1. CHAPTER 5
Internal Analysis

2. Chapter Topics Resource-based View of the Firm SWOT Analysis
Value Chain Analysis
Internal Analysis: Making Meaningful Comparisons

3. Ingredients Critical to Successful Strategy
Be consistent with conditions in the competitive environment
Strategy must …
Place realistic
requirements on the
firm’s resources
Be carefully executed

4. 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

5. 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
Intangible assets
Cannot be seen or touched
Often very critical in creating competitive advantage
Examples: brand names, company reputation, company morale
Organizational capabilities
Involve skills – ability to combine assets, people, and processes – used to transform inputs into outputs

6. Ex. 5-2: Examples of Different Resources (selected)
Tangible Assets
Intangible Assets
Organizational Capabilities
Hampton Inn’s reservation system
Nike’s brand name
Dell Computer’s customer service
Ford Motor’s cash reserves
Dell Computer’s reputation
Wal-mart’s purchasing and inbound logistics
3M’s patents
Wendy’s advertising with Dave Thomas
Sony’s product development process
Georgia Pacific’s land holdings
Jack Welch as GE’s leader
Coke’s global distribution coordination

7. Company Competencies vs. Core Competencies vs. Distinctive Competencies
A company competence is the product of organizational learning and experience and represents “real proficiency in performing an internal activity”
A core competence is a well-performed internal activity that is central (not peripheral or incidental) to a company’s competitiveness and profitability
A distinctive competence is a competitively valuable activity that a company performs better than its rivals

8. What Makes a Resource Valuable?
Competitive superiority: Does the resource help fulfill a customer’s need better than those of the firm’s competitors?
Resource scarcity: Is the resource in short supply?
Easily Imitated?: Is the resource easily copied or acquired? (**look to next 2 slides)
Durability: How rapidly will the resource depreciate?
Substitutability? Are other alternatives available?

9. Easily Imitated? Isolating Mechanisms
Physically unique resources
Resources virtually impossible to imitate
E.g., 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
E.g., 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

10. Easily Imitated? Isolating Mechanisms
Causal ambiguity
Situations where it is difficult for competitors to understand how a firm has created its advantage
E.g., Southwest Airlines’ approach
Same plane, routes, gate procedures, number of attendants
Culture of fun, family, and frugal yet focused service
Economic deterrence
Involves large capital investments in capacity to produce products or services in a given market that are scale sensitive

11. What Makes a Resource Valuable? Again…
Competitive superiority: Does the resource help fulfill a customer’s need better than those of the firm’s competitors?
Resource scarcity: Is the resource in short supply?
Easily Imitated?: Is the resource easily copied or acquired?
Durability: How rapidly will the resource depreciate?
Substitutability? Are other alternatives available?

12. Guidelines: Using the Resource Based View in Internal Analysis
Disaggregate resources – break them down into more specific competencies rather than use broad categories
Utilize 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

13. SWOT Analysis Strengths Weaknesses Opportunities Threats
Based on assumption: an effective strategy derives from a sound “fit” between a firm’s internal resources and its external situation
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.
Opportunities
A major favorable situation in a firm’s environment
Threats
A major unfavorable situation in a firm’s environment

14. SWOT Analysis - Some things to Look For …
Potential Resource Strengths
Potential Resource Weaknesses
Potential Company Opportunities
Potential External Threats
Powerful strategy
Strong financial condition
Strong brand name image/reputation
Widely recognized market leader
Proprietary technology
Cost advantages
Strong advertising
Product innovation skills
Good customer service
Better product quality
Alliances or JVs
No clear strategic direction
Obsolete facilities
Weak balance sheet; excess debt
Higher overall costs than rivals
Missing some key skills/competencies
Subpar profits
Internal operating problems . . .
Falling behind in R&D
Too narrow product line
Weak marketing skills
Serving additional customer groups
Expanding to new geographic areas
Expanding product line
Transferring skills to new products
Vertical integration
Take market share from rivals
Acquisition of rivals
Alliances or JVs to expand coverage
Openings to exploit new technologies
Openings to extend brand name/image
Entry of potent new competitors
Loss of sales to substitutes
Slowing market growth
Adverse shifts in exchange rates & trade policies
Costly new regulations
Vulnerability to business cycle
Growing leverage of customers or suppliers
Reduced buyer needs for product
Demographic changes

15. What is a Value Chain?
The term value chain describes a way of looking at a business as a chain of activities that transform inputs into outputs that customers value

16. 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 a set 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 for better identification of a firm’s strengths and weaknesses since the business is viewed as a process

17. Value Chain activities … (selected items)
Human Resource Management
General Administration
Procurement
Technology Development
Inbound Logistics
Operations
Outbound Logistics
Service
Marketing and Sales

18. Internal Analysis: Making Meaningful Comparisons
1. Comparison with past performance
4. Comparison with success factors in industry
2. Stages of industry evolution
Perspectives to use
3. Benchmarking – comparison with competitors