1. University of Cagliari, Faculty of Economics, 2011-12 Business Strategy and Policy A course within the II level degree in Managerial Economics year II, semester I, 9 credits Lecturer: Dr Alberto Asquer aasquer@unica.it Phone: 070 6753399

2. Introduction 0. Analysis and assessment of the resources and distinctive capabilities of the firm. 1. Assessing the present strategy of the company 2. Assessing the company's resource strengths and weaknesses, and external opportunities and threats 3. Assessing the competitiveness of company's costs and prices 4. Comparing the company with the competitors - - - - - - - - - - - - - 5. Summary

3. 0. Analysis and assessment of the resources and distinctive capabilities of the firm. Neoclassical view: the firm as a 'production function' that converts inputs (factors of production) into outputs (products and services) Resource-based view of the firm: the firm as a bundle of heterogeneous and sticky resources (Penrose, 1959). Resources are 'special production inputs' because they: 1) are unique (they are possessed and controlled by one firm only) 2) cannot be easily imitated (replicated, reproduced, copied) by other firms 3) account for super-normal profits that the firm achieves. Resources may be conceived as tangible or intangible 'assets' that other firms cannot imitate because of some 'isolating mechanism'. Distinctive capabilities are a special type of resources: they consist in unique and non-imitable “ability of doing things” (know-how) better than competitors.

4. 0. Analysis and assessment of the resources and distinctive capabilities of the firm. Neoclassical view: the firm as a 'production function' that converts inputs (factors of production) into outputs (products and services) Resource-based view of the firm: the firm as a bundle of heterogeneous and sticky resources (Penrose, 1959). Resources are 'special production inputs' because they: 1) are unique (they are possessed and controlled by one firm only) 2) cannot be easily imitated (replicated, reproduced, copied) by other firms 3) account for super-normal profits that the firm achieves. Resources may be conceived as tangible or intangible 'assets' that other firms cannot imitate because of some 'isolating mechanism'. Distinctive capabilities are a special type of resources: they consist in unique and non-imitable “ability of doing things” (know-how) better than competitors.

5. 0. Analysis and assessment of the resources and distinctive capabilities of the firm. Source of sustainable competitive advantage is the ownership and control of resources and distinctive capabilities 1) They allow firms to obtain unique products and services 2) Other firms cannot easily buy them in the market 3) Other firms cannot easily replicate, reproduce, copy them 4) Buyers are willing to pay a premium price for the exclusive price- value proposition of the firms' products and services (Compare with the five-forces analysis of the industry: that framework for analysis does not really posit any source of differentiation between firms within the industry) (Ultimately, the resource-based view of the firm builds on the idea of persistent imperfections in the factor markets)

6. 1. Assessing the present strategy of the company Financial performance is taken as evidence of strategy effectiveness Example: financial performance of 'leading firms in Sardinia', 2008

7. 1. Assessing the present strategy of the company Financial performance of firms in Sardinia: ROE %

8. 1. Assessing the present strategy of the company Financial performance of firms in Sardinia: ROI %

9. 1. Assessing the present strategy of the company Financial performance of firms in Sardinia: turnover growth %

10. 1. Assessing the present strategy of the company Financial performance of 'leading firms' in Sardinia in hospitality sector

11. 2. Assessing the company's resource strengths and weaknesses, and external opportunities and threats (SWOT analysis) Strengths Skills and expertise (competences, core competences, and distinctive capabilities); physical, human, intellectual, organisational and intangible assets; valuable alliances; corporate culture; etc. Weaknesses Lack of strategic direction; high unit costs; high debt; no product innovation capabilities; weak brand image and reputation; low quality; lack of distribution capacity; loss of market share; operating problems; detrimental corporate culture; etc. Threats Increased rivalry; decline in buyer demand; entry of new competitors; rising regulatory or trade barriers; shift in buyer needs and tastes; etc. Opportunities Rising buyer demand; opening of new geographical markets; lowering of regulatory and trade barriers; online sales;possibility to acquire rival firms or attractive firms (for synergies); possibility of alliances; etc.

12. 3. Assessing the competitiveness of company's costs and prices The value chain (Porter, 1985)

13. 3. Assessing the competitiveness of company's costs and prices The value chain (Porter, 1985)

14. 3. Assessing the competitiveness of company's costs and prices The value system (value chain system, supply chain, supply network)

15. 4. Comparing the company with the competitors Value chain benchmarking Firm's value chain Leading firms' value chain Comparing how firms perform value chain activities (the quest for 'best practices')

16. 5. Summary Main points The analysis of the resources and distinctive capabilities of the firm aims to single out the sources of uniqueness that account for a sustainable competitive advantage. Financial performance is indicative of whether a firms' strategy is successful (mainly in the short term). The assessment of resources and distinctive capabilities is often done through the SWOT analysis framework. Analysis of the value chain and of the value system is important (especially by benchmarking with leading competitors) to better understand the sources of cost or value advantage.