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STRATEGIC MANAGEMENT ผศ.ดร.พิพัฒน์ นนทนาธรณ์

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Presentation on theme: "STRATEGIC MANAGEMENT ผศ.ดร.พิพัฒน์ นนทนาธรณ์"— Presentation transcript:

1 STRATEGIC MANAGEMENT ผศ.ดร.พิพัฒน์ นนทนาธรณ์ nphiphat@hotmail.com
Internal Analysis STRATEGIC MANAGEMENT ผศ.ดร.พิพัฒน์ นนทนาธรณ์

2 External Analyses’ Outcomes
Opportunities and threats Asst Prof Phiphat Nonthanathorn PhD By studying the external environment, firms identify what they might choose to do.

3 Internal Analyses’ Outcomes
Unique resources, capabilities, and competencies (required for sustainable competitive advantage) Asst Prof Phiphat Nonthanathorn PhD By studying the internal environment, firms identify what they can do

4 The Context of Internal Analysis
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. Asst Prof Phiphat Nonthanathorn PhD

5 Challenge of Internal Analysis
Strategic Business Planning for Commercial Producers Challenge of Internal Analysis Business Strengths Identifying, developing, protecting, and deploying resources, capabilities, and core competencies Asst Prof Phiphat Nonthanathorn PhD Consider marketing products/services price/promotion distribution/location Consider people management farm hands office staff/other Sales force Consider operations/facilities Implementation facilities/equipment cost management/efficiency Consider finances profitability debt position/capital structure inventory/receivable management © Purdue University, Center for Food and Agricultural Business, 2002

6 Steps for Strategy Analysis --
Resource-Based Approach to Organizational Analysis Steps for Strategy Analysis -- Identify firms strengths and weakness by: Identify and classify resources Combine/Integrate resources into capabilities Combine firm’s strengths into specific core competencies / Distinctive Competencies Appraise profit potential of resources / capabilities (Competencies) to sustain competitive advantage Select strategy that best exploits your competencies (Resources and Capabilities) Identify resource gaps invest in weaknesses Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

7 Why within a given industry, some companies do better then the others?
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 Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

8 Return on Capital Employed for Selected U. S
Return on Capital Employed for Selected U.S. Department Stores, Asst Prof Phiphat Nonthanathorn PhD

9 Why Do Companies Fail? 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. What went wrong? Inertia Prior strategic commitments The Icarus paradox Asst Prof Phiphat Nonthanathorn PhD

10 Competitive Advantage: Value Creation, Low Cost, and Differentiation
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. Asst Prof Phiphat Nonthanathorn PhD

11 Value Creation Asst Prof Phiphat Nonthanathorn PhD

12 Generic Building Blocks of Competitive Advantage
Asst Prof Phiphat Nonthanathorn PhD

13 The Impact of Quality on Profits
Asst Prof Phiphat Nonthanathorn PhD

14 The Impact of Efficiency, Quality, Innovation, and Customer Responsiveness on Unit Costs and Prices
Asst Prof Phiphat Nonthanathorn PhD

15 Distinctive Competencies, Resources, and Capabilities
The roots of competitive advantage: Asst Prof Phiphat Nonthanathorn PhD

16 Strategy and Competitive Advantage
The relationship between strategies and resources and capabilities: Asst Prof Phiphat Nonthanathorn PhD

17 The Durability of Competitive Advantage
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. Asst Prof Phiphat Nonthanathorn PhD

18 Strengths and Weaknesses
Strategic Business Planning for Commercial Producers Strengths and Weaknesses Business Strengths Goal: objective assessment of your strengths and weaknesses relative to competitors important to customers Note: This is difficult to do well. Asst Prof Phiphat Nonthanathorn PhD Strengths and weaknesses are the internal side of a SWOT analysis. SWOT is a tool for auditing an organization and its environment. It is the first stage of planning and helps managers focus on key issues. Once key issues have been identified, they feed into objectives. It can be used in conjunction with other tools for audit and analysis, such Porter's Five-Forces analysis. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. For example, a strength could be your specialist expertise. A weakness could be the lack of good genetics. Opportunities and threats are external factors. For example, an opportunity could be a developing market such as the Internet. A threat could be a new competitor in your home market. During the SWOT exercise, the four titles are often written on a page. List factors under each title. It's that simple. This presentation is only on the internal factors. © Purdue University, Center for Food and Agricultural Business, 2002

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? Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

20 Strategic Resources and Capabilities
Intangible Brand names Reputation Patents Technological or marketing know-how Tangible Land Buildings Plant Equipment Asst Prof Phiphat Nonthanathorn PhD

21 Strategic Business Planning for Commercial Producers
Resources Business Strengths 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. Asst Prof Phiphat Nonthanathorn PhD Business cards are resources – they can be used to network, develop, foster, and protect business relationships. Land and machinery are resources. Probably some of the most important resources are intangible resources. Yet, we often have difficulty identifying and understanding how to capitalize on out intangible resources. © Purdue University, Center for Food and Agricultural Business, 2002

22 Strategic Business Planning for Commercial Producers
Capabilities Business Strengths 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. Capabilities: Integrated Resources / Skills in effectively coordinating and managing resources for productive use Normally Intangible (i.e. Customer Service Capability & R&D Capability) Asst Prof Phiphat Nonthanathorn PhD If there are two identical farms but one is doing better than the other, it is the capabilities of the managers to use the buildings and tractors and intangible resources that likely makes the difference A farm with 1,200 sows may be the most low cost/efficient operation in the area – but without an abil8ity to discover and foster a market, raising hogs is pointless. That is a capability that the manager brings to the business. © Purdue University, Center for Food and Agricultural Business, 2002

23 Strategic Business Planning for Commercial Producers
Core Competencies Business Strengths 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 Asst Prof Phiphat Nonthanathorn PhD One must recognize that resources are only half the battle. The firm must also have the capability to take those resources and use them effectively. This is usually related to the strength of the management team and their capacity to make the right short and long-term decisions about the allocation of resources to the various pursuits of the company. Core competencies are created by the superior resources put to use in way that no other firm can replicate. Core competencies are those things that are fundamental to a firms success. Core competencies are rare, not many firms can do what you do in this area. Core competencies are difficult if not impossible for another company to copy, usually because of the firms capability and intangible resources, not because of physical resources. Core competencies are valuable to customers, that is, the things that your company does better than anyone else, someone else must be willing to pay for else you are simply good at something but it does not create long-term success of the company. If you attempt to develop 10 core competencies, how are you going to develop and maintain all of them? Successful firms tend to focus on the 2 or 3 things they clearly do better than others. © Purdue University, Center for Food and Agricultural Business, 2002

24 Continuum of Sustainability Sustainability of Competitive Advantage
Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

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 Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

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? Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

27 Components of Internal Analysis Leading to Competitive Advantage and Strategic Competitiveness
Asst Prof Phiphat Nonthanathorn PhD

28 Creating Value 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 Asst Prof Phiphat Nonthanathorn PhD

29 Creating Competitive Advantage
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. Asst Prof Phiphat Nonthanathorn PhD

30 The Challenge of Internal Analysis
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. Asst Prof Phiphat Nonthanathorn PhD

31 The Challenge of Internal Analysis (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 Asst Prof Phiphat Nonthanathorn PhD

32 Conditions Affecting Managerial Decisions about Resources, Capabilities, and Core Competencies
Asst Prof Phiphat Nonthanathorn PhD

33 Resources, Capabilities and Core Competencies
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 Core Competencies Asst Prof Phiphat Nonthanathorn PhD Capabilities Resources Tangible Intangible

34 Resources Resources Types of 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 Asst Prof Phiphat Nonthanathorn PhD

35 Financial Resources • The firm’s borrowing capacity
Tangible Resources 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 Asst Prof Phiphat Nonthanathorn PhD

36 Human Resources • Knowledge • Trust • Managerial capabilities
Intangible Resources 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 Asst Prof Phiphat Nonthanathorn PhD

37 Resources, Capabilities and Core Competencies
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 Core Competencies Asst Prof Phiphat Nonthanathorn PhD Capabilities Resources Tangible Intangible

38 Resources, Capabilities and Core Competencies
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 Core Competencies Asst Prof Phiphat Nonthanathorn PhD Capabilities Resources Tangible Intangible

39 Examples of Firms’ Capabilities
Functional Areas Capabilities Distribution Effective use of logistics management techniques Human resources Motivating, empowering, and retaining employees Management Effective and efficient control of inventories through information systems point-of-purchase data collection methods Marketing Effective promotion of brand-name products Effective customer service Innovative merchandising Management Ability to envision the future of clothing Effective organizational structure Manufacturing Design 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 Asst Prof Phiphat Nonthanathorn PhD

40 Resources, Capabilities and Core Competencies
Discovering Core Competencies Four criteria for determining strategic capabilities: Value Rarity Costly-to-imitate Nonsubstitutability Core Competencies Asst Prof Phiphat Nonthanathorn PhD Capabilities Resources Tangible Intangible

41 Resources, Capabilities and 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 Core Competencies Asst Prof Phiphat Nonthanathorn PhD Capabilities Resources Tangible Intangible

42 Resources, Capabilities and 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 Core Competencies Asst Prof Phiphat Nonthanathorn PhD Capabilities Resources Tangible Intangible

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

44 The Four Criteria of Sustainable Competitive Advantage
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 Asst Prof Phiphat Nonthanathorn PhD

45 Building Sustainable Competitive Advantage
Valuable capabilities Help a firm neutralize threats or exploit opportunities. Rare capabilities Are not possessed by many others. Discovering Core Competencies Four Criteria of Sustainable Advantages Asst Prof Phiphat Nonthanathorn PhD Valuable Rare Costly to imitate Nonsubstitutable

46 Building Sustainable Competitive Advantage
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 Four Criteria of Sustainable Advantages Asst Prof Phiphat Nonthanathorn PhD Valuable Rare Costly to Imitate Nonsubstitutable

47 Building Sustainable Competitive Advantage
Discovering Core Competencies Nonsubstitutable Capabilities No strategic equivalent Firm-specific knowledge Organizational culture Superior execution of the chosen business model Four Criteria of Sustainable Advantages Asst Prof Phiphat Nonthanathorn PhD Valuable Rare Costly to imitate Nonsubstitutable

48 Identifying and Building Core Competencies
Strategic Business Planning for Commercial Producers Business Strengths Identifying and Building Core Competencies 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. Asst Prof Phiphat Nonthanathorn PhD Using key employees as an example of core compenticies. Valuable Capabilities A unique capability to higher employees that are good with equipment and capable of fixing problems. Rare Capabilities In today’s farm labor pool, loyal long-term employees that are good with equipment and can work on it are pretty few and far between. A farm that has this type of staisfied employee base likely has a key competitive advantage. Costly to Imitate Capabilities Because of the historical knowledge base contained by these “key” employees, it is costly if not impossible for other farms to gain this capability. Many times it is not even clear why these employees are so much better with equipment than others. Of course, the educational focus of our society puts well trained employees with the kind of skills needed in too high of a wage bracket for most farm businesses Non-substitutable capabilities Certainly there are some substitutes for employees that are good with machinery. Good mechanics in the region, renting equipment, etc. However these are imperfect substitutes at best and erode the competitive advantage obtained with “key” employees © Purdue University, Center for Food and Agricultural Business, 2002

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: Its core competencies and / or core deficiencies The connection between way activity is performed and the cost of performance The potential synergies between different product lines (Economies of Scope) How activities create value to customers Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

50 Typical Value Chain for a Manufactured Product
Value-Chain Analysis Typical Value Chain for a Manufactured Product Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

51 Corporation’s Value Chain
Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

52 Strategic Business Planning for Commercial Producers
The Value Chain Business Strengths 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 Asst Prof Phiphat Nonthanathorn PhD The Value Chain is one way to help identify core competencies in your business. The value chain is a systematic approach to examining the development of competitive advantage. It was created by Michael E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organization. The 'margin' depicted in the diagram (next slide) is the same as added value. The organization is split into 'primary activities' and 'support activities.‘ © Purdue University, Center for Food and Agricultural Business, 2002

53 Primary Activities in the Value Chain
Strategic Business Planning for Commercial Producers Primary Activities in the Value Chain Business Strengths Logistics Inbound and Sales Marketing Outbound Operations Technology Human Resource management Procurement Firm Infrastructure Service 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. Asst Prof Phiphat Nonthanathorn PhD Inbound Logistics Here goods are received from a company's suppliers. They are stored until they are needed in the production. Goods are moved around the organization. Operations This is where goods are grown or produced. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine. Outbound Logistics The products are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer – whatever the next step in the industry chain. © Purdue University, Center for Food and Agricultural Business, 2002

54 Primary Activities in the Value Chain
Strategic Business Planning for Commercial Producers Primary Activities in the Value Chain Business Strengths Logistics Inbound Marketing and Sales Outbound Operations Service Human Resource management Firm Infrastructure Human Resources Procurement 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. Asst Prof Phiphat Nonthanathorn PhD Marketing and Sales In true customer orientated fashion, at this stage the organization prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix. Service This includes all areas of service such as after-sales service, complaints handling, and so on. Marketing strategy has four components, known as the 4 P’s (Product, Price, Place and Promotion). We in agriculture have tended to think of marketing as only a factor of Price, (in terms of future/options, the market price etc). But it is much more broad. All sorts of things can be done to sell your product. This is asking your elevator manager if you can do something different. Can you deliver to the elevator at an off-peak time (an example of place)? Finding ways to solve someone else’s problem is how you create and capture value. © Purdue University, Center for Food and Agricultural Business, 2002

55 Supporting Activities in the Value Chain
Strategic Business Planning for Commercial Producers Supporting Activities in the Value Chain Business Strengths 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 Asst Prof Phiphat Nonthanathorn PhD Procurement This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organizations). Technology Development Technology is an important source of competitive advantage. Farms need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, and many other technological developments. Human Resource Management (HR) Employees are an expensive and vital resource. An organization would manage recruitment and selection, training and development, and rewards and compensation. The mission and objectives of the organization would be driving force behind the HR strategy. Logistics Inbound Marketing and Sales Outbound Operations Human Resources Technological Development Procurement Service Firm Infrastructure © Purdue University, Center for Food and Agricultural Business, 2002

56 Supporting Activities in the Value Chain
Strategic Business Planning for Commercial Producers Business Strengths Supporting Activities in the Value Chain 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 Asst Prof Phiphat Nonthanathorn PhD Logistics Inbound Marketing and Sales Outbound Operations Human Resource management Firm Infrastructure Service Technology Procurement Firm Infrastructure This activity includes and is driven by corporate or strategic planning. It includes the mechanisms for planning and control such as accounting. © Purdue University, Center for Food and Agricultural Business, 2002

57 The Result of the Value Chain
Strategic Business Planning for Commercial Producers The Result of the Value Chain Business Strengths 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. Asst Prof Phiphat Nonthanathorn PhD The customer has to be willing to write a check for what you do. © Purdue University, Center for Food and Agricultural Business, 2002

58 Strategic Business Planning for Commercial Producers
Value Chain Analysis Business Strengths 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 Asst Prof Phiphat Nonthanathorn PhD The analysis is helpful to you as you think about what you do well and what you can improve on. Benchmarking your performance to what your competitors do well is an important part of knowing if you are performing on par. © Purdue University, Center for Food and Agricultural Business, 2002

59 Linkages within the Value Chain
Strategic Business Planning for Commercial Producers Linkages within the Value Chain Business Strengths 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 Asst Prof Phiphat Nonthanathorn PhD some farm examples brought into the discussion?? Eric Akins? Same functions can be performed in different ways. © Purdue University, Center for Food and Agricultural Business, 2002

60 Value Chain Linkages in the Supply Chain
Strategic Business Planning for Commercial Producers Business Strengths Value Chain Linkages in the Supply Chain Buyer Chain Supplier Chain Buyer Chain Firm Chain Asst Prof Phiphat Nonthanathorn PhD Supplier Chain Buyer Chain The value chain a firm has for a product is just a part of the industry. The supplier sells to a buyer and buys from a supplier, each of which have their own value chains. © Purdue University, Center for Food and Agricultural Business, 2002

61 Linkages with Supplier Value Chain
Strategic Business Planning for Commercial Producers Business Strengths Linkages with Supplier Value Chain 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. Asst Prof Phiphat Nonthanathorn PhD Who gets the value? It depends on the bargaining power. © Purdue University, Center for Food and Agricultural Business, 2002

62 The Buyer’s Value Chain
Strategic Business Planning for Commercial Producers The Buyer’s Value Chain Business Strengths 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. Asst Prof Phiphat Nonthanathorn PhD For instance, the supplier’s Marketing Support Function relates directly to the buyer’s Procurement Function. © Purdue University, Center for Food and Agricultural Business, 2002

63 Outsourcing 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. Asst Prof Phiphat Nonthanathorn PhD

64 Strategic Rationales for Outsourcing
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. Asst Prof Phiphat Nonthanathorn PhD

65 Strategic Rationales for Outsourcing (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. Asst Prof Phiphat Nonthanathorn PhD

66 Outsourcing Issues 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. Asst Prof Phiphat Nonthanathorn PhD

67 Outsourcing Issues (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. Asst Prof Phiphat Nonthanathorn PhD

68 Internal analysis: functional areas
Marketing HRM Finance R&D ICT Asst Prof Phiphat Nonthanathorn PhD

69 Strategic Marketing Issues
Functional Area – Strategic Marketing Issues Market Position & Segmentation Marketing Mix Product Life Cycle Brand & Corporate Reputation Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

70 Product Life Cycle Prentice Hall 2006
Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

71 Financial leverage Capital budgeting Functional Area
Strategic Financial Issues Financial leverage Capital budgeting Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

72 Strategic Research & Development Issues
Functional Area – Strategic Research & Development Issues R&D Intensity Technological Competence Technology Transfer Technological Discontinuity Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

73 Strategic Human Resource Management Issues
Functional Area – Strategic Human Resource Management Issues HRM – Increasing use of teams Union relations Temporary workers Quality of work life Human diversity Asst Prof Phiphat Nonthanathorn PhD Prentice Hall 2006

74 Outcomes from Combinations of the Four Criteria
Costly to Imitate? Nonsubstitutable? Valuable? Competitive Consequences Performance Implications Rare? No No No No Competitive Disadvantage Below Average Returns Asst Prof Phiphat Nonthanathorn PhD Yes No No Yes/ No Competitive Parity Average Returns Yes Yes No Yes/ No Temporary Com- petitive Advantage Above Average to Average Returns Yes Yes Yes Yes Sustainable Com- petitive Advantage Above Average Returns

75 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage
Asst Prof Phiphat Nonthanathorn PhD

76 IFE– Gateway Computers (2003)
Key Internal Factors Weight Rating Wtd Score Strengths 1. Several new senior executive with world-class skills and leadership experience 0.05 4 0.40 2. Continuous decline in operating costs and cost of goods sold 3 0.15 3. Well-known brand name 4. Consumer Reports (Sept 2002) recommended Gateway 500X as #1 0.10 5. As a direct seller, Gateway holds high brand recognition Asst Prof Phiphat Nonthanathorn PhD

77 IFE– Gateway Computers (2003)
Key Internal Factors Weight Rating Wtd Score Strengths (cont’d) 6. Gateway is diversifying into non-PC products 0.10 3 0.30 7. Good relationship with its suppliers. 0.05 4 0.20 8. Economies of scale, the 6th largest PC maker I the world 9. Gateway retails stores excellent 0.15 Asst Prof Phiphat Nonthanathorn PhD

78 IFE– Gateway Computers (2003)
Key Internal Factors Weight Rating Wtd Score Weaknesses 1. High operating expense (22% of revenue vs. 10% for Dell) 0.05 3 0.15 2. Almost no budget for R&D vs. Dell’s 18% of revenue 0.10 1 3. Low return on assets ratio 0.025 4. No niche market 2 Asst Prof Phiphat Nonthanathorn PhD

79 IFE– Gateway Computers (2003)
Key Internal Factors Weight Rating Wtd Score Weaknesses (cont’d) 5. Shortage of cash due to successive losses 0.10 2 0.20 6. Limited number Gateway stores 0.05 7. Weak performance in overseas market TOTAL 1.00 2.85 Asst Prof Phiphat Nonthanathorn PhD

80 Internal Factor Analysis Summary (IFAS): Maytag as Example
Internal Factors Rating Weighted Score Weight 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 1 2 3 4 5 .15 .05 .10 .20 5 4 3 2 .75 .20 .40 .15 .45 .10 .30 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 1.00 3.05 Prentice Hall 2006


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