Developing Sustainable

Advantage (SCA)
 Approaches to Developing SCA
• The Industrial Organization (I/O) approach to competitive
advantage advocates that external (industry) factors are more
important than internal factors in a firm achieving competitive
advantage.
– I/O focuses on analyzing external forces and industry variables as a basis
for getting and keeping competitive advantage.
– Competitive advantage is determined largely by competitive positioning
within an industry, according to I/O advocates.
– Managing strategically from the I/O perspective entails firms striving to
compete in attractive industries, avoiding weak or faltering industries, and
gaining a full understanding of key external factor relationships within that
attractive industry.
• Porter’s Five Forces Industry Analysis and STEP
(Macroenvironment) Analysis are examples of I/O Approaches
 Approaches to Developing SCA
• The Resource-Based View (RBV) approach to competitive advantage
contends that internal resources are more important for a firm than
external factors in achieving and sustaining competitive advantage.
• In contrast to the I/O theory presented in the previous chapter,
proponents of the RBV view contend that organizational performance
will primarily be determined by internal resources that can be grouped
into three all-encompassing categories: Physical resources, human
resources, and organizational resources.
– Physical resources include all plant and equipment, location, technology, raw
materials, machines;
– human resources include all employees, training, experience, intelligence,
knowledge, skills, abilities; and
– organizational resources include firm structure, planning processes, information
systems, patents, trademarks, copyrights, databases, and so on. RBV theory
asserts that resources are actually what helps a firm exploit opportunities and
neutralize threats.
Value Chain Analysis

Ch. 4-4
© 2001 Prentice Hall
 Which approach is best?
• However, it is not a question of whether external
or internal factors are more important in gaining
and maintaining competitive advantage.
– Effective integration and understanding of both
external and internal factors is the key to securing
and keeping a competitive advantage.
– Matching key external opportunities/threats with
key internal strengths/weaknesses provides the
basis for successful strategy formulation.
 SCA
• The idea for the SCA concept was first introduced
in 1984 by George Day.
– he implied that there were certain types of strategies
that could help an organization "sustain the competitive
advantage."
• Porter (1985) moved the idea to a concept by
describing the types of competitive strategies an
organization should possess in order to achieve
long term SCA. One of Porter's major contributions
to this area is the Five Force Analysis model.
 Core Competencies
• Barney (1991) defined sustainable competitive
advantage as when an organization is implementing a
value creating strategy that is not being implemented by
any current or potential competitors and when the
competitors are unable to duplicate the process“
• The sources of the advantage are known as core
competencies.
– Core competencies imply that the organization has an
advantage that is distinct and unique to that particular firm.
The organization usually has a brand or patent which
separates them from the competition.
 Core Competencies
• Core competencies consist of the characteristics which allow
a business to recognize competitive advantage. 
• Since there are many tasks and activities in a business and
competencies associated with the tasks, many businesses
have focused on competencies that primarily affect their
competitive advantage.
• Core competencies are not constant. They tend to change as
the organization changes. Therefore, it's important that the
competencies are flexible and not etched in stone. As a
business changes so will the core competencies.
• Where do organizations derive their core competencies?
 Developing Core Competencies or
Competitive Advantage
• Hamel and Prahalad (1989) identified three factors which
are necessary to developing a business's core competencies.
The factors focus on the specified achievements of the core
competencies and any business. The factors are:
– Provide potential access to a wide variety of markets -- the core
competencies support the creation of new products and services.
– Focus on the perceived value with which a customer measures a
product -- the core competencies allow a business to deliver
products based on customer preference.
– Makes it difficult for competitors to duplicate -- the core
competencies create something within a company that other
competitors cannot imitate. There is a sense of uniqueness.
 Developing SCA
• Core competencies/competitive advantages
that are:
– Hard to imitate (nonimitable)
– Unique/rare
– Not easily substitutable (nonsubstitutable)
• Become a company’s sustainable competitive
advantage
 Financial Ratio Analysis

Consolidated Balance Sheets for New Venture Fitness Drinks

Assets

8-11
 Financial Ratio Analysis

Consolidated Balance Sheets for New Venture Fitness Drinks (continued)

Liabilities and Owners’ Equity

8-12
 Financial Ratio Analysis
Ratio Analysis for New Venture Fitness Drinks

8-13