Internal Analysis Evaluating a Company’s Resources and Competitive Position Pages 94 - 131

Profitability in the U.S. Retailing Industry, 1996-2001

Why Internal Analysis? Early strategy theory rooted in industry structural analysis - external focus This approach has lost its appeal because: internationalization & deregulation has all but removed safe havens technology and changes in demand have blurred industry lines

Internal Analysis Tools and Concepts Sustainable Competitive Advantage Value Chain SWOT Analysis

The Role of Resources and Capabilities in the Creation of Profit and Sustainable Competitive Advantage Resources Build Shape Core Competencies Distinctive Competencies Competitive Advantages Strategies Build Capabilities Competitiveness & Profit

Resources & Capabilities Resources are what you have; Capabilities are what you can do Physical asset Human assets or intellectual capital Organizational asset Intangible assets Competitive achievement Alliance or cooperative venture

Core Competencies central to the firm’s competitiveness rewarded in market place combination of skills & knowledge, not products or functions flexible, long term platforms embedded in the organization’s systems distinctive competencies are those the firm performs better than rivals All core competencies have the potential to become core rigidities

Sustainable Competitive Advantage Must be valuable, rare, inimitable, and non-substitutable Sustainability is a function of Durability - how long will it last? Technology? Reputation? Fixed Assets? Imitability - how quickly can it be copied? Transparent - easy to see? Transferable - can it be done elsewhere? Replicable - can we do it here?

Another Tool to Consider Porter’s Value Chain

Relative costs and prices Where do cost/price differences come from? raw materials and components differences in technology, plant, equipment efficiencies, learning, experience, wages, productivity marketing, sales, promotion, warehousing, distribution, administration costs distribution inflation, exchange and tax rates

Value Creation per Unit

Comparing Toyota and General Motors

Porter’s Value Chain Views the organization as a series (chain) of activities, which may or may not create value

Porter’s Value Chain (cont.) Primary Activities Inbound logistics – Supply Chain Management Operations Outbound logistics - Distribution Marketing and sales Customer service Contribute to the physical creation of the product/service, its sale and transfer to the buyer, and its service after the sale

Porter’s Value Chain (cont) Support Activities Company infrastructure – General Admin Human resource management R&D, Technology and Systems Development Procurement

The Value Chain Company Infrastructure HRM Margin R&D, Technology & Systems Development Margin Procurement Service Primary Marketing & Sales Inbound Logistics Operations Outbound Logistics Margin

…tries to pull the arrow back….. A low cost strategy….. Company Infrastructure HRM R&D, Technology & Systems Development Margin Procurement Service Marketing & Sales Inbound Logistics Operations Outbound Logistics Margin …tries to pull the arrow back…..

Low Cost - Support Activity examples…... Fewer layers of management Policies to reduce turnover WalMart’s inventory system Margin Monitor supplier performance Service Marketing & Sales Inbound Logistics Operations Outbound Logistics Margin

Low cost - Primary Activity examples…. Inbound - Operations - Outbound - Marketing/Sales - Customer Service -

A differentiation strategy….. Company Infrastructure HRM R&D, Technology & Systems Development Margin Procurement Service Marketing & Sales Inbound Logistics Operations Outbound Logistics Margin ….tries to pull the arrow forward...

Differentiation - Support Activity examples…... Commitment to quality Compensation rewarding innovation Amazon recommendations Margin Purchasing high-quality components Service Marketing & Sales Inbound Logistics Operations Outbound Logistics Margin

Differentiation - Primary Activity examples…... Inbound - Operations - Outbound - Market/Sales - Customer Service -

Your Firm Buyers Suppliers Your Rivals

SWOT Analysis Strengths Weaknesses Opportunities Threats Maximize Strengths and Opportunities Minimize Weaknesses and Threats

Evaluation of Resources Strength or Weakness relative to competitors basic business requirements key vulnerabilities