1. Part 1 Strategy Analysis

2. INTERNAL ANALYSIS: Inside the Firm • Comparing two firms in same industry: Internal focus • Core Competencies • Unique strengths deep inside that differentiate a firm • Can drive competitive advantage • Strategic Fit • Internal strengths change with external environment

3. Creating Strategic Fit to Leverage Internal Strengths EXHIBIT 4.1

4. Tangible & Intangible Resources EXHIBIT 4.4

5. The Resource-Based View Resources and Capabilities Resources: • tangible and intangible assets of a firm » tangible: factories, products intangible: reputation • used to conceive of and implement strategies Capabilities: • a subset of resources that enable a firm to take full advantage of other resources » marketing skill, cooperative relationships

6. The Resource-Based View Resources and Capabilities Are these resources or capabilities? Firm Assets: Machinery ? Collective Product Design Skill ? Recruiting Skill ? Engineering Skill of Individuals ? Mineral Deposits ?

7. Two Critical Assumptions in RBV • Resource heterogeneity • Bundles of resources and capabilities differ across firms • Southwest Airlines & Alaska Airlines have different resources • SWA – Higher employee productivity • Informal organization, pilots help load luggage • Resource immobility • Resources tend to be “sticky” & don’t move easily • Southwest Airlines sustained advantage • Several decades superior performance • Competitors have unsuccessfully imitated SWA model

8. The VRIO Framework • Valuable • Attractive features • Lower costs (& price) • Higher profits • Honda – design & build engines • Rare • Only a few firms possess • Toyota – lean manufacturing • Temporary competitive advantage • Costly to Imitate • Unable to develop or buy at a reasonable price • Apple – Yes • Crocs – No • Organized to Capture • Exploit competitive potential • Structure • Coordinating systems • Xerox PARC – No • Nintendo Wii – Yes

9. EXHIBIT 4.5 Applying RBV: Decision Tree Competitive Implications

10. THE VALUE CHAIN • Primary Activities • Add value directly in transforming inputs into outputs • Raw materials through production to customers • Support Activities • Indirectly add value • Provide support to the primary activities • Information systems, human resources, accounting, etc. • Managers can see how competitive advantage flows from a system of activities

11. Value Chain: Primary & Support Activities EXHIBIT 4.6

12. Dynamic Strategic Activity Systems • A network of interconnected activities in the firm • Evolve over time – external environment changes • Add new activities & upgrade or remove obsolete ones • Vanguard Example • A global investment firm - $1.4 trillion managed assets • Emphasis on low customer cost and quality service • Among the lowest expense ratios in the industry (0.20%) • Updated the activity system from 1997 to 2011 • New customer segmentation core • Two new support activities • Permits customized offerings: long-term and more active traders

13. Vanguard Group’s Activity System 1997 EXHIBIT 4.7 Legend Core Support

14. Vanguard Group’s Activity System 2011 EXHIBIT 4.8 Legend Core Support

15. Dynamic Capabilities Perspective • A firm can modify its resource base to gain & sustain a competitive advantage • Advantage is gained from reconfiguring a firm’s resource base • Honda core competency in gas-powered engine design • Could decrease in value • If consumers move toward electric-powered cars • BYD competency in batteries would gain advantage • Dynamic capabilities are an intangible resource • Resource stocks and flows are a useful view

16. HOW TO PROTECT A COMPETITIVE ADVANTAGE • Better Expectations of Future Values • Buy Resources at a low cost • Real Estate Development - highway expansion • Path Dependence • Current alternatives are limited by past decisions • U.S. is the ONLY industrial nation not on the metric system • Honda’s core competency in gas engines took decades to build

17. HOW TO PROTECT A COMPETITIVE ADVANTAGE 3. Causal Ambiguity • Cause of success or failure are not apparent • Why has Apple had such a string of successful products? • Role of Steve Jobs’ vision? • Unique talents of the Apple design team? • Timing of product introductions? 4. Social Complexity • Two or more systems interact creating many possibilities • A group of 3 people has 3 relationships • A group of 5 people has 12 relationships

18. THE SWOT ANALYSIS • Conduct a SWOT after external and internal analysis completed • SWOT combines external and internal analysis • Internal Strengths and Weaknesses • From VRIO framework • External Opportunities and Threats • From PESTEL or competitive forces analysis (Ch. 3) • Leverage internal strengths to exploit external opportunities • Achieving such a dynamic fit yields sustained competitive advantage

19. EXHIBIT 4.11 Strategic Questions in the SWOT Analysis

20. THE SWOTMATRIX • The SWOT matrix utilizes the SWOT analysis to develop strategic alternatives for the firm • Look for combinations of internal and external factors that might lead to an alternative • Alternatives are evaluated in the following step