Competencies

MPIBA-01201 28th January 2013 Adapted from: Thomas L Wheelen & J. David Hunger Competitiveness & Globalization By: Michael A Hitt, R. Duane Ireland , Robert E. Hoskisson
Leben Johnson 29th January 2013

BPSM-Competencies

 Competencies
Resources: An organization's assets
Tangible Assets: Plant, Equipment, Finances and location Human Assets: Number of employees, skills and motivation Intangible Assets: Patents, Copyrights, knowledge, culture and reputation.

Capabilities: Are the abilities to exploit its resources and are functionally based. Example: Marketing capabilities, Manufacturing capabilities, HR capabilities.
Dynamic Capabilities: Constant change in processes to adapt to the uncertain environment.

Competencies: Cross functional integration and coordination of capabilities.

Example: Competency of new product development is the results of integrating MIS, Marketing, R&D capabilities. Core Competency: A competency that a corporation can do well across divisions. Distinctive Competency: When Core Competency is superior to competition and differentiates product. VRIO Framework: Value, Rareness, Imitability, Organization.

BPSM-Competencies

Criteria for Resources and Capabilities That Become Core Competencies

Valuable Rare

Core Competencies

Nonsubstitutable

Costly to Imitate

BPSM-Competencies

How Resources and Capabilities Provide Competitive Advantage

Valuable Allow the firm to exploit opportunities or
Rare Possessed by few, if any, current and
potential competitors neutralize threats in its external environment

Costly to imitate When other firms cannot obtain them or

must obtain them at a much higher cost

Nonsubstitutable The firm is organized appropriately to obtain

the full benefits of the resources in order to realize a competitive advantage
BPSM-Competencies

Core Competencies
When the four key criteria of resources and capabilities are met, they become core competencies. Managerial competencies are especially important. Core competencies serve as a source of competitive advantage, create value, and provide the opportunity for above-average returns.
BPSM-Competencies 5

 Industrial Organization (I/O) Model

Why Two Models?

Resource-Based Model
Focuses on the inside of the firm

Focuses on the environment outside the firm.

Successful strategy formulation and implementation actions result only when the firm properly uses both models.

BPSM-Competencies

Competitive Advantage Roots

Build Resources Distinctive Competencies Shape Capabilities Build
Functional Strategies Superior: -Efficiency - Quality - Innovation - Customer Service

Differentiation Value Creation Low Cost Superior Profitability

BPSM-Competencies

 Competitive Advantage
Competitive advantage Factors:
Value: The amount of value the customers place on the product Price: The price that a company charges for the product Cost: The cost of creating that value

V-P

V-P=Consumer Surplus

V P C

P-C

P-C=Profit Margin

V-C=Value Created V = Value to Consumer P = Price of Product C = Cost to production

BPSM-Competencies

 Value Creation and Pricing Options

Option1: Lowers Price To generate demand Option2: Raises Price To reflect value V-P V-P V-P P-C P-C P-C

Initial State

BPSM-Competencies

 Value Chain
The chain of activities that a company performs to add value and transform an input into an output. High Toyota Corolla

Lexus

Ford Explorer Reliability Yugo Low Inferior

BPSM-Competencies

Value

Attributes Value Superior

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 Durability of Competitive Advantage

Barriers to Imitation: - Imitating Resources. - Imitating Capabilities. Capability of Competitors: - Strategic Commitment. - Absorptive Capacity. Industry Dynamism:

Loosing Competitive Advantage

Inertia: Prior Strategic Commitments: The Icarus Paradox: Craftmesn, Builders, Pioneers and Salesmen Uncertainty Poor commercialization Poor positioning Strategy Technological Myopia Slow to Market

BPSM-Competencies

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 Sustaining Competitive Advantage

Focus on building blocks. - Institute continuous improvement & Learning - Track best industrial practices - Benchmark - Overcome inertia.
-

BPSM-Competencies

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 Building Competitive Advantage

Achieving Superior Efficiency: - Economies of Scale

Unit Cost
Economies of Scale

Diseconomies of Scale

Output
BPSM-Competencies 13

 Building Competitive Advantage

Achieving Superior Efficiency: - Learning Effects

Unit Cost

Time 1 Learning Effect Time 2

Output
BPSM-Competencies 14

 Building Competitive Advantage

Achieving Superior Efficiency: - Flexible Manufacturing and Mass Customization Traditional Manufacturing Flexible Manufacturing

Unit Cost

Variety Related Volume Related

Unit Cost

Total Unit Cost

Total Unit Cost Volume Related Variety Related

Production Vol & Product Variety

Production Vol & Product Variety

BPSM-Competencies

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 Building Competitive Advantage

Achieving Superior Efficiency: - Marketing and Efficiency
(+)

Profit per Customer

(-)

Length of time customer stays with company

BPSM-Competencies

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 Building Competitive Advantage

Achieving Superior Efficiency: - Material Management - R & D Efficiency - Human Resource Efficiency Hiring Efficiency Employee Training Self-Managing Teams Pay for Performance - Information System and Internet Efficiency - Infrastructure Efficiency - Total Quality Management (TQM) Six-Sigma Methodology Build Org. Commitment to Quality Focus on the Customer Measure Quality Set goals and create incentives Solicit inputs from employees Identify defects and trace them to source

BPSM-Competencies

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 Building Competitive Advantage

Achieving Superior Efficiency: - Innovation Quantum Innovation Incremental Innovation Build Skills in Basic and Applied Research Project Selection and Management Cross-functional integration Product development teams Partly parallel development process

Gate 1

Phase 1 Idea Generation

Phase 2 Project Refinement

Gate 2
Phase 3 Project Execution

Market

The Development Funnel

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