organization.
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CA,ACMA,MBA (USQ - AUS)

Organizational Structure has a lot to do with how
successful a firm will be.
Example:
 In a world where innovations are widely understood by competitors
within a year, a flexible structure is a key to success in many companies.

Big companies are trying to increase speed and flexibility
by altering their organization structures and management
systems.
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
By attempting to become worldwide
"modular corporations.“- A modular
corporation nurtures a few core
activities that it does best, and then lets
outside specialists do the rest.
Example:
 Dell Computers

By decentralizing responsibility and
rewarding employees for innovations
and flexibility.
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
Organizational Culture is a system of shared values of
an organization’s members

Organization culture often
reflects the values and
leadership styles of executives
and managers, and is, to a great
degree, a result of the past
human resource management
practices, such as recruitment,
training, and rewards.
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FCA,ACMA,MBA (USQ - AUS)

Many companies are realizing the benefits of a shared set of values as
a potential source of competitive advantage.

There is an intangible quality that stakeholders look for when making
decisions about the products and services that they purchase or in
selecting alliance partners. They want to be able to rely on the
company. They want promises and commitments to be fulfilled.

There are many pragmatic benefits to a high-profile organizational
culture that can help an organization in its recruiting, employee
development, and relationships with customers.
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)

An organization's culture can be its greatest strength or its
greatest weakness.

Some firms have succeeded in creating cultures that are
completely consistent with what the company is trying to
accomplish. These are called high-performance cultures.
Example:
 At Johnson & Johnson, the company's commitment to customers
as its primary stakeholder is reflected in policy statements and is adopted
by employees.
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FCA,ACMA,MBA (USQ - AUS)
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)

For each of these factors, an organization should ask:
 Which characteristics support the vision and strategies of the organization
and should be sustained in the future?
 Which characteristics do not support the vision and strategies and should be
modified?
 What efforts will be necessary to make the required changes happen?

A strong culture can be a two-edged sword.

Sometimes very successful corporations so firmly attach themselves to their
successful business practices that they exaggerate the features of the successful
culture and strategy, and fail to adapt them to changing industry conditions.
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FCA,ACMA,MBA (USQ - AUS)

Craftsmen type culture.
 Quality is the primary driver of the corporate culture.
 However a culture that is focused on quality and detail can evolve
to an extreme where craftsmen become tinkerers.

Builder-type culture.
 Growth is the primary goal in the organization.
 Managers are rewarded for taking risks that result in growth, new
acquisitions, and new market niches.
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FCA,ACMA,MBA (USQ - AUS)

Pioneer-type culture.
 It emphasis on new product & new technology development.
 The strengths of these organizations lie in their design teams and
flexible structures, which promote idea sharing.

Salesman-type culture.
 These firms are excellent marketers who create successful brand names
and distribution channels, and pursue aggressive advertising and
innovative packaging.
 They become so confident in their marketing abilities that they ignore
product capability and quality, and began to market imitative, low
quality products that customers do not value.
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)

General organizational resources are a varied collection of
organizational possessions that can have a tremendous
impact on financial success and survival.
 Patents
 Brand names & trademarks
 Organizational reputation and
 Superior relationships with external stakeholders
have been found to be very powerful sources of competitive
advantage
Chamara Bandara F
CA,ACMA,MBA (USQ - AUS)

Patents
 Patents are the tangible result of knowledge creation.
 It is the legal protection that prevents other companies from making use
of a firm’s innovation

Brands &Trademarks
 Brands and their associated trademarks offer a higher level of protection.
 Trademark is a legal protection that prevents other companies from
making use of a firm’s symbol or brand name .
 In a recent ranking, Coca-Cola was ranked first, Microsoft second, IBM
third, GE fourth, and Nokia fifth with regard to value.
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)

Organizational Reputation
 An economic asset that signals observers about the attractiveness of a
company's offerings, based on past performance.
 A good reputation may be associated with excellent quality or highly
innovative products or services, excellent human-resource management, or
other factors.
 Some of the potential benefits of a good reputation include the
 ability to attract talented workers,
 charge premium prices,

keep loyal customers,
 raise capital with less difficulty by attracting investors,

avoid constant scrutiny by regulators and activists, or
 enter international markets with less difficulty.
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)

Superior Relationships with Stakeholders
 Relationships with external stakeholders can also be described as an organizational resource.
 The fact is that all five areas of resources and capabilities are closely linked to external
stakeholders.
 Example
 Financial resources are based, in part, on relationships with financial intermediaries.
 The strength of human resources may depend on linkages with unions, trainers, human
resources associations, communities, or educational institutions from which an organization
recruits.
 Valuable knowledge comes from inter organizational relationships with competitors,
customers, suppliers, or other stakeholders.
 Raw materials and other inputs necessary to develop physical resources are provided by
suppliers.
 Finally, contracts with many types of stakeholders are a general organizational resource
Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)

Reference
 Jefferey S.Harrison,
Strategic Management of Resources and
Relationships, United States of America
SMP
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FCA, ACMA,MBA (USQ - AUS)
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