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Session 8 PowerPoint PPT Presentation


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Session 8. Internal Analysis. Session Topics. Resource-Based View of the Firm Three Basic Resources What Makes a Resource Valuable? Using the Resource-Based View in Internal Analysis SWOT Analysis The Functional Approach Value Chain Analysis

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Session 8

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Session 8

Internal Analysis


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Session Topics

  • Resource-Based View of the Firm

    • Three Basic Resources

    • What Makes a Resource Valuable?

    • Using the Resource-Based View in Internal Analysis

  • SWOT Analysis

  • The Functional Approach

  • Value Chain Analysis

  • Internal Analysis: Making Meaningful Comparisons

    • Comparison with Past Performance

    • Stages of Industry Evolution

    • Benchmarking

    • Comparison with Success Factors in the Industry


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Strategy must . . .

Ingredients Critical to a Successful Strategy

Be consistent with conditions in the competitive environment

Place realistic requirements on the firm’s resources

Becarefully implemented/executed


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What is the Resource-Based View of the Firm?

Firms differ in fundamental ways because each firm possesses a unique “bundle” of resources - tangible and intangible assets and organizational capabilities to make use of those assets.


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The RBV of The Firm

  • More internally oriented

  • Key analytic tool is value chain analysis

  • Resources are not mobile/transferable across company and industry boundaries

  • Focuses on sharpening your skills at executing value chain activities that create superior efficiency, innovation, quality, and/or company responsiveness.


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The Industrial/Organizational Economics Perspective

  • More externally oriented

  • Key Analytic tool is Porter’s Five Forces Model

  • Assumes that resources are transferable/mobile across across company boundaries

  • More of a free-agent mentality

  • Choose your industry wisely and then set about to develop resource proficiency


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The Three Basic Resources

  • Tangible assets

    • Easiest to identify and often found on a firm’s balance sheet

    • Include physical and financial assets

    • Examples: Production facilities, raw materials, financial resources, real estate, computers

  • Intangible assets

    • Cannot be seen or touched

    • Often very critical in creating competitive advantage

    • Examples: Brand names, company reputation, company morale, patents and trademarks, accumulated experience

  • Organizational capabilities

    • Involve skills - ability to combine assets, people, and processes - used to transform inputs into outputs


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Tangible Assets

Intangible Assets

Organizational Capabilities

  • Hampton Inn’s reservation system

  • McDonald’s locations

  • Georgia Pacific’s land holdings

  • Virgin Airlines’ plane fleet

  • Coca-Cola’s Coke formula

  • Nike’s brand name

  • Coke’s brand recognition

  • Wendy’s advertising with Dave Thomas

  • Disney’s image

  • IBM’s management team

  • Southwest Airlines culture

  • Southwest’s turnaround time

  • Wal-Mart’s purchasing and inbound logistics

  • Sony’s product-development processes

  • Nordstrom’s customer service

  • 3M’s innovation process

Examples of Different Resources


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What Makes a Resource Valuable?

1. Competitive superiority:Does the resource help fulfill a customer’s need better than those of firm’s competitors?

2. Resource scarcity:Is the resource in short supply?

3. Inimitability:Is the resource easily copied or acquired?

4. Appropriability:Who actually gets the profit created by a resource?

5. Durability:How rapidly will the resource depreciate?

6. Substitutability:Are other alternatives available?


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Characteristics Making Resources Difficult to Imitate

  • Physically unique resources

    • Resources virtually impossible to imitate

    • Examples: One-of-a-kind real estate location, mineral rights, patents

  • Path-dependent resources

    • Resources that must be created over time in a manner that is often expensive and difficult to accelerate

    • Examples: Dell Computer’s system of direct sales of customized PCs via the Internet, Coca-Cola’s brand name, Gerber Baby Food’s reputation for quality


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Characteristics Making Resources Difficult to Imitate

  • Causal ambiguity (How do they do that?)

    • Situations where it is difficult for competitors to understand how a firm has created its advantage

    • Example: Southwest Airlines’ approach

      • Same plane, routes, gate procedures, number of attendants

      • Culture of fun, family, and frugal yet focused services

  • Economic deterrence

    • Involves large capital investments in capacity to provide products or services in a given market that are scale sensitive


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Resource Inimitability

  • Cannot be imitated

  • Patents

  • Unique locations

  • Unique assets

  • Difficult to imitate

  • Brand loyalty

  • Employee satisfaction

  • Reputation for fairness

  • Can be imitated

  • Capacity preemption

  • Economies of scale

  • Easy to imitate

  • Cash

  • Commodities


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Guidelines: Using the RBV in Internal Analysis

  • Disaggregate resources - break them into more specific competencies rather than use broad categories

  • Use a functional perspective in disaggregating tangible and intangible assets and organizational capabilities

  • Look at organizational processes and combinations of resources, not only at isolated assets or capabilities

  • Use the value chain approach to uncover potentially valuable capabilities, activities, and processes


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Key Resources Across Functional Areas

  • Marketing

  • Firm’s products/services

  • Concentration of sales in a few products or to a few customers

  • Ability to gather needed information about markets

  • Market share

  • Product-service mix and expansion potential

  • Channels of distribution

  • Effective sales organization

  • Product-service image, reputation, and quality’

  • Imaginativeness, efficiency, effectiveness of sales promotion

  • Pricing strategy and flexibility

  • After-sale service and follow-up

  • Goodwill - brand loyalty

  • Financial and Accounting

  • Ability to raise short-term and long-term capital; debt-equity

  • Corporate-level resources

  • Cost of capital relative to competitors

  • Tax considerations

  • Relations with owners, investors, and stockholders

  • Leverage position

  • Cost of entry and barriers to entry

  • Price-earnings ration

  • Working capital

  • Effective cost control

  • Financial size

  • Efficiency and effectiveness of accounting system


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Key Resources Across Functional Areas (continued)

  • Production, Operations, Technical

  • Raw materials cost and availability, supplier relationships

  • Inventory control systems

  • Location, layout, and use of facilities

  • Economies of scale

  • Technical efficiency of facilities

  • Effectiveness of subcontracting use

  • Degree of vertical integration

  • Efficiency and cost-benefit of equipment

  • Effectiveness of operation control procedures

  • Costs and technological competencies relative to competitors

  • Research and development

  • Patents and trademarks

  • Personnel

  • Management personnel

  • Employees’ skills and morale

  • Labor relations costs compared to competitors

  • Efficiency and effectiveness of personnel policies

  • Effectiveness of incentives used to motivate performance

  • Ability to level peaks and valleys of employment

  • Employee turnover and absenteeism

  • Specialized skills

  • Experience


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Key Resources Across Functional Areas (continued)

  • Quality Management

  • Relationship with suppliers, customers

  • Internal practices to enhance quality of products and services

  • Procedures for monitoring quality

  • Information Systems

  • Timeliness and accuracy of information about sales, operations, cash, and suppliers

  • Relevance of information for tactical decisions

  • Information to manage quality issues: customer service

  • Ability of people to use information provided


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Fig. 6-5: Key Resources Across Functional Areas (concluded)

  • Organization and General Management

  • Organizational structure

  • Firm’s image and prestige

  • Firm’s record in achieving objectives

  • Organization of communication system

  • Overall organizational control system

  • Organizational climate and culture

  • Use of systematic procedures in decision making

  • Top-management skills, capabilities, and interest

  • Strategic planning system

  • Intra-organizational synergy


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SWOT Analysis

Based on assumption an effective strategy derives from a sound “fit” between a firm’s internal resources and its external situation

Opportunities

A major favorable situation in a firm’s environment

Threats

A major unfavorable situation in a firm’s environment

Strengths

A resource advantage relative to competitors and the needs of markets firm serves

Weaknesses

A limitation or deficiency in one or more resources or competencies relative to competitors


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Numerous environmental opportunities

Cell 3: Supports a turnaround-oriented strategy

Cell 1: Supports an aggressive strategy

Critical internal weaknesses

Substantial internal strengths

Cell 4: Supports a defensive strategy

Cell 2: Supports a diversification strategy

Major environmental threats

SWOT Analysis Diagram


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What is Value Chain Analysis?

  • Focuses on how a business creates customer value by examining contributions of different internal activities to that value

  • Divides a business into sets of activities within the business

    • Starts with inputs a firm receives

    • Finishes with firm’s products or services and after-sales service to customers

  • Allows better identification of a firm’s strengths and weaknesses since the business is viewed as a process


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General administration

Human resource management

Support

Activities

Margin

Research, technology, and systems development

Procurement

Service

Marketing

and sales

Inbound

Logistics

Outbound

logistics

Margin

Operations

Primary Activities

The Value Chain


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Perspectives to use in evaluating how a firm stacks up based on its internal capabilities

Internal Analysis: Making Meaningful Comparisons

1. Comparison with past performance

2. Stages of industry evolution

3. Benchmarking - Comparison with competitors

4. Comparison with success factors in the industry


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