Strategy, Classic and Contemporary Views Emma Andersson – 880703 -1920
Lecturer: Hans Andersson & Fredrik Tell Mooyoung Son – 811121 -3776
Assignment for Seminar, Sept. 14– 10 Maral Antighechian– 840619 -0762 Group nr. 9B Katsiaryna Skachkova – 860205 -T222
Zebastian Nylund – 860503 -6592
A. Louis Vuitton is a French fashion house, which was established in 1854. Today it is one of the world’s most well-known and expensive brands due to some of its core capabilities that differentiate it in the competitive global market.
Brand: One of the most important competitive advantages for Louis Vuitton is its brand. It is estimated that LV is one of the most valuable brands in the world and it is recognized through the LV monogram known to millions.
Handmade: Sine the founding of LV in the 19th century no change has been made in the Louis Vuitton manufacturing and its products are still made by hand which differentiate this brands among its competitors in the fashion industry.
High quality: The company has an empowering position to observe its products quality by marketing the products through their own stores all over the world. Furthermore, LV is also famous for using high-quality raw materials for all its products.
Sony was founded in 1946 and is today known as on of the worlds most successful corporations, operating in many different industries, such as electronics, games, music, films and financial services. The brand is associated with excellent quality, innovation and style. Sony has been able to hold a strong leadership position over time by maintaining a strong focus on their core capabilities such as:
Size: Sony's main competence is to miniaturize electronics. Their specialization to do small things differentiates them from competitors. Products such as the Walkman and the portable television are examples of miniaturization.
Quickness: To bring miniaturization to its products, Sony must be fast with new product development. To ensure the quick responsiveness, the corporation has developed effective management so that technicians, engineers and marketers have a shared understanding of customer needs and what is technologically possible to develop according to those needs.
Structure: The combination of leadership, core capabilities and resources has helped Sony to maintain sustainable competitive advantage.
General Motors (GM), once the largest corporation of the world went bankrupt in 2006 and is now owned mostly by the US government. In an attempt to trace the lack of core capabilities the following arguments can be assessed:
Financial policies: Due to bad financial handling the liquidity has gone from bad to terrible. The financial statements have declared that money is coming in but this is only due to previously given car loans. If no cars are sold, no more money will come in. It is as simple as that. Therefore, the lack of a justified financial position has deteriorated GM.
Uncompetitive production and products: Unaesthetic and poorly built cars have a hard time competing with other brands. Furthermore, the production process was not utilized and a core competence was lost. To add to it, the fact that fewer cars were sold also meant that excess production capabilities arose.
Neglecting: Because of its competitive advantage in the second half of the 20th century, GM acted naively to competition and was unwilling to understand the customer needs. Not being open to change, flexibility was lost and with it a lot of customers.
Innovation: Naturally, as GM was unwilling to change, a lot of innovative ideas were lost along the “side of the road”. Technological advances came to quickly for GM to handle and where competitors were wooing customers with innovative solutions, GM were still relying on their previous success years.
Managing: Management was not focused on the prime issues as things started going south for GM. It was still believed that GM was invincible and patriotism weighed more than the race with competitors.
Eastman Kodak also was once the largest corporation in the Film industry.
Stuck in the past: Kodak still focused on their old core competency (film) even though Sony already introduced first digital camera (Mavica) at 1981.
Financial ignorance: They could not give up film business because profit margin from film industry was almost 60% while profit margin from digital product was only 15%. Moreover they had to give up profit from printing out services if they want to change their core competence. Sometimes the fact that the new strategy is less profitable than old one can harm the process of innovation.
1. How does one identify resources and capabilities? Resources: What’s at hand. Capabilities: %-age available of “what’s at hand”
2. How may resources and capabilities cause superior or inferior returns? As proven by the companies above, there is no concrete number to certify the answer to the question.
3. Are there ‘bad’ resources and capabilities and how does one distinguish them from good ones?
The common point between the two failure companies above is that they were once best companies but declined rapidly because of wrong decisions. Hence, it could be said that the ‘bad’ resource they had was “authority and confidence on brand”. They believed that their positions were stable and became too comfortable. Even though the capability “brand” looks like a good one, sometimes it can destroy the competencies if management do not address issues outside of their conceit.
B. 1. What does ‘isolating mechanism’ mean and how do such mechanisms relate to the argument of the resource-based view of competitive advantage?
According to RBV “establishing competitive advantage” involves formulating and implementing a strategy that exploit a firm’s unique strengths” – internal resources and capabilities of firm(Grant, 2007, 125 ). Isolating mechanisms means creating barrier for competitors. These barriers allow protecting company’s recourses and capabilities from imitation. Also isolating mechanisms are instruments, which can be used for influencing industry dynamics, as they provide barriers to replication of competitive strategies.
2. How does the structure and dynamics of industries influence the opportunities for certain resources and capabilities to become sources of sustainable competitive advantage?
According to Grant the more highly developed a firm’s organizational capabilities are, the more difficult it is for the firm to adapt them to new circumstances. A sustainable competitive advantage depends on changes in industry, because the change can be both “competence enhancing and destroying”.
3. Are there any schematic links between certain categories of resources and capabilities and the viability of any particular generic strategy?
Yes, certain categories of resources and capabilities are more typical for choosing this or that generic strategy. To the extent that different companies within an industry have different capability profiles, this implies differentiation of strategies within the industry (Grant, 2007, 144).
But also strategy formulation depends not only on resources and capabilities of the company.