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I NTERNAL A NALYSIS STRATEGIC MANAGEMENT ผศ. ดร. พิพัฒน์ นนทนาธรณ์

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Presentation on theme: "I NTERNAL A NALYSIS STRATEGIC MANAGEMENT ผศ. ดร. พิพัฒน์ นนทนาธรณ์"— Presentation transcript:

1 I NTERNAL A NALYSIS STRATEGIC MANAGEMENT ผศ. ดร. พิพัฒน์ นนทนาธรณ์

2 By studying the external environment, firms identify what they might choose to do. E XTERNAL A NALYSES ’ O UTCOMES Opportunities and threats 2 Asst Prof Phiphat Nonthanathorn PhD

3 I NTERNAL A NALYSES ’ O UTCOMES By studying the internal environment, firms identify what they can do Unique resources, capabilities, and competencies (required for sustainable competitive advantage) 3 Asst Prof Phiphat Nonthanathorn PhD

4 T HE C ONTEXT OF I NTERNAL A NALYSIS Global Economy Traditional sources of advantages can be overcome by competitors ’ international strategies and by the flow of resources throughout the global economy. Global Mind-Set The ability to study an internal environment in ways that are not dependent on the assumptions of a single country, culture, or context. Analysis Outcome Understanding how to leverage the firm ’ s bundle of heterogeneous resources and capabilities. 4 Asst Prof Phiphat Nonthanathorn PhD

5 C HALLENGE OF I NTERNAL A NALYSIS Identifying, developing, protecting, and deploying resources, capabilities, and core competencies 5 Asst Prof Phiphat Nonthanathorn PhD

6 Resource-Based Approach to Organizational Analysis Steps for Strategy Analysis -- 1.Identify firms strengths and weakness by: –Identify and classify resources –Combine/Integrate resources into capabilities 2.Combine firm’s strengths into specific core competencies / Distinctive Competencies 3.Appraise profit potential of resources / capabilities (Competencies) to sustain competitive advantage 4.Select strategy that best exploits your competencies (Resources and Capabilities) 5.Identify resource gaps invest in weaknesses 6 Asst Prof Phiphat Nonthanathorn PhD

7 Resource-Based Approach to Organizational Analysis Why within a given industry, some companies do better then the others? Internal strategic factors -- –Critical strengths and weaknesses that are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats 7 Asst Prof Phiphat Nonthanathorn PhD

8 R ETURN ON C APITAL E MPLOYED FOR S ELECTED U.S. D EPARTMENT S TORES, Asst Prof Phiphat Nonthanathorn PhD

9 W HY D O C OMPANIES F AIL ? What went wrong? Inertia Prior strategic commitments The Icarus paradox Avoiding failure and sustaining competitive advantage: Focus on the building blocks of competitive advantage. Institute continuous improvement and learning. Track best industrial practice and use benchmarking. Overcome inertia. 9 Asst Prof Phiphat Nonthanathorn PhD

10 C OMPETITIVE A DVANTAGE : V ALUE C REATION, L OW C OST, AND D IFFERENTIATION Competitive advantage is a firm’s ability to outperform its competitors (earn higher profits). The source of competitive advantage is value creation for customers. Sustained competitive advantage comes from maintaining higher profits than competitors over long periods of time. 10 Asst Prof Phiphat Nonthanathorn PhD

11 V ALUE C REATION 11 Asst Prof Phiphat Nonthanathorn PhD

12 G ENERIC B UILDING B LOCKS OF C OMPETITIVE A DVANTAGE 12 Asst Prof Phiphat Nonthanathorn PhD

13 T HE I MPACT OF Q UALITY ON P ROFITS 13 Asst Prof Phiphat Nonthanathorn PhD

14 T HE I MPACT OF E FFICIENCY, Q UALITY, I NNOVATION, AND C USTOMER R ESPONSIVENESS ON U NIT C OSTS AND P RICES 14 Asst Prof Phiphat Nonthanathorn PhD

15 D ISTINCTIVE C OMPETENCIES, R ESOURCES, AND C APABILITIES The roots of competitive advantage: 15 Asst Prof Phiphat Nonthanathorn PhD

16 S TRATEGY AND C OMPETITIVE A DVANTAGE The relationship between strategies and resources and capabilities: 16 Asst Prof Phiphat Nonthanathorn PhD

17 T HE D URABILITY OF C OMPETITIVE A DVANTAGE Barriers to imitation Speed of imitation by competitors in reducing advantage Imitation by acquiring similar resources Imitation of capabilities (more difficult) Limits on competitors Prior strategic commitments Absorptive capacity for change Industry dynamism The rapid innovation shortens product life cycles. 17 Asst Prof Phiphat Nonthanathorn PhD

18 S TRENGTHS AND W EAKNESSES Goal: objective assessment of your strengths and weaknesses relative to competitors important to customers Note: This is difficult to do well. 18 Asst Prof Phiphat Nonthanathorn PhD

19 Resource-Based Approach to Organizational Analysis Resources: Assets, process, knowledge, or competency controlled by corporation –Tangible: Land & Plant –Intangible: Human Capital & Reputation Distinctive competency: These are Core Competencies that are superior of those of competitors. What you do better then your competitors? 19 Asst Prof Phiphat Nonthanathorn PhD

20 S TRATEGIC R ESOURCES AND C APABILITIES Tangible Land Buildings Plant Equipment Intangible Brand names Reputation Patents Technological or marketing know- how 20 Asst Prof Phiphat Nonthanathorn PhD

21 R ESOURCES Inputs into a firm’s production process such as capital equipment, skill of individual employees, patents, finance, and talented managers Tangible Resources – Assets that can be seen and quantified Intangible Resources – Family commitment, networks, organizational culture, reputation, intellectual property rights, trademarks, copyrights By themselves, resources do not create a strategic advantage for the firm. 21 Asst Prof Phiphat Nonthanathorn PhD

22 C APABILITIES Capacity to deploy resources that have been purposely integrated to achieve a desired end state. Primary base for the firm’s capabilities is the skills and knowledge of its employees. Just because the firm has a strong capacity for deploying resources does not mean it has a competitive advantage. Integrated Resources / Skills in effectively coordinating and managing resources for productive use Capabilities: Integrated Resources / Skills in effectively coordinating and managing resources for productive use – Normally Intangible (i.e. Customer Service Capability & R&D Capability) 22 Asst Prof Phiphat Nonthanathorn PhD

23 C ORE C OMPETENCIES Resources and capabilities serve as a source of competitive advantage for a firm over its rival. Not all resources and capabilities are core competencies. Many suggest that firms should identify and concentrate on only 3 or 4 core competencies. Core competency: Are unique resources and capabilities (STRENGTHS) combined into specific activities a firm can perform extremely well 23 Asst Prof Phiphat Nonthanathorn PhD

24 Continuum of Sustainability Sustainability of Competitive Advantage 24 Asst Prof Phiphat Nonthanathorn PhD

25 Sustainability of Competitive Advantage Durability -- Rate at which a firm’s underlying resources and capabilities depreciate or become obsolete Imitability -- Rate at which a firm’s underlying resources and capabilities can be duplicated by others –Core Competency can be imitated to the extent that it is transparent, transferable, and replicable 25 Asst Prof Phiphat Nonthanathorn PhD

26 Core and Distinctive Competencies VRIO Framework – Four questions to evaluate firm’s key resources and capabilities (Barney) –Value: Does it provide customer value and competitive advantage? –Rareness: Do other competitor possess it? –Imitability: Is it costly for other to imitate? –Organization: Is the firm organized to exploit the resource/capability? 26 Asst Prof Phiphat Nonthanathorn PhD

27 C OMPONENTS OF I NTERNAL A NALYSIS L EADING TO C OMPETITIVE A DVANTAGE AND S TRATEGIC C OMPETITIVENESS 27 Asst Prof Phiphat Nonthanathorn PhD

28 C REATING V ALUE By exploiting their core competencies or competitive advantages, firms create value. Value is measured by: Product performance characteristics Product attributes for which customers are willing to pay Firms create value by innovatively bundling and leveraging their resources and capabilities. Superior value  Above-average returns 28 Asst Prof Phiphat Nonthanathorn PhD

29 C REATING C OMPETITIVE A DVANTAGE Core competencies, in combination with product- market positions, are the firm ’ s most important sources of competitive advantage. Core competencies of a firm, in addition to its analysis of its general, industry, and competitor environments, should drive its selection of strategies. 29 Asst Prof Phiphat Nonthanathorn PhD

30 T HE C HALLENGE OF I NTERNAL A NALYSIS Strategic decisions in terms of the firm ’ s resources, capabilities, and core competencies: Are non-routine. Have ethical implications. Significantly influence the firm ’ s ability to earn above- average returns. 30 Asst Prof Phiphat Nonthanathorn PhD

31 T HE C HALLENGE OF I NTERNAL A NALYSIS ( CONT ’ D ) To develop and use core competencies, managers must have: Courage Self-confidence Integrity The capacity to deal with uncertainty and complexity A willingness to hold people (and themselves) accountable for their work 31 Asst Prof Phiphat Nonthanathorn PhD

32 C ONDITIONS A FFECTING M ANAGERIAL D ECISIONS ABOUT R ESOURCES, C APABILITIES, AND C ORE C OMPETENCIES 32 Asst Prof Phiphat Nonthanathorn PhD

33 R ESOURCES, C APABILITIES AND C ORE C OMPETENCIES Resources Are the source of a firm ’ s capabilities. Are broad in scope. Cover a spectrum of individual, social and organizational phenomena. Alone, do not yield a competitive advantage. Discovering Core Competencies Resources Tangible Tangible Intangible Intangible Capabilities CoreCompetencies 33 Asst Prof Phiphat Nonthanathorn PhD

34 R ESOURCES Resources Are a firm ’ s assets, including people and the value of its brand name. Represent inputs into a firm ’ s production process, such as: Capital equipment Skills of employees Brand names Financial resources Talented managers Types of Resources Tangible resources Financial resources Physical resources Technological resources Organizational resources Intangible resources Human resources Innovation resources Reputation resources 34 Asst Prof Phiphat Nonthanathorn PhD

35 T ANGIBLE R ESOURCES Financial Resources The firm ’ s borrowing capacity The firm ’ s ability to generate internal funds Organizational Resources The firm ’ s formal reporting structure and its formal planning, controlling, and coordinating systems Physical Resources Sophistication and location of a firm ’ s plant and equipment Access to raw materials Technological Resources Stock of technology, such as patents, trademarks, copyrights, and trade secrets 35 Asst Prof Phiphat Nonthanathorn PhD

36 I NTANGIBLE R ESOURCES Human Resources Knowledge Trust Managerial capabilities Organizational routines Innovation Resources Ideas Scientific capabilities Capacity to innovate Reputational Resources Reputation with customers Brand name Perceptions of product quality, durability, and reliability Reputation with suppliers For efficient, effective, supportive, and mutually beneficial interactions and relationships 36 Asst Prof Phiphat Nonthanathorn PhD

37 R ESOURCES, C APABILITIES AND C ORE C OMPETENCIES Capabilities Represent the capacity to deploy resources that have been purposely integrated to achieve a desired end state Emerge over time through complex interactions among tangible and intangible resources Often are based on developing, carrying and exchanging information and knowledge through the firm ’ s human capital Discovering Core Competencies Resources Tangible Tangible Intangible Intangible Capabilities CoreCompetencies 37 Asst Prof Phiphat Nonthanathorn PhD

38 R ESOURCES, C APABILITIES AND C ORE C OMPETENCIES Capabilities (cont ’ d) The foundation of many capabilities lies in: The unique skills and knowledge of a firm ’ s employees The functional expertise of those employees Capabilities are often developed in specific functional areas or as part of a functional area. Discovering Core Competencies Resources Tangible Tangible Intangible Intangible Capabilities CoreCompetencies 38 Asst Prof Phiphat Nonthanathorn PhD

39 E XAMPLES OF F IRMS ’ C APABILITIES Functional Areas Capabilities Distribution Effective use of logistics management techniques Human resources Motivating, empowering, and retaining employees ManagementEffective and efficient control of inventories through information systemspoint-of-purchase data collection methods MarketingEffective promotion of brand-name products Effective customer service Innovative merchandising ManagementAbility to envision the future of clothing Effective organizational structure ManufacturingDesign and production skills yielding reliable products Product and design quality Miniaturization of components and products Research & Innovative technology development Development of sophisticated elevator control solutions Rapid transformation of technology into new products and processes Digital technology 39 Asst Prof Phiphat Nonthanathorn PhD

40 R ESOURCES, C APABILITIES AND C ORE C OMPETENCIES Four criteria for determining strategic capabilities: Value Rarity Costly-to-imitate Nonsubstitutability Discovering Core Competencies Resources Tangible Tangible Intangible Intangible Capabilities CoreCompetencies 40 Asst Prof Phiphat Nonthanathorn PhD

41 R ESOURCES, C APABILITIES AND C ORE C OMPETENCIES Core Competencies Resources and capabilities that are the sources of a firm ’ s competitive advantage: Distinguish a company competitively and reflect its personality. Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities. Discovering Core Competencies Resources Tangible Tangible Intangible Intangible Capabilities CoreCompetencies 41 Asst Prof Phiphat Nonthanathorn PhD

42 R ESOURCES, C APABILITIES AND C ORE C OMPETENCIES Core Competencies Activities that a firm performs especially well compared to competitors. Activities through which the firm adds unique value to its goods or services over a long period of time. Discovering Core Competencies Resources Tangible Tangible Intangible Intangible Capabilities CoreCompetencies 42 Asst Prof Phiphat Nonthanathorn PhD

43 B UILDING C ORE C OMPETENCIES Four Criteria of Sustainable Competitive Advantage Valuable capabilities Rare capabilities Costly to imitate Nonsubstituable Discovering Core Competencies Valuable Valuable Rare Rare Costly to imitate Costly to imitate Nonsubstitutable Nonsubstitutable Four Criteria of Sustainable Advantages 43 Asst Prof Phiphat Nonthanathorn PhD

44 T HE F OUR C RITERIA OF S USTAINABLE C OMPETITIVE A DVANTAGE Valuable Capabilities Help a firm neutralize threats or exploit opportunities Rare Capabilities Are not possessed by many others Costly-to-Imitate Capabilities Historical: A unique and a valuable organizational culture or brand name Ambiguous cause: The causes and uses of a competence are unclear Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers Nonsubstitutable Capabilities No strategic equivalent 44 Asst Prof Phiphat Nonthanathorn PhD

45 B UILDING S USTAINABLE C OMPETITIVE A DVANTAGE Valuable capabilities Help a firm neutralize threats or exploit opportunities. Rare capabilities Are not possessed by many others. Discovering Core Competencies Valuable Valuable Rare Rare Costly to imitate Costly to imitate Nonsubstitutable Nonsubstitutable Four Criteria of Sustainable Advantages 45 Asst Prof Phiphat Nonthanathorn PhD

46 B UILDING S USTAINABLE C OMPETITIVE A DVANTAGE Costly-to-Imitate Capabilities Historical A unique and a valuable organizational culture or brand name Ambiguous cause The causes and uses of a competence are unclear Social complexity Interpersonal relationships, trust, and friendship among managers, suppliers, and customers Discovering Core Competencies Valuable Valuable Rare Rare Costly to Imitate Costly to Imitate Nonsubstitutable Nonsubstitutable Four Criteria of Sustainable Advantages 46 Asst Prof Phiphat Nonthanathorn PhD

47 B UILDING S USTAINABLE C OMPETITIVE A DVANTAGE Nonsubstitutable Capabilities No strategic equivalent Firm-specific knowledge Organizational culture Superior execution of the chosen business model Discovering Core Competencies Valuable Valuable Rare Rare Costly to imitate Costly to imitate Nonsubstitutable Nonsubstitutable Four Criteria of Sustainable Advantages 47 Asst Prof Phiphat Nonthanathorn PhD

48 I DENTIFYING AND B UILDING C ORE C OMPETENCIES Core competencies must be distinctive. Capabilities that are done better than competitors Identifying core competencies is key to development of sound strategy. We use the value chain to help identify core competencies. 48 Asst Prof Phiphat Nonthanathorn PhD

49 Value-Chain Analysis It is the linked set of value-creating activities beginning with basic raw material and ending with distributors getting final goods into hands of customers – A simple way to examine traditional functional areas and the activities used to implement business level strategy Managers must examine each product line’s value chain to understand: 1.Its core competencies and / or core deficiencies 2.The connection between way activity is performed and the cost of performance 3.The potential synergies between different product lines (Economies of Scope) 4.How activities create value to customers 49 Asst Prof Phiphat Nonthanathorn PhD

50 Value-Chain Analysis Typical Value Chain for a Manufactured Product 50 Asst Prof Phiphat Nonthanathorn PhD

51 Corporation’s Value Chain 51 Asst Prof Phiphat Nonthanathorn PhD

52 T HE V ALUE C HAIN A framework for identifying core competencies Inside the firm In the supply chain Can be used to Identify strengths and weaknesses Identify sources of competitive advantage Identify market opportunities 52 Asst Prof Phiphat Nonthanathorn PhD

53 P RIMARY A CTIVITIES IN THE V ALUE C HAIN Inbound Logistics Materials handling, warehousing, inventory control used to receive, store and disseminate inputs to a product Fertilizer and chemical storage, delivery of inputs, application of inputs Operations Take inputs from inbound logistics and convert to final products Plowing, planting, spraying, harvesting, feeding, medicating, weighing,etc. Outbound Logistics Collecting, Storing, and physical distribution of the final product. Crop storage, finished hog handling, Processing and determining delivery dates, delivery to the packer or elevator etc. Inbound Logistics Marketing and Sales Outbound Logistics Operations Technology Human Resource management Procurement Firm Infrastructure Service 53 Asst Prof Phiphat Nonthanathorn PhD

54 P RIMARY A CTIVITIES IN THE V ALUE C HAIN Marketing and Sales Provide means through which customers can purchase products and to induce them to do so Advertising, communicating with buyers, developing customer relationships, pricing products (futures, hedging, forward contracting, etc.), delivery scheduling Service Activities designed to enhance or maintain a product’s value Timely delivery, identity preservation, ISO9000, certifying as organic, etc. Inbound Logistics Marketing and Sales Outbound Logistics Operations Service Human Resource management Firm Infrastructure Human Resources Procurement 54 Asst Prof Phiphat Nonthanathorn PhD

55 S UPPORTING A CTIVITIES IN THE V ALUE C HAIN Procurement Activities to purchase the inputs needed to produce products Negotiating with suppliers, standard timing of replenishing parts and tools, setting up buying groups, etc. Technological Development Activities that improve the firm’s products and/or processes Volunteering for test plots, being a part of feeding trials, attending technology seminars/field days, designing equipment to make specific production tasks more efficient, etc. Human Resources Recruiting, hiring, training, developing, and compensating all personnel Inbound Logistics Marketing and Sales Outbound Logistics Operations Human Resources Technological Development Procurement Service Firm Infrastructure 55 Asst Prof Phiphat Nonthanathorn PhD

56 S UPPORTING A CTIVITIES IN THE V ALUE C HAIN Firm Infrastructure General Management, planning, finance, accounting, legal support, governmental relations, etc. Establishment of accounting practices, management information systems, compliance with environmental regulations, tracking and reporting for government programs, etc. Where strategy development takes place identifying opportunities and threats, resources and capabilities, and support of core competencies Inbound Logistics Marketing and Sales Outbound Logistics Operations Human Resource management Firm Infrastructure Service Technology Procurement 56 Asst Prof Phiphat Nonthanathorn PhD

57 T HE R ESULT OF THE V ALUE C HAIN Margins Capture the value from performing value- creating activities as cheaply as possible The basic idea is that the consumer is willing to pay a certain amount for the value you create. This is depicted as the size of the overall pentagon. The size of the individual activity boxes represents the cost of performing those particular activities. Thus, the smaller the size of the individual activity boxes relative to the value the consumer is willing to pay, the greater the MARGIN will be for the firm. 57 Asst Prof Phiphat Nonthanathorn PhD

58 V ALUE C HAIN A NALYSIS A firm’s value chain must be compared to competitors’ value chains to determine where competitive advantages exist. To be a source of competitive advantage a resource or capability must allow a firm to: Perform an activity in a manner that is superior to competitor’s performances Perform a value-creating activity that competitors cannot complete 58 Asst Prof Phiphat Nonthanathorn PhD

59 L INKAGES WITHIN THE V ALUE C HAIN Optimization and coordination of activities in the value chain Linkages exist between support activities and primary activities and between separate primary activities Generic causes for linkages Same function can be performed in different ways Efforts in indirect activities Activities performed inside the firm reduce the need for activities in the field Quality Assurance can be performed in different ways 59 Asst Prof Phiphat Nonthanathorn PhD

60 V ALUE C HAIN L INKAGES IN THE S UPPLY C HAIN Supplier Chain Firm Chain Buyer Chain Supplier Chain Buyer Chain 60 Asst Prof Phiphat Nonthanathorn PhD

61 L INKAGES WITH S UPPLIER V ALUE C HAIN Linkages between suppliers’ value chains and a firms chain provide opportunities for the firm to enhance competitive advantage. Division of benefits between firm and its suppliers is a function of supplier’s bargaining power and reflecting in supplier’s margins. Both coordination with suppliers and hard bargaining are important to competitive advantage. 61 Asst Prof Phiphat Nonthanathorn PhD

62 T HE B UYER ’ S V ALUE C HAIN A firm’s differentiation stems from how its value chain relates to its buyer’s chain. Differentiation derives fundamentally from creating value for the buyer through a firm’s impact on the buyer’s value chain. Value is created when a firm creates a competitive advantage for its buyer. The buyer must perceive the value to pay a premium price. 62 Asst Prof Phiphat Nonthanathorn PhD

63 O UTSOURCING The purchase of a value-creating activity from an external supplier Few organizations possess the resources and capabilities required to achieve competitive superiority in all primary and support activities. By performing fewer capabilities: A firm can concentrate on those areas in which it can create value. Specialty suppliers can perform outsourced capabilities more efficiently. 63 Asst Prof Phiphat Nonthanathorn PhD

64 S TRATEGIC R ATIONALES FOR O UTSOURCING Improving business focus Helps a company focus on broader business issues by having outside experts handle various operational details. Providing access to world-class capabilities The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications. 64 Asst Prof Phiphat Nonthanathorn PhD

65 S TRATEGIC R ATIONALES FOR O UTSOURCING ( CONT ’ D ) Accelerating re-engineering benefits Achieves re-engineering benefits more quickly by having outsiders — who have already achieved world- class standards — take over process. Sharing risks Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities. Freeing resources for other purposes Redirects efforts from non-core activities toward those that serve customers more effectively. 65 Asst Prof Phiphat Nonthanathorn PhD

66 O UTSOURCING I SSUES Seeking greatest value Outsource only to firms possessing a core competence in terms of performing the primary or supporting the outsourced activity. Evaluating resources and capabilities Do not outsource activities in which the firm itself can create and capture value. Environmental threats and ongoing tasks Do not outsource primary and support activities that are used to neutralize environmental threats or to complete necessary ongoing organizational tasks. 66 Asst Prof Phiphat Nonthanathorn PhD

67 O UTSOURCING I SSUES ( CONT ’ D ) Nonstrategic team resources Do not outsource capabilities critical to the firm ’ s success, even though the capabilities are not actual sources of competitive advantage. Firm ’ s knowledge base Do not outsource activities that stimulate the development of new capabilities and competencies. 67 Asst Prof Phiphat Nonthanathorn PhD

68 I NTERNAL ANALYSIS : FUNCTIONAL AREAS Marketing HRM Finance R&D ICT … 68 Asst Prof Phiphat Nonthanathorn PhD

69 Functional Area – Strategic Marketing Issues –Market Position & Segmentation –Marketing Mix –Product Life Cycle –Brand & Corporate Reputation 69 Asst Prof Phiphat Nonthanathorn PhD

70 Product Life Cycle 70 Asst Prof Phiphat Nonthanathorn PhD

71 Functional Area Strategic Financial Issues –Financial leverage –Capital budgeting 71 Asst Prof Phiphat Nonthanathorn PhD

72 Functional Area – Strategic Research & Development Issues –R&D Intensity –Technological Competence –Technology Transfer –Technological Discontinuity 72 Asst Prof Phiphat Nonthanathorn PhD

73 Functional Area – Strategic Human Resource Management Issues HRM – –Increasing use of teams –Union relations –Temporary workers –Quality of work life –Human diversity 73 Asst Prof Phiphat Nonthanathorn PhD

74 O UTCOMES FROM C OMBINATIONS OF THE F OUR C RITERIA Valuable? Rare? Costly to Imitate? Nonsubstitutable? Competitive Consequences Performance Implications No Competitive Disadvantage Competitive Disadvantage Below Average Returns Below Average Returns Yes No Yes/ No Yes/ No Competitive Parity Competitive Parity Average Returns Yes No Yes/ No Yes/ No Temporary Com- petitive Advantage Temporary Com- petitive Advantage Above Average to Average Returns Yes Sustainable Com- petitive Advantage Sustainable Com- petitive Advantage Above Average Returns 74 Asst Prof Phiphat Nonthanathorn PhD

75 O UTCOMES FROM C OMBINATIONS OF THE C RITERIA FOR S USTAINABLE C OMPETITIVE A DVANTAGE 75 Asst Prof Phiphat Nonthanathorn PhD

76 IFE– Gateway Computers (2003) Key Internal Factors Weigh t Rating Wtd Score Strengths 1. Several new senior executive with world-class skills and leadership experience Continuous decline in operating costs and cost of goods sold Well-known brand name Consumer Reports (Sept 2002) recommended Gateway 500X as # As a direct seller, Gateway holds high brand recognition Asst Prof Phiphat Nonthanathorn PhD

77 IFE– Gateway Computers (2003) Key Internal Factors Weigh t Rating Wtd Score Strengths (cont’d) 6. Gateway is diversifying into non-PC products Good relationship with its suppliers Economies of scale, the 6 th largest PC maker I the world Gateway retails stores excellent Asst Prof Phiphat Nonthanathorn PhD

78 IFE– Gateway Computers (2003) Key Internal Factors Weigh t Rating Wtd Score Weaknesses 1. High operating expense (22% of revenue vs. 10% for Dell) Almost no budget for R&D vs. Dell’s 18% of revenue Low return on assets ratio No niche market Asst Prof Phiphat Nonthanathorn PhD

79 IFE– Gateway Computers (2003) Key Internal Factors Weigh t Rating Wtd Score Weaknesses (cont’d) 5. Shortage of cash due to successive losses Limited number Gateway stores Weak performance in overseas market TOTAL Asst Prof Phiphat Nonthanathorn PhD

80 5-80 Internal Factor Analysis Summary (IFAS): Maytag as Example Internal Factors Weight Rating Weighted Score Comments Strengths Quality Maytag culture Experienced top management Vertical integration Employee relations Hoover’s international orientation Weaknesses Process-oriented R&D Distribution channels Financial position Global positioning Manufacturing facilities Total Weighted Score Quality key to success Know appliances Dedicated factories Good, but deteriorating Hoover name in cleaners Slow on new products Superstores replacing small dealers High debt load Hoover weak outside the United Kingdom and Australia Investing now Asst Prof Phiphat Nonthanathorn PhD


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