Capabilities, Innovation, Customer Value and Competitive Advantage

Group Presenters:Aliya Mudmarn (QGC 100005)Puspa Setia Pratiwi (QGC 100009)Rashima (QGC 100004)

Introduction

The aim of this paper is to review the several definition and the theories on :

- Capabilities

- Innovation

- Customer Value

- Competitive Advantage

This study also attempts to find the relationship among all of the concepts

also the case example of the relationship

LITERATURE REVIEW CAPABILITIES

ROAD OF RESEARCHES IN CAPABILITIES

DEFINITIONS OF CAPABILITIES

Year Author Definition

1990

2000

Hamel & Prahalad

C.E. Helfat & R.S. Raubitschek

-a firm’s ability to transform its resources into customer benefits and profits.

-firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state.

Four criteria for determining strategic capabilities

Valuable capabilities: Help a firm neutralize threats or exploit opportunities

Rare capabilities: Are possessed by few and not possessed by many others.

Costly – to – imitate capabilities: Are capabilities that other firms cannot easily to development. There are three reasons why capabilities are costly to imitate

- Historical: A unique and a valuable organization culture or brand name.

- Ambiguous cause: The causes and uses of a competence are unclear.

- Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers.

Nonsubstitutable capabilities: Are capabilities that do not have strategic equivalents.

LITERATURE REVIEW INNOVATION

ROAD OF RESEARCHES IN INNOVATION

DEFINITIONS OF INNOVATION

Year Author Definition

1998

1998

2003

2006

Hurley and HultPeter Drucker

Wycoff & Joyce

Dávila, Epstein and Shelton

-the notion of openness to new ideas as an aspect of a firm’s culture.-the effort to bring about a well-oriented, purposeful change in the economic or social potential of a company.-doing things differently, exploring new territory and taking risks.

-a source of growth and give impact on a greater competitive advantage.

LITERATURE REVIEW

CUSTOMER VALUE

ROAD OF RESEARCH IN CUSTOMER VALUE

DEFINITIONS OF CUSTOMER VALUE

Year Author Definition

1994

1999

2005

Gale

Holbrook

Wan

- a market perceived quality adjusted for the relative price of your product.

- an interactive relativistic preference experience.

- a perception of what a customer wants to accomplish with the help of products, in order to reach a desired goal

CUSTOMER VALUE

Customer value can be classified into three categories

Value is defined as implicit beliefs that guide behaviour (i.e. core beliefs, desired end-states, or higher order goals of the behaviour).

Desired value is interpreted as what customer wants to have happen (benefit sought)

Value judgment is the customer’s assessment of what has happened (benefits and sacrifices).

Five Categories of Value Provided by Product

Functional

Social

 

Emotional

 

Eepistemic

 

Condional value

Customer value involve a trade-off between what the customer receives and what sacrifies

quality, benefits, worth, utilities) and what he or she gives up to acquire and use a product (e.g., price, sacrifices).

Perceived Benefit - considered as some combination of physical attributes, service attributes, technical support including competence, market position, and social rewards.

Sacrifices - total costs or other broader dimensions.

 

LITERATURE REVIEW

COMPETITIVE ADVANTAGE

ROAD OF RESEARCH IN COMPETITIVE ADVANTAGE

DEFINITIONS OF COMPETITIVE ADVANTAGE

Year Author Definition

1985

2007

Porter

Mooney

- the value that the firm capable to offer to the customer which surpasses the cost of value creation from the firm

- capability or resources that is difficult to imitate and valuable to in helping the firm outperform its competitors

How Competitive Advantage is created?

External analysis, the “Five Forces” diagram captures the main idea of Porter’s theory of competitive advantage.

There are 5 components

- Customer

- Competitor

- Suppliers

- Threat of new entrants

- Threat of substitutes.

How Competitive Advantage is created?

Internal analysis, the resource based view emphasizes the internal capabilities of the organization in formulating strategy to achieve a sustainable competitive advantage in its market and industries.

Resources are the firm-specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily.

Capabilities refer to the firm's ability to utilize its resources effectively.

The competitive advantage

1. Cost Leadership

- A firm sets out to become the low cost producer in its industry.

- A low cost producer must find and exploit all sources of cost advantage.

2. Differentiation

- A firm seeks to be unique in its industry along some dimensions that are widely valued by buyers.

- Uniquely positions of itself to meet customer needs.

- It is rewarded for its uniqueness with a premium price.

3. Focus

(a) In cost focus a firm seeks a cost advantage in its target segment, while in

(b) differentiation focus a firm seeks differentiation in its target segment.

Relevant Researches Related to the Relationship

Author Theory

Kim and Mauborgne , 1999

Combined the customer value with technology innovation with the term “value innovation

Kandampully Innovation is considered a core competency for creating services that offer superior value to the customers

Mavondo and Farrell, 2003; Mavondo et al., 2005

Innovation is important for market effectiveness and subsequently for financial performance

Wind , 2005 Innovation is a strategy to create, deliver, sustain, and continuously enhance value; Competitive advantage in the future will come from discovering new ways to meet a customer's desired value

Narver et al , 2004 Organizational capabilities enable organizations to deliver superior customer value consistently.

RELATIONSHIP OF CAPABILITIES, INNOVATION, CUSTOMER VALUE, COMPETITIVE ADVANTAGE

Innovation encourages the creation of values that customers want (customer value)

Innovation can either be used to build new capabilities or to translate the existing capabilities into value that customer want (customer value).

The creation of customer value gives higher profits than the average market profit of the competitor’s (competitive advantage).

The change from the internal and external environment toward competitive advantage triggers the creation of a new innovation.

Innovation also formed from a thorough analysis toward customer’s requirement toward the product.

SUMMARY DIAGRAM

Encourage new form of Innovation

Enhanced CapabilitiesCustomer Value

Competitive Advantage

Capabilities

Innovation

Influenced by Internal /External Change

Give impact to Internal /External

Change

Diagram of the Components Leading to Competitive Advantage & Strategic Competitiveness

Case Example : E-bay

utilize their huge number of registered users which are both buyers and sellers (capabilities) to move from auction format to a multi-format (innovation)

innovation that has already take part encourage e-bay to enhance their existing resources (capabilities) to adjust to the innovation being implemented

CONCLUSION

Capabilities, innovation, customer value, and competitive strategy each give impact on each other and determine the performance of a business

To achieve superior customer value in the context of new products and services, organisations need to be able to fulfil the current and future customers’ expressed and latent need

The opportunity for your company to sustain your competitive advantage is determined by your capabilities to be innovative to met customer needs expectation

An innovative organization must engages everyone, from the chief executive to frontline workers