External and Internal Analyses

1. Economic Sociocultural Environment Demographic General Industry Environment General Global Competitor Environment Environment Environment Political/Legal General Technological External and Internal Analyses By studying the external environment, firms identify what they might choose to do Opportunities and threats

2. The Firm External and Internal Analyses Externaland Internal Analyses By studying the internal environment, firms identify what they can do Unique resources, capabilities, and core competencies (sustainable competitive advantage)

3. Discovering Core Competencies Value Creation Value Chain Analysis Four Criteria of Sustainable Advantages Core Competencies Competitive Advantage Capabilities • Valuable • Rare • Costly to Imitate • Nonsubstitutable • Resources • Tangible • Intangible • Outsource Components ofInternal Analysis

4. Challenge of Internal Analysis • How do we effectively manage current core competencies while simultaneously developing new ones? • How do we assemble bundles of resources, capabilities and core competencies to create value for customers? • How do we learn to change rapidly?

5. Conditions Affecting Managerial Decisions About Resources, Capabilities, and Core Competencies • Uncertaintyregarding characteristics of the general and the industry environments, competitors’ actions, and customers’ preferences • Complexityregarding the interrelated causes shaping a firm’s environments and perceptions of the environments • Intraorganizational Conflictsamong people making managerial decisions and those affected by them

6. Discovering Core Competencies • Resources • Tangible • Intangible Resources are what a firm has to work with--its assets--including its people and the value of its brand name Resources represent inputs into a firm’s production process... such as capital equipment, skills of employees, brand names, finances and talented managers

7. Discovering Core Competencies • Resources • Tangible • Intangible • Tangible Resources • Financial • Organizational • Physical • Technological • Intangible Resources • Human • Innovation • Reputation

8. Discovering Core Competencies Capabilities Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage

9. Discovering Core Competencies Capabilities Capabilities are what a firm does, and represent the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state

10. Discovering Core Competencies Core Competencies Core competencies are resources and capabilities that serve as a source of competitive advantage over rivals Core competencies distinguish a company competitively and make it distinctive McKinsey and Co. recommends using three to four competencies when framing strategic actions

11. Discovering Core Competencies Four Criteria of Sustainable Advantages • Valuable • Rare • Costly to Imitate • Nonsubstitutable Valuable: Capabilities that help a firm neutralize threats or exploit opportunities

12. Discovering Core Competencies Four Criteria of Sustainable Advantages • Valuable • Rare • Costly to Imitate • Nonsubstitutable Rare: Capabilities that are not possessed by many others

13. Discovering Core Competencies Four Criteria of Sustainable Advantages • Valuable • Rare • Costly to Imitate • Nonsubstitutable • Costly to imitate: capabilities that other firms cannot develop easily, usually due to • Unique historical conditions • Causal ambiguity • Social complexity

14. Discovering Core Competencies Four Criteria of Sustainable Advantages • Valuable • Rare • Costly to Imitate • Nonsubstitutable • Nonsubstitutable: capabilities that do not have strategic equivalents • Invisible to competitors • Firm specific knowledge • Trust-based working relationships between managers and nonmanagerial personnel

15. Sustainability of a Competitive Advantage • Sustainability of a competitive advantage is a function of: • the rate of core-competence obsolescence due to environmental changes • the availability of substitutes for the core competence • the imitability of the core competence

16. Core Competencies: Cautions and Reminders • Never take for granted that core competencies will continue to provide a source of competitive advantage • All core competencies have the potential to become core rigidities • Core rigidities are former core competencies that now generate inertia and stifle innovation

17. SWOT MATRIX • Opportunities • External • Future Oriented • Niches • Strengths • Internal • Competitive Advantage • Distinctive Competence • Threats • External • Vulnerability • Attack Point • Weaknesses • Internal • Disadvantage • Area for Improvement • Purposes • Qualitative Assessment of Current Condition • Competitor Assessment • Strategic “What-if” Analysis • Product to Business Unit to Corporate Analysis