Ebook Strategic Management (2nd edition): Part 2

Ebook Strategic Management (2nd edition): Part 2 presents the following content: The firm: resources, capabilities and competitive advantage; Strategies for cost advantage and differentiation advantage; Competing in global markets. Please refer to the documentation for more details.
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Ebook Strategic Management (2nd edition): Part 2 Part 3 Competitive strategy INTRODUCTION The next three chapters focus on the process of obtaining and main- taining a competitive advantage in a particular market or market segment. The process basically involves matching the resources and capabil- ities of the organization to the needs and expectations of customers (Chapter 10). Resources and capabilities are brought to bear on the process of building competitive advantage through two distinct approaches: (1) cost leadership; and (2) differentiation (Chapter 11). Chapter 12 looks at these issues in an international setting. 10 The firm: resources, capabilities and competitive advantage INTRODUCTION Differences in profitability between companies in the same industry are as great as, and sometimes greater than, differences in profitability across industries. Table 10.1 illustrates this point from the automotive industry, where the margins being earned in 2000 varied from 5.4 per cent in the case of Nissan to 1.1 per cent in the case of Fiat. This is an industry in which economies of scale are important, yet a much smaller company than these, BMW, was earning around 9 per cent. Table 10.1 Sales, profits and margins of major automotive manufacturers, 2000 $ million $ million % General Motors 184,632 4,452 2.4 Ford 180,598 3,467 1.9 Daimler-Chrysler 150,070 7,295 4.9 Toyota 121,416 4,263 3.5 VW 78,852 1,896 2.4 Honda 58,462 2,100 3.6 Nissan 55,077 2,994 5.4 Fiat 53,190 614 1.1 PSA 40,831 1,213 2.9 Renault 37,128 998 2.7 164 Competitive strategy To understand why some firms consistently outperform others within the same industry, it is insufficient to look solely at differences in strategy. If some firms are better than others at identifying key success factors and so select strategies which are appropriate to the industry environment, then it is to be expected that poorly performing firms within an industry will imitate the strategies of successful firms. If competitive advantage is to be sustainable over time, then there must be differences between firms which result in some firms being able to outperform others. The key differences between firms which we shall focus on in this chapter are differences between firms in resources and capabilities. Resources are the firm’s most fundamental characteristics; they are its tools and its personality. By bringing its resources to bear, a firm displays its capabilities, its skills in performing productive activities. RESOURCES, CAPABILITIES AND STRATEGY FORMULATION For much of the 1980s and 1990s, strategic analysis concentrated on the attractiveness of the external environment and issues of posi- tioning – market share, relative cost position, first-mover advantage and the like. This emphasis was driven in part by the influential contributions of Michael Porter (1980, 1985) and the work of the PIMS project which investigated on a systematic basis the determi- nants of company profitability (Buzzell and Gale, 1989). Recent examination of the firm has largely been devoted to the implemen- tation of strategic plans. There has also been a resurgence of interest in internal aspects of the firm, and specifically in how an under- standing of the firm’s resources is critical to strategy formulation and sustained success. This chapter will argue that resources form the foundation for the firm’s strategy and the fundamental basis of its profits. The shift from an external to an internal view of the firm also involves a change of emphasis. Conventionally, strategy has been customer focused: the primary mission of firms has usually been viewed in terms of serving customer needs. Yet in many instances this has led to firms adopting strategies which have overstretched their resources. Saatchi and Saatchi’s global expansion and diversification was driven by the vision of providing a full range of marketing and consulting services to multinational clients throughout the world. The firm: competitive advantage 165 Unfortunately, this vision took the company beyond its competence base – providing creative advertising solutions to clients’ marketing needs from its London office. One consequence of the recent emphasis on resources has been to redirect the firm’s attention to what it is truly capable of supplying. The value of this perspective is exemplified by the success of certain companies which have established their long-term strategies on the development and application of a core of resources and capabilities, rather than on serving any particular product market: ᔡ Honda Motor Company began in 1948 producing small engines to provide auxiliary power to bicycles. The company’s strategy has been based on innovation and efficiency in the design and manu- facture of four-stroke engines. The efficiency and reliability of Honda’s engines played a major role in the company’s dominance of the world motorcycle industry. Subsequently, Honda has estab- lished itself in motor cars and a wide variety of markets where its engine technology can be applied – generators, small marine engines, lawn mowers. ᔡ 3M Corporation. Minnesota Mining and Manufact ...