COMPETITIVE

ADVANTAGE

UNIT - 2
PORTERS FIVE FORCE MODEL
 Exhibit 8–5 Five Forces Model

Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and
Competitors (New York: The Free Press, 1980).
Chapter 8, StephenP.Robbins, Mary Coulter, Management, Copyright © 2010 8–3
Pearson Education, Inc. Publishing as Prentice Hall
Threat of New Entrants
• New Entrants to Industry easily raise the level of Competition,
thereby reducing our Product’s Attractiveness
• “Barriers to Entry” are Obstacles to New-Entrants from easily Entering
an Industry or Area of Business
Eg : Extreme Government regulations, Huge Start-up Costs, Strong
Technology, Efficient Access to Suppliers & Distribution Channels
• Ship Building Industries, Energy Industries are difficult to enter
whereas Retailers & Restaurants are easy to Enter.
Threat of Substitutes
• The Presence of Substitute Products lowers our Profitability because
they Limit our Price levels
Eg : Coffee-Tea, Petrol-Diesel

• If the Performance of the Substitute is relatively Good & Switching

Cost is low, then the Substitute is a High Competition of our Product
Bargaining Power of Buyers
• When the Buyer is Strong, the Buyer sets the Price
• Bargaining Power of Buyers is greater
a). When the Suppliers are many & Buyers are few
b). When Alternative Suppliers are available to supply at Lower Price
c). When the Buyer Purchases the Product large in number
• Bargaining Power of Buyers not only Lowers the Price but also
Demands for Discounts, High Quality & better Service.
Bargaining Power of Suppliers
• Fewer Suppliers of our Product means that more Powerful are the
Suppliers
• Suppliers if Powerful exert much Influence on our Industry by selling
Raw-materials at High Price, Low Quality & in extreme Cases they
may don’t provide the Raw-materials stating some Reasons
• Bargaining Power of Suppliers is greater:
a).When the Suppliers are few & the Buyers are many
b). When the Raw-material is Unique & are not commonly available
c). When the Supplier himself has the Power to set-up Retail Outlets
Intensity of Rivalry
The Intensity of Rivalry is high when
1).Large number of Firms compete for same Customers
2). Low levels of Product Differentiation (ie) Low difference in Brand
Identification leads to Rivalry
Eg : Coca Cola vs Pepsi
3). Low Switching Cost : If a Customer of a Product can freely Switch
from one Brand to another
4). High Strategic Stakes : If a Company is about either to Loose or Gain
heavily, defenitely they Try to intensify the Competition Plan.
 Exhibit 8–5 Five Forces Model

Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and
Competitors (New York: The Free Press, 1980).
Chapter 8, StephenP.Robbins, Mary Coulter, Management, Copyright © 2010 8–9
Pearson Education, Inc. Publishing as Prentice Hall
 EXTERNAL
ENVIRONMENT

• External Environment refers to the Factors that has an indirect

influence on the Business.

• These Factors are uncontrollable by the Business.

 MICRO-ENVIRONMENT MACRO-ENVIRONMENT

Refers to Internal or nearby Environment of a Created by External Forces which affect the Whole
Company in which it Operates. Business of the Company.

Competitors,Suppliers,Customers, Shareholders, PESTEL

Intemediaries,Public, Media

Direct & Immediate Impact Indirect Impact

 EXTERNAL ENVIRONMENT
a) MICRO ENVIRONMENTAL FACTORS
These are external factors close to the company that have a direct
impact on the organizations process.

b) MACRO ENVIRONMENTAL FACTORS

These are external factors close to the company that have a Indirect
impact on the organizations process.
 MACRO ENVIRONMENTAL
FACTORS
i) Political Factors
o Political factors include Government regulations and Legal issues and
define both formal and informal rules under which the Firm must operate.
o Some examples include:
• Tax policy
• Employment laws
• Environmental regulations
• Trade restrictions and tariffs
• Political stability
 MACRO ENVIRONMENTAL
FACTORS
ii) Economic Factors
o Factors Economic factors affect the Purchasing power of potential
Customers and the Firm's Cost of Capital.
o The following are examples of factors in the Macroeconomy:
• Economic growth
• Interest rates
• Exchange rates
• Inflation rate
 MACRO ENVIRONMENTAL
FACTORS
iii) Social Factors
o Social factors include the Demographic and cultural aspects of the external
macro environment. These factors affect Customer needs and the size of
Potential markets.
o Some Social factors include:
• Health consciousness
• Population growth rate
• Age distribution
• career attitudes
• Emphasis on safety
 MACRO ENVIRONMENTAL
FACTORS
iv) Technological Factors
o Technological factors can lower Barriers to Entry, improves
Production levels, and influence Outsourcing Decisions.
o Some Technological factors include:
• R&D activity
• Automation
• Technology incentives
• rate of Technological changes
 MICRO ENVIRONMENTAL
FACTORS
i) Shareholders
• Any Person or Company that owns at least one share (a percentage
of ownership) in a Company is known as Shareholder. A Shareholder
may also be referred to as a “Stockholder".
• As Organization requires greater inward Investment for Growth they
face increasing Pressure in Business conditions.
• However the Shareholder Policy, Obstructs on the Strategy
Formulation of Organizations.
 MICRO ENVIRONMENTAL
FACTORS
ii) Suppliers

• Increase in Raw material prices will have a knock on affect on the

Marketing mix strategy of an organization. Prices may be forced up
as a Result.
• A closer supplier relationship is one way of ensuring Competitive and
Quality products for an Organization.
 MICRO ENVIRONMENTAL
FACTORS
iii) Distributors
• Often getting Products to the End customers can be a major issue for
Firms.
• Distibutors usually provide a range of Services (such as Product
information, Estimates, Technical support, After-sales services,
credit) to their Customers.
• You can also gain a Competitive advantage by using changing
Distribution channels.
 MICRO ENVIRONMENTAL
FACTORS
iv) Customers
• A Person, Company, or other Entity which buys Goods and Services
produced by another Person, Company, or other Entity is known as
Customer.
• Organizations survive on the basis of meeting the needs, wants and
providing benefits for their Customers.
• Failure to do so will result in a Failed Business Strategy.
 MICRO ENVIRONMENTAL
FACTORS
v) Competitors
• A Company in the same Industry or a similar Industry which offers a
similar Product or Service is known as Competitor.
• The presence of one or more Competitors can lower the prices of
Goods and Services as the Companies attempt to gain a larger Market
share.
• Competition also requires companies to become more Efficient in
order to reduce Costs.
 MICRO ENVIRONMENTAL
FACTORS
vi) Media
• Positive or adverse Media attention, in some cases can make or break
an Organisation..
• Consumer Programmes with more Direct audience can also have a
very powerful Positive and Negative impact, forcing Organisations to
change their Tactics.
 Strategic Group
•A strategic group is a concept used in strategic Management
that groups companies within an industry that have similar
business models or similar combinations of strategies.
• A strategic group contains companies that compete with one
another directly. If multiple companies share similar Strategy
w.r.t Pricing, Quality level, Technology and marketing, they
probably constitute a Strategic group.

For example, the Hotel industry can be divided into several strategic
groups including Fast-food and STAR Hotels based on variables
such as Preparation time, pricing, and Presentation
 Types of
Industries
• Agriculture industry • Aerospace Industry
• Telecommunication industry
• Manufacturing Industry • Food Industry
• Education Industry
• Energy Industry (Mining,Nuclear
• Health care Industry Power,Windmills)
• Pharmaceutical Industry
• Electronics Industry
• Software Industry
• Entertainment Industry
• Automobile Industry
• Construction Industry
• News Media Industry
• Robotics Industry
Why Strategic Group Mapping ?
• To identify who your Direct and indirect Competitors
• SGM gives an account of difference among firm`s Profitability within
an Industry (how close Rivals are competing in the same Business/
Industry)
• It helps to overcome Strategic problems (Research on your
Competitors Approaches and get an edge over them in Competitive
Areas) and identify Future opportunities
• The Strategies pursued from Strategic groups highlights Alternative
paths to Success.
COMPETITIVE CHANGES DURING
INDUSTRY EVOLUTION
• The effects of industry evolution on Competitive forces is the
“Industry life cycle” model.

• Competitive changes (‘risk of entry by New competitor’ and ‘rivalry

among existing firms’ ) as an Industry evolves and Managers have to
anticipate these Changes and formulate appropriate Strategies.
Industry Life Cycle
 EMBRYONIC STATE:
Industry is just beginning to develop (eg., Personal computers in 1976).
Growth at this stage is slow due to factors such as:
• Buyers’ unfamiliarity with the industry’s products,
• High prices due to Poor Economies of scale, and
• Poorly developed Distribution channels.
• Barriers to New Entrants tend to be based on access to key
Technological know-how. Higher the Technology complexity, higher
the barrier for new Entrants.
Threat of New Entrants
• New Entrants to Industry easily raise the level of Competition,
thereby reducing our Product’s Attractiveness
• “Barriers to Entry” are Obstacles to New-Entrants from easily Entering
an Industry or Area of Business
Eg : Extreme Government regulations, Huge Start-up Costs, Strong
Technology, Efficient Access to Suppliers & Distribution Channels
• Ship Building Industries, Energy Industries are difficult to enter
whereas Retailers & Restaurants are easy to Enter.
EMBRYONIC STATE:
Rivalry is based not so much on Price as on
• Educating Customers,
• opening up Distribution channels, and
• perfecting the Design of the product.
• In this Stage, the Company has major opportunity to build up a
Strong Market Presence because of Lack of Rivalry
Eg : Personal computers (Apple), Vacuum cleaners (Hoover) and
Photocopiers (Xerox – the ultimate proof of the success of a brand).
 Growth stage
In this stage, Demand is expanding rapidly and the industry’s products
take off because
• Customers have become familiar with the product,
• Distribution channels have developed.
• Economies of scale have been attained but Competitors Emerge.
The U.S. cell-phone industry was in the growth stage most of the
1990s. In 1990 there were only 5 million cellular subscribers in the
nation. By 2002, this figure had increased to 88 million and demand
was growing @ more than 25% per year.
 Growth stage
Rivalry:

Control over Technological knowledge has diminished by this Time

 Few companies have achieved significant Scale of economies.
Thus, Threat from potential competitors is generally highest at this
point.
Eg : Hyundai Creta vs Maruti Brezza
 Growth stage
New Entrants:

High growth rate usually means New entrants can be absorbed into
an Industry. Thus, the Pressure due to New Entrant is relatively low.
A Strategically Aware company takes advantage of this relatively
Benign environment to prepare itself for the forthcoming Intense
Competition in the Shakeout stage.
 Industry Shakeout
• Explosive Growth cannot be maintained Indefinitely.
• At this Stage, since few potential First-time Buyers are left; most of
the Demand is limited to Replacement demand
• Sooner or later, Growth of Cash Flows & Revenue start slowing down
• As an Industry enters the Shakeout stage, Rivalry between
Companies become intense.
(eg., U.S. personal computer industry – Dell Computers).
 Industry Shakeout

Rivalry: In an attempt to utilize this capacity, companies often cut

prices. The result can be a Price war, most inefficient companies drive
to Bankruptcy.

New entrants: It is now a case of “Survival of the fittest”. So New Entry

is not a significant Factor at this Stage.
 Mature stage

The companies that survive the Shakeout enter the Mature stage of
the Industry:
• the Market is totally Saturated and Growth is low .
• Whatever growth there is comes from Population expansion or from
further increase in Replacement demand.
 Mature stage

Rivalry: In mature industries, companies tend to avoid Price wars and

enter into Cartels/ Market segment Agreements, thereby allowing
some Profitability.
• Only Organizations with Brand loyalty will survive
 Mature stage
New Entrant
• Competition for Market-share drives down Prices
(eg. Airline and PC industries).
• To survive the Mature stage, Companies begin to focus on Cost
minimization and steps to build Brand loyalty
(eg, Low-cost Airlines and ‘Frequent flyer’ Programs, excellent After-
Sales service by PC companies).
• Only those with Low-cost operations and ‘Attractive offers” will
survive.
 Decline Stage
Eventually, most industries enter a Decline stage:
• Technological substitution (eg, Air travel for Rail travel);
• Social changes (eg, ‘greater Health consciousness’ hitting Sugar Products);
• Demographics (declining Birthrate hurting the Babycare and Child
products Market); and
• International competition (cheap Chinese Imports flooding many World
markets).
RIVALRY: The main problem is that Growth becomes Negative because of
above Reasons and, even in such a scenario, rivalry among Established
companies Exist.
 Decline Stage
Exit barriers play a part in adjusting excess capacity. The greater the
exit barriers, the harder it is for companies to reduce capacity.
However, there is always the scope for ‘End-game strategy’ at this
stage).
Industry Life Cycle
Globalisation and Industry Structure
 GLOBALIZATION

• Globalization refers to the Strategy of Approaching Worldwide

Businesses with Standardized Products.
• Globalization is a combination of Economic, Technological, Socio-
cultural and Political Forces.
ADVANTAGES OF GLOBALIZATION

• Increased Free Trade between Nations - have greater flexibility to

operate across Borders .
• Increased Liquidity of capital - Investors in Developed Nations invest
in Developing Nations
• Global mass Media ties the World together.
• Increased flow of Communications (about Products & services) to be
shared between Individuals and Corporations around the World.
ADVANTAGES OF GLOBALIZATION

• Facilitates the “Global-village effect” - Greater ease and speed of

Transportation for Goods and People.
• Greater Interdependence of Developed & Developing Nations .
• Reduction of Cultural barriers
• Reduction of likelihood of War between Nations
• Improves the National & International Economy.
NATIONAL CONTEXT AND
COMPETITIVE ADVANTAGE
Despite the Globalization of Production & Markets ,certain Industries
are successful in a small number of Countries.
• Biotechnology & Computer companies – U.S.
• Electronics Company – Japan.
• Engineering company – Germany.
This suggests that the Nation within which a company is Based bears
on the Competitive Advantage of that company
PORTER’S DIAMOND MODEL
OF NATIONAL ADVANTAGE
NATIONAL CONTEXT AND
COMPETITIVE ADVANTAGE
1.Factor Conditions:
• Factor conditions relate to different types of Resources that are present or absent
within a Nation. Resources can be typed into Basic and Advanced Resources.
i). Basic Resources : The basic ones include useful Natural resources and the
availability of unskilled labor.
ii). Created Resources : Advanced or ‘Created resources’ include Specialization on
Infrastructure, availability of Capital, skilled knowledge, expertise etc.
• For Porter, Natural resources are of less important as compared to the Created
resources. Competitive advantage develops in Nations and in particular
Industries that are able to create these Advanced or ‘Created Resources’.
NATIONAL CONTEXT AND
COMPETITIVE ADVANTAGE
2.Demand Conditions:
• Demand conditions is invariably about the ‘Home demand’ which
affects how successful a Particular industry within a certain Nation is.
• More Demands inevitably mean more Challenges. Only these more
Challenges pressure the Companies towards Improvement.
• A strong ‘Home demand’ of Industries creates a Large market for
them as well as creates opportunities for Competitive Advantage
NATIONAL CONTEXT AND
COMPETITIVE ADVANTAGE
3. Government Regulations
• The Government plays a vital role in the success of an Industry in a
Nation.
• Porter believes that Government should bring Regulations to
stimulate the creation of ‘Advanced factors’ which leads to the
development of Competitive advantage.
• Government Policies, Investment in Infrastructure, granting Subsidies,
Funding, etc. are some ways in which Governments help in
intensifying ‘Home demands’.
NATIONAL CONTEXT AND
COMPETITIVE ADVANTAGE
4. Related and Supporting Industries
• For the overall growth and success of the Industry and the Country, it is
very important for all the Industry Domains to be Interconnected helping
each other to Grow.
• For example, a Real Estate company requires good quality Raw material
such as Cement and Steel for Construction purposes. Procurement of Raw-
materials from the Related companies should takeplace within the Country
rather than going for the International markets.
• A Profitable-Deal for both the Parties resulting in overall Growth and
Development of the Nation.
NATIONAL CONTEXT AND
COMPETITIVE ADVANTAGE
5. Strategy, Structure and Rivalry
• National Performance in particular Sectors is inevitably related to the
Strategies and the Structure of the Firms in that sector. Competition
towards National Performance plays a big role in driving Innovation
and Competitive advantage.
• The Japanese Automobile industry with 8 major Competitors
(Honda, Toyota, Suzuki, Isuzu, Nissan, Mazda, Mitsubishi,
and Subaru) provide Intense competition in the Domestic market, as
well as the Foreign markets in which they Compete.
 Core Competency
Core competency is a Foundational Capability or a “Company's well-Performed
activity” that is Fundamental and essential to:
i). fulfill a Company's Strategy,
ii). enhance a Company's Competitiveness,
iii). increase a Company's Profitability.

Eg :If Brand “Y” Shoes has a Business strategy of providing Quality Leather Shoes
with the most Competitive Resources and at the most
competitive price ensuring good Profit-margin, then it is considered as a Core
competency of Brand “Y”Shoes
 STRATEGY

• A Method or Plan chosen to bring about a desired future, such as

achievement of a goal or solution to a problem.

• Strategy is a High level plan to achieve one or more goals under

conditions of uncertainty
 CORE COMPETENCY
A) RESOURCES:
Resources are the capital or financial, physical, social or human,
technological and organizational Factor endowments (Talents) that
allow a company to create value for its Customers.
Types:
I) Tangible resources: -Are Physical entities, such as land, Buildings,
Equipment, Inventory and money.
 CUSTOMER VALUE

• Value is a Measure that Customers assign to a Product/Service

• Value is a function of Product/Service Attributes such as its
Performance, Conformance, Reliability, Durability & After sale-service.
• A Company that strengthens the Value of its Product/Service can
raise or hold Prices levels.
• Value of the Product/Service induces more Customers to purchase
our Product/Service & hence Sales volume increases
 CORE COMPETENCY

II) Intangible resources: Are non-physical entities that are necessary

for the creation of the company and its employees, such as :
 the knowledge that Employees have gained through Experience
 the Intellectual property of the company including Patents,
Copyrights & Trademarks.
 Brand Image (Reputation) of the Company
 CORE COMPETENCY
B) CAPABILITIES: -
• Refers to a company’s skills at coordinating its Resources & putting
them to Productive use.
• Emerge through Complex Interactions among Tangible and Intangible
Resources.
• The Capabilities success reside in an Organization’s Rules, Systems
and Procedures.
 Core Competency
Functional Areas Capabilities
• Manufacturing • Design & Production yielding Reliable
Products
• Production of Technologically sophisticated
Automobile Engines
• Product - Component Miniaturization

• Research and
• Exceptional Technological Proficiency.
Development • Development of sophisticated Control
Systems
Capabilities • Rapid transformation of Technology into new
Teams of Products and Services.
Resources
Resources
* Tangible
* Intangible © 2016 by Nelson, a division of Thomson Canada Limited.
 Product - Component Miniaturization

• Making Products and Components smaller is called Product –

Component Miniaturization.
• Miniaturization not only means smaller Products, but also more
efficient Production, Advanced Features and ultimately more
Competitive models.
Product - Component Miniaturization
 Core Competency
Functional Areas Capabilities
• Supply Chain Dist. • Effective Procurement techniques
• Effective Logistics mgmt. techniques
• Human Res. Mgmt. • Motivate, Empower, Retain employees
• Info. Systems • Efficient Inventory control System

• Marketing • Effective Promotion of Brand-Name.

• Ensure Customer Service
• Management • Ability to envision the future of Aero-Industry
• Effective Organizational structure
Capabilities
Teams of
Resources
Resources
* Tangible
* Intangible © 2016 by Nelson, a division of Thomson Canada Limited.
 Core Competency
C) COMPETENCIES:
• Core competencies are the Resources and Capabilities that comprise
the Strategic Advantages of a Business.
• Identifying and exploiting Core competencies act as a Drive to
Competitive Advantage for an Established company trying to stay
Competitive.
• Core competency provide the Foundation from which the Business
will grow, seize upon new Opportunities and deliver Value to
Customers.
 CUSTOMER VALUE

• Value is a Measure that Customers assign to a Product/Service

• Value is a function of Product/Service Attributes such as its
Performance, Conformance, Reliability, Durability & After sale-service.
• A Company that strengthens the Value of its Product/Service can
raise or hold Prices levels.
• Value of the Product/Service induces more Customers to purchase
our Product/Service & hence Sales volume increases
 Distinctive Competency
• A Distinctive competency is Firm-specific strengths that distinguishes
a Company from its Competitors.
• For example, one of Google's distinctive competencies is its Name
recognition and notable Search-Engine. This competency is difficult
for Competitors to imitate and sets Google apart from the rest of the
market.
• Distinctive competence is a unique Strength that allows a Company to
achieve superior efficiency, innovation, Quality and customer
responsiveness.
 DISTINCTIVE
COMPETENCIES
Distinctive Competencies are built around all functional areas, namely:
• Technology related
• Manufacturing related
• Distribution related
• Skills related
• Organizational capability
• Other types.
DISTINCTIVE COMPETENCIES :
Resources
Distinctive Competencies arise from two sources namely,
Resources – A Resource is an Asset, Inventory, Process, knowledge etc..
• Resources may be tangible – land, buildings, Machines,…
• intangible – brand names, reputation, patents, know-how,…
• Resources are the Firm-specific Assets useful for creating a
Differentiation advantage that few Competitors cannot acquire Easily.
• A Unique Resource is a Strength which gives a Competitive advantage
to do well compared to its Competitors
DISTINCTIVE COMPETENCIES :
Resources
Evaluation of key resources
A unique resource is one which is not found in any other company.
Barney has evolved VRIO framework of analysis to evaluate the firm’s
key resource, say

• 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 Resource?
VRIO Framework
DISTINCTIVE COMPETENCIES :
Resources
The strengths and weaknesses of Resources can be measured by :
• Company’s past performance
• Company’s key competitors and
• Industry as a whole.
The Extent to which it is different from that of the Competitors, it is
considered as a Strategic Asset.
DISTINCTIVE COMPETENCIES :
Capabilities
Capabilities – are skills, which put Resources to purposeful use.
• The Organizations Structure and Control system gives rise to
Capabilities.
• A Company should have both
a). unique Resources – for creating Differentiation Advantage
b).unique Capability - to exploit the Available resources.
DISTINCTIVE COMPETENCIES :
Capabilities

• Capabilities refer to the Firm's ability to utilize its resources

effectively
• An example of a Capability is the ability to Market faster than
Competitors.
• Such Capabilities are not Documented as Procedures and embedded
in the Routines of the Organization, thus are difficult for Competitors
to Imitate.
 Core Competency
Core competency is a Foundational Capability or a “Company's well-Performed
activity” that is Fundamental and essential to:
i). fulfill a Company's Strategy,
ii). enhance a Company's Competitiveness,
iii). increase a Company's Profitability.

Eg : If Brand “Y” Shoes has a Business strategy of providing Quality Leather

shoes with the most Competitive Resources and at the most
competitive price ensuring good Profit-margin, then it is considered as a Core
competency of Brand “Y”Shoes
 Distinctive
Competency
• A Distinctive competence is an Additional activity--that is a core competency
related to strategy, competitiveness, profitability--that is competitively
valuable and that the company performs better than its rivals.
To illustrate, Brand “Y” has a rival with Brand “Z”. Both has a
Business strategy of providing Quality Leather shoes with the most
Competitive Resources . Both offer Competitive pricing in the mid-value market
and ensure Profit Margin. Brand “Z” provides Leather insoles along with
leather upper Construction. Brand “Z” has one additional Competitive value of
excellent Craftsmanship.
Brand “Z” has competitive advantage over Brand “Y” Therefore, Brand “Z” has
a distinctive competency--a core competency that is competitively valuable
that the company performs better than rivals.
 Distinctive
Competency
• Distinctive competency provides the basis for building the
Competitive advantage.
• Distinctive competency is more effective then the core competency.
• Distinctive competency is hard for the Competitors to Imitate.
• A Distinctive competency is Firm-specific strengths that distinguishes
a company to perform better than Rivals/ Competitors.
 COMPETITIVE
ADVANTAGE

• The Factors or Characteristics which permit one Company to compete

more effectively than its Industry Rivals.

• Competitive Advantage refers to a Company’s ability to deliver its

Products or Services better than its Competitors
DURABILITY OF COMPETITIVE
ADVANTAGE

Durability of competitive advantage refers to the rate at which the

firm’s Capabilities and Resources depreciate or become obsolete
DURABILITY OF COMPETITIVE
ADVANTAGE
A) Barriers to Imitation:

• Barriers are factors which make it difficult for a competitor to copy a

company’s Distinctive competencies.
• The longer the period to imitate for the Competitor , the greater the
opportunity to build a strong Market Positioning with Consumers.
DURABILITY OF COMPETITIVE
ADVANTAGE

A). Barriers to Imitation:

• Imitability refers to the rate at which others duplicate the Resources

and capabilities of the underlying Firm
• Tangible resources can be easily imitated but Intangible resources
and capabilities cannot be imitated.
DURABILITY OF COMPETITIVE
ADVANTAGE
B) Capability of Competitors:
The Major determinants of the Capability of Competitors depends on
Competitor’s prior Strategic commitments & Absorptive capacity.
i) Strategic commitment: A Company’s commitment to the way of doing
Business to developing a particular set of Resources & Capabilities.
DURABILITY OF COMPETITIVE
ADVANTAGE
B) Capability of Competitors:

ii) Absorptive capacity: Refers to the ability of an enterprise to identify,

assimilate and use new knowledge & Competitive values.
When a number of Competitors give high importance to prior
Strategic commitments and Absorptive capacity , Durability of our
Competitive Advantage decreases.
DURABILITY OF COMPETITIVE
ADVANTAGE
C) Dynamism of Industry:
• Dynamic industries are characterized by high rate of Innovation and
fast Changes
• Competitive advantage will not last for a long time. The most
Dynamic industries tend to be those with a very high rate of Product
innovation.
Ex: Computer Industry.
VRIO Framework
GENERIC BUILDING BLOCKS OF
COMPETITIVE
ADVANTAGE
 Distinctive Competency
• A Distinctive competency is Firm-specific strengths that distinguishes
a Company from its Competitors.
• For example, one of Google's distinctive competencies is its Name
recognition and notable Search-Engine. This competency is difficult
for Competitors to imitate and sets Google apart from the rest of the
market.
• Distinctive competence is a unique Strength that allows a Company to
achieve Superior Efficiency, Innovation, Quality and Customer
responsiveness.
AVOIDING FAILURE AND
SUSTAINING COMPETITIVE
ADVANTAGE
Reasons for failure:
a) Inertia:
The Inertia argument says that Companies find it difficult to change
their Strategies & Structures in order to adapt to changing
Competitive conditions.
b) Prior Strategic commitments:
A company’s prior Strategic commitment not only limits its ability to
imitate rivals but may also cause competitive Disadvantage.
AVOIDING FAILURE AND
SUSTAINING COMPETITIVE
ADVANTAGE
Reasons for failure:
c) The Icarus Paradox:
• According to Miler, many companies become so dazzled by their
early Success that they believe more of the same type of effort is the
way to future success.
• As a result, they can become so specialized and inner directed that
they lose sight of market realities and the fundamental
requirements for achieving a Competitive advantage.
• Sooner or later, this leads to Failure.
AVOIDING FAILURE AND
SUSTAINING COMPETITIVE
ADVANTAGE
Steps to Avoid Failure:
a) Focus on the Building Blocks of competitive advantage:
• Maintaining a competitive advantage requires a company focusing on
all four Generic building blocks of competitive advantage – efficiency,
quality, innovation, and responsiveness to customers
• And to develop Distinctive competencies that contribute to superior
performance in all areas.
AVOIDING FAILURE AND
SUSTAINING COMPETITIVE
ADVANTAGE
Steps to Avoid Failure:
b) Institute continuous Improvement & Learning:
• In such a dynamic and fast – paced environment, the only way that a
company can maintain a competitive advantage overtime is to
continually improve its Resources, Capabilities & Competencies
• The way to do this is recognize the importance of Learning within the
Organization.
AVOIDING FAILURE AND
SUSTAINING COMPETITIVE
ADVANTAGE
Steps to Avoid Failure:
c) Track Best Industrial Practice and use Benchmarking:
• Benchmarking is the process of measuring the company against the
products, practices and services of some of its most efficient global
competitors.
 Benchmarking
Benchmarking is the process of
measuring an organization’s Internal processes

then identifying, understanding, and adapting outstanding Practices from other

Organizations considered to be Best-in-Class.
AVOIDING FAILURE AND
SUSTAINING COMPETITIVE
ADVANTAGE
Steps to Avoid Failure:
d) Overcome Inertia:
• Overcoming the Internal forces that are a barrier to change within an
organization is one of the key requirements for maintaining a
competitive advantage.
• Once this step has been taken, implement Competitive Strategies
and appropriate changes in Organizational structure.
AVOIDING FAILURE AND
SUSTAINING COMPETITIVE
ADVANTAGE
Reasons for failure:
a) Inertia:
The Inertia argument says that Companies find it difficult to change
their Strategies & Structures in order to adapt to changing
Competitive conditions.
b) Prior Strategic commitments:
A company’s prior Strategic commitment not only limits its ability to
imitate rivals but may also cause competitive Disadvantage.
Types of Competitive Strategies
• Cost Leadership Strategy
 Seeking to attain the lowest total overall costs relative to other
industry competitors.
• Differentiation Strategy
 Attempting to create a distinctive product or service for which
Customers will pay a Premium. Eg : Volvo, Apple.
• Focus Strategy
 Using a cost advantage to exploit a particular Market segment rather a
larger market.
Eg: Rolls Royce

Chapter 8, StephenP.Robbins, Mary Coulter, Management, Copyright © 2010 8–108

Pearson Education, Inc. Publishing as Prentice Hall