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Strategic management unit ii

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Strategic management unit ii

  1. 1. Strategic Management Semester III UNIT – II COMPETITIVE ADVANTAGE External Environment – Porter’s Five Forces Model - Strategic Groups – Competitive Changes during Industry Evolution – Globalization and Industry Structure – National Context and Competitive Advantage: Resources, Capabilities and Competencies – Core Competencies – Low Cost and Differentiation – Generic Building Blocks of Competitive Advantage – Distinctive Competencies – Resources and Capabilities – Durability of Competitive Advantage – Avoiding Failures and Sustaining Competitive Advantage EXTERNAL ENVIRONMENT Environment of any organization can be considered as “the aggregate of all conditions, events and influences that surround and affect it”. Environment is complex as it consists of a lot of factors arising from different sources. The nature of environment is one of dynamic as it keeps changing continuously. The impact of environment on organization is deep and far reaching. Concept of Environment: Environment literally means the surroundings, external objects, influences or circumstances under which someone or something exists. The environment of any organization is the aggregate of all conditions events and influences that surround and affect it. Environmental Factors: Environmental factors can be classified as: (i) Macro environmental factors and (ii) Factors which are specific to the given business i.e. task environment. The constituents of macro environmental factors are demographic environment, socio cultural environment, economic environment, political environment, natural environment, technology environment and legal environment. The environmental factors which are specific to task environment are market, industry competition, supplier and consumer. Characteristics of Environment: a. Environment is Complex: b. Environment is Dynamic c. Environment is Multi-faceted d. Environment has a far- reaching impact Macro Environmental Factors:  Demographic Environment  Technological Environment  Socio- cultural Environment S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 1
  2. 2. Strategic Management  Economic Environment  Political Environment  Regulatory Environment  International Environment  Supplier Environment  Task Environment Forecasting the Environment Four forecasting techniques are discussed as follows:  Time Series Analysis: This is an empirical forecasting procedure wherein certain historical trends are used to predict such variables such as firm’s sales or market shares.  Delphi Technique: This is a forecasting procedure in which experts are independently and repeatedly questioned about the probability of some event’s occurrence until consensus in reached regarding the particular forecasted event.  Judgment Forecasting: It is a forecasting procedure whereby employees, customers, suppliers and trade associations serve as sources of qualitative information regarding future trends.  Multiple Scenarios: This is a forecasting procedure in which management formulates several plausible hypothetical descriptions of sequence of future events and trends. Environmental Scanning: Environmental scanning plays a key role in strategy for emulation by analyzing the strengths and weaknesses and opportunities and threats in the environment. Environmental scanning is defined as monitoring, evaluating, and disseminating of information from external and internal environments to managers in organizations so that long term health of the organization will be ensured and strategic shocks can be avoided. PORTER’S FIVE FORCES MODEL An industry consists of a group of companies offering products or services, which are similar and serve as substitutes for each other. Strategies analyze competitive forces within an industry to indentify opportunities and threats facing a firm. A model for analyzing the industry environment is developed by Michael E. Porter, an authority on competitive strategy. This model is known as Five Forces Model and it helps managers to identify and analyze the competitive forces in an industry environment. Porter’s Five Forces Model: The five forces which are focused in this model are:  Threats of New Entrants  Bargaining power of Suppliers  Bargaining power of Buyers  Treat of Substitute S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 2
  3. 3. Strategic Management  Rivalry among Existing Firms Fig: Porter’s Five Forces Model and Strategic Group This model focuses on five forces that shape competition within an Industry. Porter argues that the stronger each of these forces is the more limited is the ability of established companies to raise prices and ear n greater profits. Within porter s framework, a strong competitive force can be regarded as a threat because it depresses profits. A weak competitive force can be viewed as an opportunity because it allows a company to ear n greater profits. The task facing managers is to recognize how changes in the five forces give rise to new opportunities and threats and to formulate appropriate strategic responses. STRATEGIC GROUPS An industry consists of number of firms. Firms in an industry, often, differ from each other with respect to product, quality, customer service, pricing policy, distribution channel, advertising policy, promotion, target segment and technological change. Within an industry, a strategic group refers to a set of business units, which ‘pursue similar strategies with similar resources’. The strategies followed by companies in one strategic group will be different from the strategy pursued by other strategy group. In a strategy group, each member company almost follows the basic strategy as other companies in the group. Mc Donald, Burgar King and Domino are in restaurant industry and have many things in common. Haldiram, though in the same restaurant industry, has different mission, objective, strategies and in different strategic group. Strategic Groups within Industries Proprietary group: The companies in this proprietary strategic group are pursuing a high risk high return strategy. It is a high risk strategy because basic drug research is difficult and expensive. The risks are high because the failure rate in new drug S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 3 Threat of Potential Entrants Rivalry among Established Firms Threat of Substitutes Bargaining power of Supplier Bargaining power of Buyers
  4. 4. Strategic Management development is very high. Generic group: Low R&D spending, Production efficiency, as an emphasis on low prices characterizes the business models of companies in this strategic group. They are pursuing a low risk, low return strategy. It is low risk because they are investing millions of dollars in R&D. It is low return because they cannot charge high prices. Strategic Types: By strategic type, we mean that a strategic orientation which is a combination of structure, culture and process consistent with that strategy. The different strategic orientation is the reason behind the varying behaviour of firms facing similar environment. In order to examine the intensity of competition and to predict the moves of firms within strategic groups one has to familiarizes with different strategic types. COMPETITIVE CHANGES DURING INDUSTRY EVOLUTION Industries pass through various stages such as growth, maturity and decline. The competitive forces act upon these stages and give rise to opportunities and threats for an industry. A strategist should be aware of these developments during strategy formulation and anticipate them in advance. Industry Life Cycle and Industry Environment The industry life cycle model is used for analyzing the effects of industry evolution on competitive forces. Based on the industry life cycle model, the industry environment could be identified as follows: (1) Embryonic industry environment (2) Growth industry environment (3) Shakeout environment (4) Mature industry environment (5) Declining industry environment (1) Embryonic Industries: An embryonic industry is one which is just beginning to develop. Embryonic industry may evolve due to a company’s innovative efforts. For example, Apple Computer, Xerox. (2) Growth Industries: From embryonic stage, the industry moves on to growth stage. New customers enter the market and demand expands rapidly. (3) Industry Shakeout: Growth stage is not sustained continuously and the shakeout stage follows necessarily. Here the demand is saturated (price cutting and price war). (4) Mature Industries: It enters the mature stage once the shakeout stage comes to an end. Growth is very little or nothing. (5) Declining Industries: Industry enter into declining stage after the maturity stage. Negative growth is registered due to technological substitutions. S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 4
  5. 5. Strategic Management Industry and Sector: An important distinction that needs to be made is between an industry and a sector. A sector is a group of closely related industries. Industry and Market Segments: Market segments are distinct groups of customers within a market that can be differentiated from each other on the basis of their distinct attributes and specific demands. GLOBALIZATION AND INDUSTRY STRUCTURE In conventional economic system, national markets are separate entities separated by trade barriers and barriers of distance, time and culture. With globalization, markets are moving towards a huge global market place. The tastes and preferences of customers of different countries are converging common global norm. Products like Coco Cola, Pepsi, Sony Walkman and McDonald hamburgers are globally accepted. Individual companies have dispersed parts of their production process to various parts of the world to take advantage of national advantage with respect to cost and factors of production such as land, labour, capital and energy. The end result is low cost and enhanced profits. General Motors has chosen different locations like South Korea, Germany, Japan, Singapore and Britain for making its product, Le Mans. General Motor has aimed to reduce its total cost by dispersing its production activities. The world economy has undergone a fundamental change. Globalization of production and globalization of markets are taking place. The intense rivalry forces all firms to maximize their efficiency, quality, innovative power and customer satisfaction. With hyper competition, the rate of innovation has increased significantly. Companies try to outperform their competitors by pioneering new products, processes and new ways of doing business. Previously protected national markets face the threat of new entrants and intense rivalry. Hyper Competition Hyper competition occurs in any industry due to intense environmental uncertainty, which makes competitive advantage superficial and temporary. With globalization, new entrants and foreign players make their way into hitherto protected markets. Distribution channels also vary from country to country. After regulation of Indian economy the industrial sector has witness’s enormous changes. The banking sector reforms also contributed to changes in the economic conditions of India. Merger, acquisition and joint venture with MNCs take place in large number. Ultimately intense competition is felt in the industrial scene. A vibrant stock market has emerged. S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 5
  6. 6. Strategic Management NATIONAL CONTEXT AND COMPETITIVE ADVANTAGE In spite of globalization of markets and production successful companies in certain industries are found in specific countries:  Japan has most successful consumer electronics companies in the world  Germany has many successful chemical and engineering companies in the world  United States has many of the world’s successful companies in computer and biotechnology  It shows that national context has an important bearing on the competitive position of the companies in the global market Economists consider the cost and quality of factors of production as the major reason for the competitive advantage of some countries with respect to certain industries. Factors of production include basic factors such as labor, capital, raw material, land and advanced factor s such as technological know-how, managerial talent and physical infrastructure. The competitive advantages U.S enjoys in bio-technology due to technological know-how, low venture capital to fund risky start-ups in industries. According to Michael porter the nation’s competitive position in an industry depends on factor conditions, Industry rivalry, demand conditions, and related and supporting industries. Strategic Types: By strategic type, we mean that a strategic orientation which is a combination of structure, culture and process consistent with that strategy. The different strategic orientation is the reason behind the varying behaviour of firms facing similar environment. In order to examine the intensity of competition and to predict the moves of firms within strategic groups one has to familiarizes with different strategic types. Miles and Snow have classified the strategic types into: a) Defenders b) Prospectors c) Analyzers d) Reactors a) Defenders: The defender strategic type companies have a limited product line and they focus on efficiency of existing operations. Their preoccupation with cost reduction does not encourage them to try innovative ideas in new areas. b) Prospectors: These firms with broad product items focus on product innovation and market opportunities. Their too much emphasis on creativity makes them somewhat inefficient. They are preoccupied with creativity at the expense of efficiency. S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 6
  7. 7. Strategic Management c) Analyzers: Analyzers are firms which operate in both stable and variable markets. In stable markets the company’s emphasis efficiency and in variable market they emphasize innovation, creative and differentiation. d) Reactors: The firms which do not have a consistent strategy to pursue are called reactors. There is an absence of well-integrated strategy-structure-culture relationship. Their strategic moves are not integrated but piecemeal approach to environmental change makes them ineffective. The Determinants of Competitive Advantage According to Michael Porter, the nation’s competitive position in any industry depends on the following: (1) Factor conditions, (2) Industry rivalry, (3) Demand conditions and (4) Related and supporting industries. Fig: The Determinants of Competitive Advantage RESOURCES, CAPABILITIES AND COMPETENCIES Resources Resource Based View (RBV) defines capability as the ability of a bundle of resources to perform an activity. It is a way of combining assets, people and processes to transform inputs into output. Physical assets, financial resources, human skills are of no use unless these are put to good use, in order to produce results. This can be represented mathematically thus: C= F (TA, IA, S) Where, C= capability TA = Tangible assets, IA = intangible assets and S = Skills S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 7 Intensity of Rivalry National Competitive Advantage Competitiveness of related and supporting Industries Factor Conditions Local Demand Conditions
  8. 8. Strategic Management Capabilities Capabilities thus, reflect a firm’s capacity to deploy resources that have been purposefully integrated to achieve a desired end state. They emerge over time through a complex process of interactions between tangible and intangible resources. The whole purpose is to create and exploit external opportunities and develop sustained advantages over rivals in the field. Through repetition and constant practice capabilities become stronger and more valuable strategically. Competency The term competency refers to the ability of an organization to achieve its purpose. It is the ability to perform exceptionally well and increase the stock of targeted resources of an organization. Hamel and Prahalad coined the term core competence to distinguish those capabilities fundamental to a firm’s performance and strategy. Competitive advantage of a company becomes depends on three factors: 1. The value customers place on the company s products 2. The price that a company charges for its products 3. The costs of creating those products The value customers place on a product reflects the utility they get from a product, the happiness or satisfaction gained from consuming or owning the product utility must be distinguished from price. Utility is something that customers get from a product. It is a function of the attributes of the product such as its performance, design, quality, and point of sale and after-sale service. CORE COMPETENCIES Core Competencies are fundamental enduring strength which is a key to competitive advantage. Core competence may be a competency in technology, process, engineering capability or expertise which is difficult for competitors to imitate. One core competence gives rise to several products. Honda s core competence in designing and manufacturing engines had led to several products and business such as cars, motorcycles, lawnmowers, generators etc. o Honda’s core competence in designing and manufacturing engines had led to several products and business such as cars, motorcycles, lawn mowers, generators etc. o 3Ms core competence in substrates and coating adhesives has given rise to 60,000 products which includes magnetic tapes, photographic films, coated abrasives etc. Sony has a core competence in miniaturization. o Dupont has a core competence in chemical technology. o Eureka Forbes which manufactures domestic vacuum cleaner develops core competency in door-to-door selling. Building core competence is a long-term process. Firms invest heavily in technology and R&D in order to build core competence. The business units search for emerging S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 8
  9. 9. Strategic Management technologies and gain expertise over the. The firms bring out proprietary products, which confer on them an advantage over competitors. Developing core competence involves development and training of technical force suitable to the required level. Core competence is the firm’s key capabilities and collective learning sill that are fundamental to its strategy, performance and long term profitability. Core competencies are the activities that the firm performs especially well compared to competitors and through which the firm adds value to its goods and services over a long period of time. Core competencies serve as a source of competitive advantage for a firm over its rivals. They emerge over time through an organizational process of accumulating and learning how to deploy organizational resources and capabilities. When developed, nurtured and applied appropriately throughout a firm, core competencies serve as the basis for a firm’s competitive advantages, its strategic competitiveness and its ability to earn above average returns. LOW COST AND DIFFERENTIATION A company is said to have attained competitive advantage when the profit rate of a company is higher than industry average. Return on Sales (ROS) and Return on Assets (ROA) are ratios calculated to determine profit rate. Gross Profit margin is the basic deciding factors of a company’s profit rate, which is simply the difference between total revenue and total cost divided by total cost. Gross Profit Margin = Total Revenue − Total Cost Total Costs = (Unit price × Units sold) – (Unit cost × Units sold) (Unit cost × Units sold) If the gross profit margin is to be higher, the following three conditions should be satisfied. 1) The unit price of the company must be higher than that of other average companies. 2) The unit cost of the company must be lower than that of other average companies. 3) The company must have a lower unit cost and a higher unit price. Companies resort to premium when they charge high unit price than the industry average. The companies and value to the product form the consumer’s perspective in order to charge premium price. Besides, they go for differentiated products in terms of quality, design, after sales service and delivery time. Low cost and differentiation are classified as generic business level strategies as they represent the two basic ways of attaining competitive advantage. Companies which go for low cost strategy, do everything possible to reduce unit costs. Firms which opt for S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 9
  10. 10. Strategic Management differentiation strategy, do everything to differentiate product from that of other players. Differentiation and Cost Structure Toyota has differentiated itself from General Motors by its superior quality, which allows it to charge higher prices, and its superior productivity translates into a lower cost structure. Thus its competitive advantage over GM is the result of strategies that have led to distinctive competencies resulting in greater differentiation and a lower cost structure. Consider the automobile Industry, In 2003 Toyota made 2402 dollar in profit on ever y vehicle it manufactured in North America. GM in contrast, made only 178 dollar profit per vehicle. What accounts for the difference? First has the best reputation for quality in the industry. The higher quality translates into a higher utility and allows Toyota to charge 5 to 10 per cent higher prices than GM. Second Toyota has a lower cost per vehicle than GM in part because of its superior labor productivity. GENERIC BUILDING BLOCKS OF COMPETITIVE ADVANTAGE A company has a competitive advantage over its rivals when its profitability is greater than the average profitability of all companies in its industry. It has a sustained competitive advantage when it is able to maintain above average profitability over a number of years. The following are factors for building competitive advantage: Fig: Generic Building Blocks of Competitive Advantage Efficiency: In a business organization, inputs such as land, capital, raw material, managerial know-how and technological know-how are transformed into outputs such as products or services. Efficiency is measured as a ratio between the costs of inputs S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 10 Superior Quality Competitive Advantage Low Cost Differentiation Superior Efficiency Superior Customer Service Superior Innovation
  11. 11. Strategic Management required to produce a given output. Efficiency of operations enables a company to lower the cost of inputs to produce given output and to attain competitive advantage. Employee productivity is measured in terms of output per employee. The Japanese auto giants have cost based competitive advantage over their near rivals in U.S. Quality: Quality of goods and services indicates the reliability of doing the job, which the product is intended for. High quality products create a reputation and brand name which in turn permits the company to charge higher price for the products. Quality is also influenced by greater efficiency. Hence efficiency, high product quality and productivity move in the same direction. Innovation: Innovation means new ways of doing things. Innovation results in new knowledge, new product development, new production process, management systems, organizational structures and strategies in a company. Innovation offers something unique, which the competitors may not have and allows the company to charge high price. Photocopiers developed by Xerox and Sony’s Walkman are typical examples of successful product innovation of pioneering companies. Customer Responsiveness: Companies are expected to provide customers what they are exactly in need of by understanding customer needs and desires. Achieving superior customer responsiveness involves giving customer value of money. Customer responsiveness is determined by customization of products, quick delivery, quality, design and prompt after sales service. The popularity of courier service over Indian Postal Service is due to the quickness of service. Caterpillar attends to customer complaints within 48 hours anywhere in the globe. DISTINCTIVE COMPETENCIES The relationship of a company strategy involves distinctive competencies and competitive advantage. Distinctive competencies shape the strategies that the company pursues which lead to competitive advantage and superior profitability. However, it is also very important to realize that the strategies a company adopts can build new resources and capabilities or strengthen the existing resources and capabilities thereby enhancing the distinctive competencies of the enterprise. Thus the relationship between distinctive competencies and strategies is not a linear one, rather it is a reciprocal one in which distinctive competencies shape strategies and strategies help to build and create distinctive competencies. Distinctive Competencies: Distinctive competencies are firm specific strengths that allow a company to differentiate its product and achieve substantially lower costs than its rivals and thus gain a competitive advantage. Internal Analysis is a three step process: 1) Manager must understand process by which companies create value for customers and profit for themselves and they need to understand the role of resources, capabilities and distinctive competencies in this process. S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 11
  12. 12. Strategic Management 2) They need to understand how important superior efficiency, innovation, quality and responsiveness to customers are in creating value and generating high profitability. 3) They must be able to identify how the strengths of the enterprise boost its profitability and how any weaknesses lead to lower profitability. RESOURCES AND CAPABILITIES Resources: Resources are financial, physical, social or human, technological and organizational factors that allow a company to create value for its customers. Capabilities: Capabilities refer to a company s skills at co-coordinating its resources and putting them to productive use. A critical distinction between Resources and Capabilities: The distinction between resources and capabilities is critical to understanding what generates a distinctive competency. A company may have valuable resources, but unless it has the capability to use those resources effectively, it may not be able to create a distinctive competency. For Example: The steel mini-mill operator Nucor is widely acknowledged to be the most cost efficient steel maker in the United States. Its distinctive competency in low cost steel making does not come from any firm specific and valuable resources. Nucor has the same resources as many other mini-mill operators. What distinguishes Nucor is its unique capability to manage its resources in a highly productive way. Specifically Nucor s structure, control systems and culture promote efficiency at all levels within the company. DURABILITY OF COMPETITIVE ADVANTAGE Durability of competitive advantage refers to the rate at which the firm’s capabilities and resource depreciate or become obsolete. Companies try hard to sustain competitive advantage since every other company tries to develop distinctive competencies and gain competitive advantage. Durability depends on three factors:  Barrier to Imitation  Capability of Competitors  Dynamism of Industry Barriers to Imitation: Barriers to those factors, which make it difficult for a competitor to copy a company’s distinctive competencies. The longer the period for the competitor to imitate the distinctive competence, the greater the opportunity that the company has to build a strong market position and reputation with consumers. S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 12
  13. 13. Strategic Management • Imitability refers to the rate at which other duplicate a firm’s underlying resources and capabilities. • Tangible resources such as land, building and equipment are visible and imitable. • Intangible resources like brand names are difficult to imitate and brand names represent the company’s reputation. • Similarly marketing and technological know-how are also intangible resources. Capabilities are by-products of internal operations and decision-making process of a company and it is difficult for competitors to comprehend it. If the firm’s core competence emanates from explicit knowledge i.e. knowledge expresses, articulated and communicate, it is easily imitated by competitors. When capabilities emanate from tacit knowledge i.e. knowledge not communicated as it is deep-rooted in organization’s culture and employees experience, imitation will be tough for competitors. Hence a distinctive competence based on unique capabilities is more durable than one based on resources. Capabilities are invisible to outsiders and it is rather difficult to imitate. Capabilities of Competitors: When a firm is committed to a particular course of action in doing business and develop a specific set of resources and capabilities, such prior commitments serve as a deterrent to imitate the competitive advantage of successful firms. U.S. automobile giants (General Motors, Ford, Chrysler) investments in large sized cars served as a setback in shifting their massive investments for low cost small sized cards as made by Japanese competitors. Dynamism of Industry: Dynamic industries are characterized by high rate of innovation and fast changes. In dynamic industries, product life cycle will be short and competitive advantage will not last for a long time. It gives rise to hyper competition. The consumer electronic industry and computer industry are typical examples of dynamic industries. The turbulence in computer industry environment has been contributed by continuous innovations of Apple Computers, IBM, Compaq and Dell. AVOIDING FAILURES AND SUSTAINING COMPETITIVE ADVANTAGE Analyzing best industrial practice through benchmark will facilitate organizations to build distinctive competencies. Bench marking involves identification of best practices adopted in other countries. It involves measurement of the firms against products, prices, practices and services of some of the most efficient global competitors. When Xerox was in trouble 1980s, Xerox applied bench marking for 240 functions against comparable areas in other companies. S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 13
  14. 14. Strategic Management The single most significant step in avoiding failure is identification of barriers to change and overcoming such barriers. This step will point out the need for new organizational structure and control systems in response to the changed environment. Appropriate leadership style and prudential use of power will be of help in maintaining competitive advantage. Why do Companies Fail? A failing company is one whose profit rate is substantially lower than average profit rate of competitors. Declining profit and loss of competitive advantage are some of the reasons for failure of companies. Studies have pointed out the following reasons for failure of companies.  Inertia  Prior strategic commitments  Too much inner directedness and specialization Inertia: In changed market conditions, companies find it difficult to change their strategies and structure accordingly. The changed competitive conditions put pressure on the decision makers to introduce suitable changes in developing capabilities. Prior Strategic Commitments: The commitments which are already made in terms of huge investments, direction and facilities prove to be a setback and result in competitive disadvantage. IBM’s massive investments were locked in a shrinking business. Too much Inner Directedness: Icarus, a Greek mythical figure, who was held as prisoner in an island flew so well and went higher and higher up to the sun and met with his fatal end. Many companies, like Icarus are carried away by initial success and lose sight of external environment. Procter and Gamble and Chrysler were overconfident of their selling ability and paid no attention to new product development and ended up in inferior products. Avoiding failures and sustaining competitive advantage When a company loses its competitive advantage, its profitability falls. The company does not necessarily fail; it may just have average or below average profitability and can remain in this mode for considerable time although its resource and capital base is shrinking. A failing company is one whose profitability is new substantially lower than the average profitability of its competitors, it has lost the ability to attract and generate resources so that its profit margins and invested capital are shrinking rapidly. Steps to Avoid failure: 1) Focus on the building blocks of competitive advantage 2) Institute continuous improvement and learning 3) Track Best Industrial Practice and Benchmarking 4) Overcome Inertia S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 14
  15. 15. Strategic Management Evaluation of Key Resources (VRIO): Barney has evolved VRIO framework of analysis to evaluate the firm s key resources. The following questions are asked to assess the nature of resources.  Value - Does it provide competitive advantage?  Rareness - Do other competitors possess it?  Imitability - Is it costly for others to imitate?  Organization - Does the firm exploit the resources? Part ‘A’ Questions 1. Define the concept of environment. 2. Mention the two strategic groups within the industry. 3. Identify the life cycle of industry environment. 4. What are the strategic types of competitive advantage? 5. Define capability. 6. What is competency? 7. What do you understand by core competency? 8. Define distinctive competency. 9. What is meant by resources? 10.What is meant by capabilities? Part ‘B’ Questions 1. Explain Porter’s five forces model. 2. Enumerate the determinants of competitive advantage. 3. Explain the factors for building competitive advantage. 4. Discuss the factors for durability of competitive advantage. 5. Elucidate the relationship between resources, capabilities and competitive advantage of a business firm. ************ Text Books and References: 1. Azhar Kazmi, “Strategic Management & Business Policy”, Tata McGraw Hill, New Delhi, 3rd Edition, 2008. 2. Dr.M.Jeyarathnam, “Strategic Management”, Himalaya Publishing House, 5th Edition, 2011. 3. Charles W.L.Hill & Gareth R Jones, “An Integrated Approach to Strategic Management”, Cengage Learning India Private Ltd., New Delhi, 2008. S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 15

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