The Internal Organization Resources, Capabilities, Core Competencies, and Competitive Advantages Pages

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

3 Analyzing the Internal Organization Context of Internal Analysis  ‘Global mind-set’ Ability to study an internal environment in ways that do not depend on the assumptions of a single country, culture, or context  Analyze firm’s portfolio of resources and bundle heterogeneous resources and capabilities Understand how to leverage these bundles  An organization's core competencies creates and sustains its competitive advantage Creating Value

4 Resource Based View Model of Competitive Advantage and Strategic Competitiveness

5 Resources and Capabilities Tangible  Financial, Organizational, Physical, and Technological  Assets that can be seen, touched and quantified  Examples include equipment, facilities, distribution centers, formal reporting structures Intangible  Human, Innovation and Reputational Resources  Assets rooted deeply in the firm’s history, accumulated over time  Usually can’t be seen or touched  Examples include knowledge, trusts, organizational routines, capabilities, innovation, brand name, reputation

Resources & Capabilities Resources are what you have; Capabilities are what you can do

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

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 - Transferable - Replicable -

Factors that Limit Imitation  Physical Uniqueness  Path Dependency  Causal Ambiguity  Social Complexity  Absorptive Capacity

Sustainable Competitive Advantage? Competitive consequences include  Disadvantage, parity, temporary advantage and sustainable advantage Performance implications include returns  Above, below or average

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

19 The Basic Value Chain

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

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

Low cost - Primary Activity examples….  Inbound - Toyota  Operations - Subway  Outbound - Campbell Soup’ Continuous Replenishment  Marketing/Sales - WalMart  Customer Service - Federal Express

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

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

 Inbound - Dell  Operations - Marriott  Outbound - WebVan  Market/Sales - Nordstrom’s  Customer Service - Pirtek Differentiation - Primary Activity examples…...

Suppliers Buyers Your Firm Your Rivals

27 Outsourcing Definition: Purchase of a value-creating activity from an external supplier  Effective execution includes an increase in flexibility, risk mitigation and capital investment reduction  Trend continues at a rapid pace  Firms must outsource activities where they cannot create value or are at a substantial disadvantage compared to competitors Can cause concerns  Usually revolves around innovative ability and loss of jobs