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Understanding Business Strategy Concepts & Cases

Understanding Business Strategy Concepts & Cases. Part 2: Analyzing Environments Chapter 4: Analyzing the Firm. Conducting an Internal Analysis. A firm cannot successfully implement any strategy without being able to use the appropriate set of resources, capabilities, and core competencies.

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Understanding Business Strategy Concepts & Cases

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  1. Understanding Business StrategyConcepts & Cases Part 2: Analyzing Environments Chapter 4: Analyzing the Firm

  2. Conducting an Internal Analysis • A firm cannot successfully implement any strategy without being able to use the appropriate set of resources, capabilities, and core competencies. • These must be identified and understood as a precursor to selecting a strategy: • Strengths • Weaknesses

  3. Conducting an Internal Analysis • In general terms, strengths suggest possibilities while weaknesses suggest constraints. • Firms deal with two kinds of resources – tangible and intangible. • Tangible resources are valuable assets that can be seen or quantified, such as manufacturing equipment and financial capital. • Financial capital

  4. Conducting an Internal Analysis • Intangible resources are assets that contribute to creating value for customers but are not physically identifiable. • Reputation • Brand know-how • Organizational culture The full set of resources a firm holds is called a resource portfolio.

  5. Conducting an Internal Analysis Tangible resources may be bought and sold. Not hard to identify: human capital, money, physical assets. Not hard to evaluate through accounting systems and external auditors. Intangible resources must be constantly attended to. Harder to identify: organization culture, reputation, brand names.

  6. Resources as Options Real options – Strategic flexibility for firms - Future oriented - Controlling uncertainty - Examples: Rolls Royce and Pharmaceutical Companies

  7. Resources as Options • True value of resources emerges when converted to capabilities and eventually converted to core competencies. • Commonly, capabilities are part of organizational functions such as marketing, manufacturing, finance, and so forth. • Example: Apple’s new products

  8. Resources as Options • Each of them is a product of deliberate attempts to integrate several resources with the purpose of completing one or more work tasks. • Capabilities result when employees think carefully about which combination of resources will allow the firm to create a capability with potential to become a core competence.

  9. Resources as Options • When core competencies allow the firm to create value for customers by performing a key activity better than competitors, it has a competitive advantage. • Product innovation: LG Electronics, Apple, Honda • Product leadership • People leadership • Market leadership

  10. Characteristics of Core Competencies • Valuable • E.g. Apple’s iTunes • Rare • E. g. Coca-Cola and PepsiCo • Difficult to Imitate • E.g. Challenging Motorola, Nokia & Samsung • Nonsubstitutable • E.g. Lexus’ after-sales service

  11. Competitive Advantages • Using resources, capabilities and core competencies in ways that create more value for customers compared to competitors’ • Enable firms to capture larger shares of the market and increase their returns creating value for owners and other shareholders

  12. The Value Chain • The value chain is the structure of activities the firm uses to implement its business level strategy. • The focus of value chain analysis is on primary and secondary activities. Primary activities include: • inbound logistics (such as sources of parts), • operations (such as manufacturing if dealing with a physical product), • sales and distribution of products, and after-sales service.

  13. The Value Chain • Support activities provide support to the primary activities so that they can be completed effectively. Secondary activities include • Human resources • Information Technology Support • Purchasing • Accounting

  14. Outsourcing • Outsourcing involves acquiring a capability from an external supplier that contributes to the focal firm’s ability to create value for customers. • Firms seek one or more benefits when they decide to outsource the performance of an activity to an external supplier.

  15. Outsourcing • Benefits • Concentrating resources on primary activities • Reducing the risks assumed • Challenges • Cost cutting is not a long term fix • Often tactical in orientation rather than strategic

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