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Chapter 3

Chapter 3. Examining the Internal Environment: Resources, Capabilities and Activities. Why Internal Analysis?. Early strategy theory rooted in industry structural analysis - external focus This approach has lost its appeal because:

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Chapter 3

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  1. Chapter 3 Examining the Internal Environment: Resources, Capabilities and Activities

  2. Why Internal Analysis? • Early strategy theory rooted in industry structural analysis - external focus • This approach has lost its appeal because: • internationalization & deregulation has all but removed safe havens • technology and changes in demand have blurred industry lines

  3. Components of Internal Analysis Leading to Competitive Advantage and Value Creation

  4. Tangible Resources

  5. Intangible Resources

  6. Evaluation of Resources Strength or Weakness • relative to competitors • basic business requirements • key vulnerabilities

  7. Tangible Resources Org. Capabilities Inputs into Outputs Intangible Resources • Examples….. • Customer Service • Product Development • Employee Productivity

  8. Examples of Firm’s Capabilities

  9. Core Competencies • central to the firm’s competitiveness • rewarded in market place • combination of skills & knowledge, not products or functions • flexible, long term platforms • embedded in the organization’s systems • distinctive competencies are those the firm performs better than rivals • All core competencies have the potential to become core rigidities

  10. Supporting and nurturing more than four core competencies may prevent a firm from developing the focus needed to fully exploit its competencies in the marketplace

  11. Tools for Building Core Competencies • Four Criteria of Sustainable Competitive Advantage • Value Chain Analysis

  12. Sustainable Competitive Advantage Must be valuable, rare, inimitable, and non-substitutable, exploitable Sustainability is a function of • Durability - how long will it last? • Technology? Reputation? Fixed Assets? • Imitability - how quickly can it be copied? • Transparent - easy to see? • Transferable - can it be done elsewhere? • Replicable - can we do it here?

  13. Factors that Limit Imitation • Physical Uniqueness – location, patents • Path Dependency – accumulation effect • Causal Ambiguity – unable to disentangle • Social Complexity – social interactions are not readily understood nor duplicated • Absorptive Capacity – ability to identify, value, assimilate and use knowledge

  14. Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage

  15. Creating Value • Key Terms • Value – measured by a product's performance characteristics and by its attributes for which customers are willing to pay

  16. Value Creation per Unit

  17. Comparing Toyota and General Motors

  18. Relative costs and prices Where do cost/price differences come from? • raw materials and components • differences in technology, plant, equipment • efficiencies, learning, experience, wages, productivity • marketing, sales, promotion, warehousing, distribution, administration costs • distribution • inflation, exchange and tax rates

  19. Porter’s Value Chain Views the organization as a series (chain) of activities, which may or may not create value

  20. Porter’s Value Chain (cont.) • Primary Activities • Inbound logistics – Supply Chain Management • Operations • Outbound logistics - Distribution • Marketing and sales • After-sales service • Contribute to the physical creation of the product/service, its sale and transfer to the buyer, and its service after the sale

  21. Porter’s Value Chain (cont) • Support Activities • Procurement • Technological development • Human resource management • Firm infrastructure

  22. The Value-Creating Potential of Support Activities

  23. The Value Chain S u p p o r t Firm Infrastructure HRM Technological Development Margin Procurement Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin Primary

  24. A low cost strategy….. Firm Infrastructure HRM Technological Development Margin Procurement Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin …tries to pull the arrow back…..

  25. Low Cost - Support Activity examples…... Fewer layers of management Policies to reduce turnover IBM Printer - 150 to 62 parts, 3.5 minutes Margin Monitor supplier performance Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin

  26. Low cost - Primary Activity examples…. • Inbound - Toyota • Operations - Subway • Outbound - Campbell Soup’ Continuous Replenishment • Marketing/Sales - WalMart • Customer Service - Federal Express

  27. A differentiation strategy….. Firm Infrastructure HRM Technological Development Margin Procurement Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin ….tries to pull the arrow forward...

  28. Differentiation - Support Activity examples…... Commitment to quality Compensation rewarding innovation Amazon Recommendations Margin Purchasing high-quality components Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin

  29. Differentiation - Primary Activity examples…... • Inbound - Dell • Operations - Marriott • Outbound - WebVan • Market/Sales - Nordstrom’s • Customer Service - Pirtek

  30. Your Firm Buyers Suppliers Your Rivals

  31. Your Firm Opportunities for Advantage Buyers Suppliers Your Rivals

  32. Your Firm Opportunities for Adding Value Opportunities for Adding Value Buyers Suppliers Your Rivals

  33. Outsourcing • Key Terms • Outsourcing – purchase of a value-creating activity from an external supplier

  34. Outsourcing Viability • When a firm does not have the capabilities in the areas needed to succeed • When a firm lacks a resource or possesses inadequate skills needed to implement a strategy • When few organizations possess the resources and capabilities needed for competitive superiority in all primary and support activities necessary to compete • When extensive internal capabilities exist for effectively coordinating external sourcing and internal core competencies

  35. Benefits of Outsourcing • Increased flexibility • Mitigation of risks • Reduced capital investments

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