Performance of the Firm

Core Competencies in the Value Chain

STRATEGIC
MARKETING
MANAGEMENT
Steel Industry Performance
ROE-Ke Spread
40% Great Northern Iron

30%

20%
Worthington Inds
Nucor
Steel Technologies
10%
Oregon Mills
Commercial Metals
0%
Carpenter British Steel PLC
Birmingham Cleveland-Cliffs
Quanex
(10%) Lukens USX-US Steel
ACME Metals
Ampco
Inland Steel
(20%)

Armco
Average Invested Equity ($B) WHX Bethlehem
(30%)
$0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11 $12 $13 $14 $15

Source: Ghemawat (1999)

Pharmaceutical Industry Performance
ROE-Ke Spread
60%
SmithKline

American Schering Plough

40%
Home Amgen Watson Rhone-Poulenc
Glaxo Products Mylan Labs
Merck Bristol
Myers Warner Lambert Perrigo
20% Pharmacia & Upjohn
Eli Lilly Pfizer Forest Labs
Alza
0%
ICN
Scherer
Ivax
(20%) Genetech
Biogen
Roberts
Genzyme
(40%) Dura
Chiron
Cephalon
(60%) Gensia
Cygnus
Immunex
Average Invested Equity ($B)
(80%)
$0 $5 $10 $15 $20 $25 $30

Source: Ghemawat (1999)

Tools for Building Competitive
Advantage
 Resources are inputs into a firm’s production processes:
Tangible Resources Intangible Resources
Financial resources Technological resources
Physical resources Innovative resources
Human resources Reputation
Organizational resources

 Capabilities are the capacity for a set of resources to

perform a task or activity in an integrative manner
Strategy and Coherence

Strategy
(Positioning)

Resources
Organization
and
Design
Capabilities
Core Competencies Require VRIS-O
 Value – do a firm’s resources and capabilities allow a firm to
respond to its environment?
 Rare – how many rival firms already possess this
resource/capability?
 Inimitable – do firms face a cost disadvantage in obtaining
this resource/capability compared to firms that already have it?
 Non-substitutable – are there strategic alternatives?
 Organization – is the firm organized to exploit the full
potential of its resources/capabilities?
Cost Disadvantages of Imitation

 Inimitability is critical for a resource/capability to

become a core competence
 Firms trying to imitate another firm’s core
competence are at a cost disadvantage relative to
rivals due to
– Unique historical conditions
– Casual ambiguity
– Social complexity
– Patents
 The Value Chain
The value chain provides a map of firm capabilities
and allows systematic search for core competencies

Infrastructure
Activities
Support

M
Human Resources

ar
gi
Research and Development (Innovation)

n
Materials Procurement
Operations

Ma
Outbound

Marketing
Logistics
Inbound

Logistics

& Sales

Service

r gin
Primary Activities
Building Blocks of Competitive
Advantage
Efficiency

Lower Costs
Innovation Quality

Higher Prices

Customer
Responsiveness
Competitive Advantage via Efficiency

Manufacturing Econ of scale/Learning

Flexible manufacturing
Marketing Price for learning
Build brand loyalty
Infrastructure Commitment to efficiency
Human Resources Train skills/teams
Performance incentives
R&D Design for manufacturing
Process innovation
Materials mgt
(Supply Chain). JIT, Kanban, etc.
Competitive Advantage via Quality
Manufacturing Trace defects to source
Input from employees

Marketing Focus on customer

Customer feedback on quality

Infrastructure Measure & commit to quality

Human Resources Train quality (TQM, SPC)
Quality incentives

R&D Design for manufacturing

Process & product innovation
Materials mgt
(supply Chain ). Help suppliers implement TQM
Competitive Advantage via Innovation
Manufacturing Design for manufacturing
Inputs on process innovation
Marketing Customer focus for product innovation
Infrastructure Invest in R&D tools
Overall project management

Human Resources Hire talented innovators

Incentives/opportunities for innovation

R&D Cooperate with other functions in

process and product innovation

Materials mgt. No primary responsibility

Competitive Advantage via Customer
Responsiveness
Manufacturing Customization through flexible mfg
Marketing Know the customer
Customer feedback to functions

Infrastructure Commit to customer responsiveness

Information systems for feedback
Human Resources “Customer focused” training
Employee incentives and security
R&D Customers in innovation process

Materials mgt. Build responsive logistics systems

Incentives for Employee Security