Developing Strengths to Sustain Competitive Advantage

A Key Concept: Competitive Advantage

Porter, M.E. (1985) Competitive Advantage. New York: Free Press. Extract in de Wit and Meyer (2010), Reading 5.1

The ability to deliver

n  a combination of price and performance valued by the target group of buyers

n  better than the competition

n  generating superior profit levels for the firm

Must be founded on both

n  an efficient management of resources and

n  an effective response to customer preferences

Linking Resource Management and Environmental Analysis

n  Strategic fit (linked to the positioning perspective: outside-in)

n  The strategy process begins by identifying opportunities in the business environment

n  The MNE adapts its resources and competences so as to take advantage of these

n  Strategic s-t-r-e-t-c-h (linked to the resource-based perspective: inside-out)

n  The strategy process starts by identifying the resources and competencies of the organization

n  These strengths are leveraged to yield new opportunities or to provide competitive advantage

n  Value is created for customers – and an effective business model enables the firm to capture much of this value as profit (Teece 2010)

Resource Management: Porter’s Value Chain Approach

Examples of value chains in global petroleum industry (Frynas & Mellahi 2011: 127)

Porter’s value system (Porter 1998: 43)

Example of value system in global petroleum industry (Frynas & Mellahi 2011: 127)

Managing the Value Chain 

n  Porter’s approach: market-driven, outside-in (Latest version: Porter in Harvard Business Review 1996)

n  Positioning: choosing where to aim the arrow

n  Start by segmenting: select a group of customers (broad or focused)

n  and a generic strategy (cost leadership or high-value differentiation)

n  Fit: manage the value chain in a co-ordinated way

n  ensuring that the functions reinforce each other

n  eliminating weak links, keeping costs down or quality up

n  Creating and capitalizing on a wide range of

                distinctive capabilities including:

                innovation, flexibility, rapid response, reputation

The Resource-Based View

n  An inside-out approach

n  Focused on the value of investment in practical skills, technologies and distribution networks

n  An understanding

n  of how to co-ordinate and integrate the firm’s collection of diverse production skills and streams of technologies,

n  founded on organizational learning,

                forms a core competence (Prahalad & Hamel 1990)

n  Competences and capabilities:

n  roots and branches of the same tree (Hamel/Prahalad)?  .... or....

n  operational and strategic types of intangible asset (Porter)?

Metaphor: Competence as a Tree

The Concept of Core Competence

(links to Barney’s 1997 VRIO framework, as cited by Frynas & Mellahi 2011: 119)

n  Core competence: a rare resource-based strength that

n  enables the organisation to deliver value to customers more effectively than the competition, and

n  is hard to imitate

n  In order to make the most of this valuable resource, a firm must be organized to exploit its full competitive potential

n  Competences can be leveraged or stretched to create value in different product lines and across the functional boundaries of the value chain

n  with new technology and new skills, higher quality can be achieved at the same or lower cost

n  With stretching and leverage, the heavy investment costs of building new distribution channels and technologies (overhead costs) can be shared

Expanding the Range of Positioning Choices

Integration and Global Branding

n  Remember Lecture 3: Yip’s Drivers of Globalisation?

n  One influence on Yip’s thinking: Hamel, G and Prahalad, C.K. (1985) Do you really have a global strategy? Harvard Business Review, July/Aug, vol 63 issue 4

n  A resource-based (inside-out) analysis of globalization strategy

n  MNEs aim to

n  Sell an existing product to customers in new locations

n  Leverage existing resource strengths in production or service delivery, building economies of scale and scope

n  Create a fresh resource strength in reputation, investing heavily to communicate the brand message of standard quality

n  To succeed, they need to integrate the management of all their subsidaries worldwide

The Drawbacks of Global Strategy

n  Yip (1989, also summarised in Stonehouse et al 2004: 109-117)

n  Global integration has to be driven

n  It is not a natural extension of generic business-level strategy at national level

n  Resource strengths can be weakened by the processes of centralization and global standardization

n  People, and their local knowledge (Bhattacharya and Michael 2008), are among the firm’s most valuable resources

n  But the integration of people from different cultures into high-functioning teams is easier said, than done (Brett, Behfar and Kern (2006) Managing Multicultural Teams,Harvard Business Review, Nov, vol 84 issue 11)

n  Is there such a thing as transferable “best practice”?

n  American firms are trying to become more team-focused, allowing for emergence – but...

n  French managers like clear hierarchical reporting relationships

n  German managers like clear definitions of roles

n  Schneider, S.C and Barsoux, J.-L. (2003) Managing across cultures. Second edition. Harlow: Pearson Education / Prentice Hall

n  To balance these tensions effectively, MNEs need to create an internal culture of learning

n  The knowledge generated by this learning is itself a key resource

Balancing Integration and Responsiveness through Learning