Chapter 7 – The nature and sources of competitive advantage. This chapter presents the following content: The emergence of competitive advantage, sustaining competitive advantage, competitive advantage in different market settings, types of competitive advantage: cost and differentiation. | The The Nature Nature and and Sources Sources of of Competitive Competitive Advantage Advantage OUTLINE The emergence of competitive advantage Sustaining competitive advantage Competitive advantage in different market settings Types of competitive advantage cost and differentiation The The Emergence Emergence of of Competitive Competitive Advantage Advantage How does competitive advantage emerge External sources of change e.g. Internal sources Changing customer demand of change Changing prices Technological change Some firms Resource heterogeneity Some firms faster have greater creative among firms means and more effective and innovative differential impact in exploiting change capability Competitive Competitive Advantage Advantage from from Internally- Internally- Generated Generated Change Change Strategic Strategic Innovation Innovation Characteristics of innovatory strategies Associated with new entrants to an industry e.g. Nucor in steel IKEA in furniture Enron in energy Home Depot in DIY Dell in PCs Reconcile conflicting performance goals e.g. Toyota s lean production system combines low cost high quality and flexibility. Richardson Sheffield in kitchen knives is low cost innovative and customer responsive. Reconfiguring the value chain e.g.— Nike s system for manufacturing and distributing shoes totally different from traditional shoe manufacturer Southwest Airlines simplification of the normal airline value chain Zara s system of design manufacture and distribution Sustaining Sustaining Competitive CompetitiveAdvantage AdvantageAgainst Against Imitation Imitation REQUIREMENT FOR IMITATION ISOLATING MECHANISM Identification – Obscure superior performance – Deterrence–signal aggressive Incentives for imitation intentions to imitators – Pre-emption–exploit all available investment opportunities – Rely upon multiple sources of Diagnosis competitive advantage to create causal ambiguity – Base competitive advantage upon Resource acquisition resources and .