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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


Profitability in the u s retailing industry 1996 2001

Profitability in the U.S. Retailing Industry, 1996-2001


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


Components of internal analysis leading to competitive advantage and value creation

Components of Internal Analysis Leading to Competitive Advantage and Value Creation


Tangible resources

Tangible Resources


Intangible resources

Intangible Resources


Evaluation of resources

Evaluation of Resources

Strength or Weakness

  • relative to competitors

  • basic business requirements

  • key vulnerabilities


Chapter 3

Tangible

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


Core competencies

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


Chapter 3

Sony


Chapter 3

  • 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


Tools for building core competencies

Tools for Building Core Competencies

  • Four Criteria of Sustainable Competitive Advantage

  • Value Chain Analysis


Sustainable competitive advantage

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?


Factors that limit imitation

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


Outcomes from combinations of the criteria for sustainable competitive advantage

Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage


Creating value

Creating Value

  • 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


Comparing toyota and general motors

Comparing Toyota and General Motors


What are some of detroit s problem

What are some of Detroit’s Problem?

  • 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

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

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 (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 (cont)

  • Support Activities

    • Procurement

    • Technological development

    • Human resource management

    • Firm infrastructure


The value creating potential of support activities

The Value-Creating Potential of Support Activities


Chapter 3

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


Chapter 3

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…..


Chapter 3

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


Low cost primary activity examples

Low cost - Primary Activity examples….

  • Inbound - Toyota

  • Operations - Subway

  • Outbound - Campbell Soup’ Continuous Replenishment

  • Marketing/Sales - WalMart

  • Customer Service - Federal Express


Chapter 3

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...


Chapter 3

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


Differentiation primary activity examples

Differentiation - Primary Activity examples…...

  • Inbound - Dell

  • Operations - Marriott

  • Outbound - WebVan

  • Market/Sales - Nordstrom’s

  • Customer Service - Pirtek


Chapter 3

Your Firm

Buyers

Suppliers

Your Rivals


Chapter 3

Your Firm

Opportunities for

Advantage

Buyers

Suppliers

Your Rivals


Chapter 3

Your Firm

Opportunities for

Adding Value

Opportunities for

Adding Value

Buyers

Suppliers

Your Rivals


Outsourcing

Outsourcing

  • Key Terms

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


Outsourcing viability

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


Benefits of outsourcing

Benefits of Outsourcing

  • Increased flexibility

  • Mitigation of risks

  • Reduced capital investments


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