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Foundations of Strategy PSU MGMT #511

Foundations of Strategy PSU MGMT #511. Dave Garten daveoutside@alum.mit.edu. Week # 3 –Internal Analysis. Internal Analysis – Key Points. Internal analysis is never really just internal Relative performance Economic performance ~ competitive advantage

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Foundations of Strategy PSU MGMT #511

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  1. Foundations of Strategy PSU MGMT #511 Dave Garten daveoutside@alum.mit.edu Week # 3 –Internal Analysis

  2. Internal Analysis – Key Points • Internal analysis is never really just internal • Relative performance • Economic performance ~ competitive advantage • Internal analysis – “S” and “W” in SWOT • Accurate view of oneself is hard… • Underestimate vs. overestimate • Short term bias Dave Garten- Business Strategy

  3. VRIO “Internal” Analysis • Critical analysis of the value chain • Competitive advantage from where? Sustainable advantage Temporary advantage Parity Disadvantage Source: derived from Gaining & Sustaining Competitive Advantage, by Jay Barney Dave Garten- Business Strategy

  4. VRIO – Barney 5.2/5.3 Dave Garten- Business Strategy

  5. Core Competence collective learning that coalesce around individuals who coordinate a comprehensive set of diverse skills & integrate multiple streams of know-how • Defined: • What can a company do w/its core competence? • Examples: Canon, HDTV, 3M, Honda Source: derived from The Core Competence of the Corporation, by C.K. Prahalad and Gary Hammel, HBS, 1990. c X Dave Garten- Business Strategy

  6. Core Competence • Distinguish between core capability, core components, core products • To gain competitive advantage, must be distinctive competencies as well… • Outsourcing a core only works for a while – ultimately position/profitability will erode. • Core competency -> a few, perhaps 2-5 • Mgmt: SBU vs. core competence “Benefits of competency, like the benefits of money supply, depend upon their velocity of their circulation.” -The Core Competence of the Corporation by C.K. Prahald and Gary Hammel, 1990 Dave Garten- Business Strategy

  7. 3 measures of CC • “provides potential access to a variety of markets” • “makes a significant contribution to the perceived customer benefits of the end product” • “should be difficult for competitors to imitate” Source: The Core Competence of the Corporation, by C.K. Prahalad and Gary Hammel, HBS, 1990. c Dave Garten- Business Strategy

  8. High Transform Up Relative Strength Transform Away Low Low High Strategic Importance Core Competence Core Competency Superfluous Strengths Zone of Irrelevance Key Weakness Dave Garten- Business Strategy

  9. Diversification (<1%) Step 3 (7%) Step 2 (26%) Step 1 (38%) Core Core Competency and Growth Source: Bain, October 2003 Dave Garten- Business Strategy

  10. Ambidexterity “Structural” Separate units/teams More specialists Exploratory Radical/disruptive Clearly defined “Contextual” Part of the job Incremental Distributed Less defined More generalists VS Ambidextrous qualities Initiative: alert to opportunities beyond 4 walls Cooperative: seek to combine effort w/others Brokers: looking to build linkages Multi-taskers: comfortable wearing multiple hats Dave Garten- Business Strategy

  11. Ambidexterity Dave Garten- Business Strategy

  12. High High Risk High Risk High Risk Low Risk Importance to Strategy Low Risk Low Risk Low Low High Cultural Compatibility Internal Evaluation Tools Internal Alignment Dave Garten- Business Strategy

  13. Internal Evaluation Tools Internal Alignment Highest Over- investment Resource Allocation Plans Under- investment Lowest Lowest Highest Investment Priorities Dave Garten- Business Strategy

  14. Week #3 Case Write-up • Objective: analyze a company’s strengths and weaknesses and how they relate to core competency • Learnings: • The game changes as the industry structure changes. Successful companies must adapt to take advantage of opportunities and mitigate the threats. • Apple’s competencies provide a point of strength for Apple to pursue a consumer brand business. • The changes to the PC industry have a huge affect on the winners and losers. Dave Garten- Business Strategy

  15. Apple Dave Garten- Business Strategy

  16. Strengths (S) Weaknesses (W) 1. 2. . . 1. 2. . . SO Strategies WO Strategies Opportunities (O) Overcome weaknesses by taking advantage of opportunities Use strengths to take advantage of opportunities 1. 2. . . ST Strategies WT Strategies Threats (T) 1. 2. . . Minimize weaknesses and avoid threats Use strengths to avoid threats Strategy Evaluation Tools SWOT & Strategy Development Source: Strategic management by Fred R. David Dave Garten- Business Strategy

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