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Chapter 3. Examining the Internal Environment: Resources, Capabilities and Activities. Profitability in the U.S. Retailing Industry, 1996-2001. 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

Chapter 3

Examining the Internal Environment: Resources, Capabilities and Activities



Why internal analysis
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



Tangible resources
Tangible Resources Advantage and Value Creation


Intangible resources
Intangible Resources Advantage and Value Creation


Evaluation of resources
Evaluation of Resources Advantage and Value Creation

Strength or Weakness

  • relative to competitors

  • basic business requirements

  • key vulnerabilities


Tangible Advantage and Value Creation

Resources

Org.

Capabilities

Inputs into Outputs

Intangible

Resources

  • Examples…..

  • Customer Service

  • Product Development

  • Employee Productivity


Examples of firm s capabilities
Examples of Firm’s Capabilities Advantage and Value Creation


Core competencies
Core Competencies Advantage and Value Creation

  • 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


Sony Advantage and Value Creation



Tools for building core competencies
Tools for Building Core Competencies may prevent a firm from developing the focus needed to fully exploit its competencies in the marketplace

  • Four Criteria of Sustainable Competitive Advantage

  • Value Chain Analysis


Sustainable competitive advantage
Sustainable Competitive Advantage may prevent a firm from developing the focus needed to fully exploit its competencies in the marketplace

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?


Factors that limit imitation
Factors that Limit Imitation may prevent a firm from developing the focus needed to fully exploit its competencies in the marketplace

  • 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



Creating value
Creating Value Competitive Advantage

  • Key Terms

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


Value creation per unit
Value Creation per Unit Competitive Advantage



What are some of detroit s problem
What are some of Detroit’s Problem? Competitive Advantage

  • America’s largest purchaser of Viagra – GM

  • GM Pension Plans

  • Salaried Pension Plan

    • 116,000 Salaried Retirees and Survivors receiving payments in the plan – $2.5B in 08 

  • Hourly Pension Plan

    • 377,000 Retirees and Survivors receiving payments in the plan – $6.5B in 08


Relative costs and prices
Relative costs and prices Competitive Advantage

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


Porter s value chain
Porter’s Value Chain Competitive Advantage

Views the organization as a series (chain) of activities, which may or may not create value


Porter s value chain cont
Porter’s Value Chain Competitive Advantage(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


Porter s value chain cont1
Porter’s Value Chain Competitive Advantage(cont)

  • Support Activities

    • Procurement

    • Technological development

    • Human resource management

    • Firm infrastructure



The Value Chain Competitive Advantage

S

u

p

p

o

r

t

Firm Infrastructure

HRM

Technological Development

Margin

Procurement

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

Margin

Primary


A low cost strategy….. Competitive Advantage

Firm Infrastructure

HRM

Technological Development

Margin

Procurement

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

Margin

…tries to pull the arrow back…..


Low Cost - Support Activity examples…... Competitive Advantage

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


Low cost primary activity examples
Low cost - Primary Activity examples…. Competitive Advantage

  • Inbound - Toyota

  • Operations - Subway

  • Outbound - Campbell Soup’ Continuous Replenishment

  • Marketing/Sales - WalMart

  • Customer Service - Federal Express


A differentiation strategy….. Competitive Advantage

Firm Infrastructure

HRM

Technological Development

Margin

Procurement

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

Margin

….tries to pull the arrow forward...


Differentiation - Support Activity examples…... Competitive Advantage

Commitment to quality

Compensation rewarding innovation

Amazon Recommendations

Margin

Purchasing high-quality components

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

Margin


Differentiation primary activity examples
Differentiation - Primary Activity examples…... Competitive Advantage

  • Inbound - Dell

  • Operations - Marriott

  • Outbound - WebVan

  • Market/Sales - Nordstrom’s

  • Customer Service - Pirtek


Your Firm Competitive Advantage

Buyers

Suppliers

Your Rivals


Your Firm Competitive Advantage

Opportunities for

Advantage

Buyers

Suppliers

Your Rivals


Your Firm Competitive Advantage

Opportunities for

Adding Value

Opportunities for

Adding Value

Buyers

Suppliers

Your Rivals


Outsourcing
Outsourcing Competitive Advantage

  • Key Terms

    • Outsourcing – purchase of a value-creating activity from an external supplier


Outsourcing viability
Outsourcing Viability Competitive Advantage

  • 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


Benefits of outsourcing
Benefits of Outsourcing Competitive Advantage

  • Increased flexibility

  • Mitigation of risks

  • Reduced capital investments


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