Environment determines strategy Firms possess similar resources and thus pursue similar strategies. Resources are mobile

3. I/O Assumptions Environment determines strategy Firms possess similar resources and thus pursue similar strategies. Resources are mobile Decision-makers � rational & act in the best interests of the firm.

10. Resource Based View Introduction Assumptions: Firms are unique bundles of resources Resources are relatively immobile

11. RBV Concepts: Resource Stocks Flows Capability Capacity Durability Specificity

13. The Value Chain System

14. The Value Chain System Cost competitiveness -- comparing costs along the industry�s value chain Suppliers� value chains are relevant because Costs, quality, and performance of inputs influence a firm�s own costs and product performance Forward channel allies� value chains are relevant because Forward channel allies� costs and margins are part of price paid by ultimate end-user Activities performed affect end-user satisfaction

15. Example: Key Value Chain Activities Processing of basic ingredients Syrup manufacture Bottling and can filling Wholesale distribution Retailing

16. Competencies, Core Competencies, and Distinctive Competencies Competencies: Internal capabilities that a company performs better than other capabilities. Core competencies: Competencies that are central, not peripheral, to a company�s strategy and operations. Distinctive competencies: Competencies that are sources of sustainable competitive advantage.

17. Strategic Assets &Distinctive Competencies Characteristics: In Demand (valuable) Scarce (rare) Difficult & costly to imitate Appropriability Nonsubstitutable Sources of Economic Rents: Ricardian Rents Schumpeterian Rents

18. R&C Characteristics and Implications

19. Examples: Distinctive Competencies Sharp Corporation Competencies in flat-panel display technology Toyota, Honda, Nissan Low-cost, high-quality manufacturing capabilities and short design-to-market cycles Intel Capability to design and manufacture ever more powerful microprocessors for PCs

20. Practical Implications I Inventory Analysis of Resources & Capabilities I.D. strategic assets & distinctive competencies Invest in / Upgrade SA & DC ex ante identification entrenchment vs. flexibility ways to upgrade Rebundle / Reconfigure Leverage SA & DC

21. Practical Implications II Assessing the Firm�s Relative Strengths Strategic Cost Analysis Managing the Value Chain System

22. Assessing a Company�s Competitive Strength versus Key Rivals 1. List industry key success factors and other relevant measures of competitive strength 2. Rate firm and key rivals on each factor using rating scale of 1 - 10 (1 = weak; 10 = strong) 3. Decide whether to use a weighted or unweighted rating system 4. Sum individual ratings to get overall measure of competitive strength for each rival 5. Determine whether the firm enjoys a competitive advantage or suffers from competitive disadvantage

23. An Unweighted Competitive Strength Assessment

24. A Weighted Competitive Strength Assessment

25. Why Do a Competitive Strength Assessment ? Reveals firm�s competitive position Pinpoints the company�s competitive strengths and weaknesses Identifies competitive advantage, parity, or disadvantage Identifies possible offensive attacks Identifies possible defensive actions

26. Strategic Cost Analysis Analyze firm�s costs relative to rivals Compare firm�s costs activity by activity against costs of key rivals From raw materials purchase to Price paid by ultimate customer Pinpoints which internal activities are sources of cost advantage or disadvantage

27. Activity-Based Costing: A Key Tool in Strategic Cost Analysis Compare company�s costs with those of rivals activity-by-activity--from one end of the value chain to the other This requires accounting data that measures the cost of each value chain activity Activity-based accounting systems provide a way of measuring costs for each relevant value chain activity

28. Traditional Cost Accounting vs. Activity-Based Costing

29. Benchmarking the Costs ofKey Value Chain Activities Cross-company comparisons of how well activities are performed: Purchase of materials Payment of suppliers Management of inventories Training of employees Processing of payrolls Getting new products to market Performance of quality control Filling and shipping of customer orders

30. Determining Cost Competitiveness Cost competitiveness comes from managing the value chain system better than competitors Three areas contribute to cost differences 1. Suppliers� activities 2. The company�s own internal activities 3. Forward channel activities

31. Correcting Supplier-Related Cost Disadvantages: Options Negotiate more favorable prices with suppliers Work with suppliers to help them achieve lower costs Integrate backward Use lower-priced substitute inputs Do a better job of managing linkages between suppliers� value chains and firm�s own chain Make up difference by initiating cost savings in other areas of value chain

32. Correcting Forward Channel Cost Disadvantages: Options Push for more favorable terms with distributors and other forward channel allies Work closely with forward channel allies and customers to identify win-win opportunities to reduce costs Change to a more economical distribution strategy Make up difference by initiating cost savings earlier in value chain

33. Correcting Internal Cost Disadvantages: Options Reengineer high-cost activities or business processes Eliminate some cost-producing activities altogether by revamping value chain system Relocate high-cost activities to lower-cost geographic areas See if high-cost activities can be performed cheaper by outside vendors/suppliers Invest in cost-saving technology Simplify product design Make up difference by achieving savings in backward or forward portions of value chain system