I/O Model and Resource Based Model of

Above Average Return

What is Above Average Return?

Returns more than the others earned within investor expects in

comparison to other investments with similar risk.

What is Competitive Advantage?

Ability of a firm to outperform

It is position of a company in a competitive landscape that allows the

company earning return on investment higher

Industrial Organizational (I/O) Model of Above-Average

Returns (AAR)

Explains the external environments dominant influence on a firm's

strategic actions and performance

Characteristics of and conditions present in the external environment

determine the appropriateness of strategies that are formulated and
implemented in order for a firm to earn above-average returns.

Underlying Assumptions

External environment imposes pressures and constraints that

determine the strategies resulting in AAR

Most firms that compete within a particular industry:

Control similar strategically relevant resources

Pursue similar strategies in light of those resources

Resources for implementing strategies are highly mobile across

firms

Therefore any resource differences between firms will be

short-lived

Organizational decision makers are rational and committed to

acting in the firm's best interests, as shown by their profitmaximizing behaviors

Industrial
Organizational
(I/O) Model of
AboveAverage
Returns (AAR)

General Env.

Economical

Political

Legal

Technological

Competitor Env.

Industry Env.

Threats of new entrance

Power of suppliers

Power of buyers

Product substitute

Limitations

Only two strategies are suggested:

Cost Leadership

Differentiation

Produce standardized products at costs below those of

competitors - be THE low-cost leader

Produce differentiated products that customers are

willing to pay a premium price for

Internal resources & capabilities are not considered

AAR are earned when a firm implements the strategy dictated by external
environment (general, industry, and competitor)

ANS 2 Four criteria for determine core competency:

Four criteria for determine which of firms capabilities are core

competencies:

Valuable capabilities

Rare capabilities

Costly-to-imitate capabilities

Non-substitutable capabilities
Valuable capabilities

Valuable capabilities are those capabilities which create and add value by
exploiting opportunities provided by external environment.

Rare

Rare capabilities are those that are rare possessed by the competitors
rarely.

Innovative idea is also a rare capability

Company

Rare capability

Opportunities
exploited

Coca- cola

Product formula

Market leader

Costly to imitate capabilities

Those capabilities that pose complexity and thereby heavy cost to

competitors to imitate.

Company/product

Costly/capabilities

Colgate palmolive

Product brand

Mc Donald

Taste of the food

Non-substitutable

Do not have Strategic equivalents

For example:

Trust

Relationship

Product attributes

Knowledge and expertise

ANS 3 Value chain Analysis

A companys value chain identifies the primary activities that create value
for customers and the related support activities.

It is a primary analytical tool of strategic cost analysis.

Value chain helps the organization to improve its capabilities to attain

competitive advantage by using resources effectively.

The primary analytical tool of strategic cost analysis is a value chain

identifying the separate activities, functions, and business processes that
are performed in designing, producing, marketing, delivering and
supporting a product or service

Value is the amount buyers desire to pay for what a firm provides to them
in the form of a product/service/product-cum-service.

Value chain analysis examines the areas of advantages of low cost and
disadvantages of high costs.

A value chain is a set of interlinked value creating activities performed by

an organization

A tool to dissect your organization into core and supporting activities

A holistic look at your organization and how department work with other
departments

A way to prioritize resources & activities based on your customer needs

CONCEPT OF COMPANY VALUE CHAIN

PRIMARY ACTIVITY

service
Profit margin
Sales
and marketing
operation
Inbound logistics
Outbound
logistics

Product R&d, technology and systems development,

human resources management
General administration.

SUPPORTIVE ACTIVITY
ANS 4

Swot analysis

Strengths
Weaknesses
Opportunities
Threats
SWOT analysis evolved during the 1960s at Stanford
Research Institute
It is a very important strategic planning technique
Perform to understand their internal and external
environments

through such an analysis organization can know about the

strength and weaknesses existing within an organization
and opportunities and threats operating in the
environment so the effective strategy can be formulated

A typical SWOT matrix

STRENGTHS:-

WEAKNESS:-

Favorable Location

Uncertain cash flow

Excellent distribution
network

Low worker commitment

good management
reputation
Establish R&D Center
ISO 9000 quality
certificate

Weak management
information system

OPPORTUNITY:-

THREATS:-

Favorable industry
trend

Unfavorable political
Environment

Low technology option

available

Obstacle in licensing
new business

SWOT analysis of
Strengths

Largest food brand in

India & Asia High Quality,
Low Price
Introduced TQM
Worlds Largest Pouched
Milk Brand Annual

Opportunities
Penetrate international
markets
Diversify product
portfolio to entre new
products categories and
expand existing
categories like
processed foods,
chocolates etc.
Use internet to sell its
products

Weakness
completely dependent
on villages for its raw
materials
Risks of highly complex
supply chain system
Short self life of its
Products
Alliance with third parties
who do not belong to the
Threats
Competitors- Hindustan
lever, Nestle, Britannia
and Local players
Stiff competitions from
MNCs in butter
Growing price of milk
and milk products
Ban on exports of milk
powder
The yield of India cattle
still much lower than
other dairy countries.