Internal Analysis: Distinctive Competencies, Competitive Advantage and Profitability Posted on November 8, 2010 by Domingo Salazar, MBA
The Roots of Competitive Advantage
The Internal analysis is concerned with the identifying the strengths and weaknesses of the company. The main implications on the read material about strategy formulation are as follows: Starting on distinctive competencies, we can differentiate its products from its rivals, in order to determine our/them strengths, including two complementary sources: tangible resources and intangible resources, which in turn are referred to the assets of a company; following this complementary sources, are the capabilities of the company, which coordinates the company’s skills, the resources, capabilities and competencies, which in turn generates the true distinctive competency. Now, all this distinctive competencies shapes the strategies that the company pursues; however, is critical to realize that the strategies a company adopts can build brand new resources. There are three main reasons for failure over time, which are inertia, prior strategic commitments, and the Icarus paradox: The first one is related to the problematic situation changing their strategies for new and fresh ones, even more, to adapt the whole company or vision of the company, to the new competitive and environmental conditions; the second one is referring to the actual market’ limitations of the company to compete with its rivals is the main cause of competitive disadvantage, so the main point on this is timming; and the last one, is referring to the paradox of the greatest company assets, are the main cause of failure, if is not updated over time. Danny Miller, author of this statement, refers that many companies can become overwhelmed by their early success, as a result, they become so specialized that mislead the time-changing markets, leading to failure in most cases. Talking now about the lower-cost producers, I would like to add the Toyota case, not because is referred on the text book, but mainly due that I am currently involved on automotive market, so this case of success, is a great example of how a company can be a lower cost producer and at the same time can have an output for the final client, the customers. Offering customers value they cannot get elsewhere, this advantage can be economic or psychological such as better customer services, better after sale services, also, subsequent purchasing parts, maintenance and services by calling to remind customers for follow-up (the Chrysler is doing it now). The drivers of profitability have to be well known by all the managers who leads its departments or operations, managers needs to be able to compare, benchmark and performance the company against its competitors, and internally against the own historic performance itself; thus, will help to determine where and how the deterioration is, how the strategies are managed and/or maximized, how the cost structure is, and so on. According to the chapter, and other related articles, profitability it can be resumed as the net result of a number of policies and decisions made by the management; and to obtain a narrow ratio of profits we have to exclude the discontinued operations and the extraordinary items, because these does not represent the daily operations of a company. The insights provided by Du Pont model are valuable, and it can be used for “quick and dirt” estimates of the impact that operating changes have on returns. The Return on Investment, helps to evaluate companies’ performances, and measures the ability of the companies to reward funding-providers and to attract new ones for future funding; also, it evaluates the performance of the company and how is the company using its assets. Definitely strategizing is more important to explain the success or failure of a company, because the whole operation of the company, the whole philosophy, mission, vision, and so on, rely on the...
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