Strategy Arc STRATEGY Environment Firm Search for resources and capabilities that provide the firm with sustainable competitive advantage

Internal Environment Analysis STRATEGY Environment Firm Internal analysis search for resources and capabilities that provide the firm with sustainable competitive advantage

Assumptions  All firms are alike and all firms are different  Firms develop unique qualities based on their history, experiences and strategies  Success depends on how well firms develop and utilize their skills, resources, and capabilities to create competencies – create competitive advantage (provide value, control costs) satisfy their stakeholders create barriers to competitors

Internal Analysis Internal Analysis has two parts 1.Evaluation of the firms strategy to determine how well the strategy integrates the firm with the external environment. 2.Systematic analysis of the skills, resources, capabilities, and competencies the firm utilizes to support its strategy Environment Firm STRATEGY

Strategy Show how firm is addressing conditions in the external environment  Identify the strategy approach Rational v. Emergent Low Cost v. Differentiated v. Integrated Broad v. Focused  Evaluate the effectiveness of the strategy Financial Balanced Scorecard Stakeholder Firm STRATEGY Environment

Strategy Models Traditional or IO Model Stakeholder Model Value Chain Model Resource-Based View (RBV) Environment STRATEGY Firm External Internal

IO Model  Views the firm as an economic actor responding to market forces  Conditions in the external environment are the primary determinant of success  Strategic decisions involve choosing best markets and products  Primary Tools: Industry Analysis (Five-Forces, Strategic Group) Financial Ratios

Stakeholder Model  Views firm as an extended network of relationships and dependencies  Stakeholder support determine sustainability  Strategic decisions involve identifying and satisfying key stakeholders  Primary Tools Stakeholder Analysis Financial Ratios

Value Chain Model  Views firm as a set of linked value creating activities that transform inputs into outputs  Market distinction (doing different things; doing things differently) determine success  Strategic decisions involve creating superior value at lowest cost  Primary Tools: External Analysis Value Chain Analysis Financial Ratios

The Value Chain General administration Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service Value

Value-Chain Analysis Firm is profitable to the extent the revenue it receives exceeds the total costs involved in creating its products or services Value chain analysis involves identifying key activities that support the firm’s strategy Evaluating the effectiveness of key activities Compare the costs and value added of key activities in the value chain Benchmarking to compare key activities to competitors VRIN

Value-Chain Analysis Value chain analysis involves List major activities the firm engages in for each of the value chain cells From these, identifying key activities that support the firm’s strategy Evaluating the effectiveness of key activities Compare the costs and value added of key activities in the value chain Benchmarking to compare key activities to competitors VRIN

Resource Based View  Views firm as a unique collection of resources and capabilities  Core competencies of the firm determine success  Strategic decisions involve creating and sustaining competitive advantage through core competencies  Primary Tools: VRIN Analysis Financial Ratios

Resource Based Model Firm converts inputs into outputs using  Resources: the assets available to a firm to develop and implement value creating strategies Tangible: assets the firm uses to create value financial, physical, technological, organizational Intangible: unique routines and practices that are developed over time human, creative, reputation, culture  Organizational Capabilities: the procedures and processes the firm has developed to use its resources effectively to achieve desired ends; the ability to put resources to productive use

Core Competencies Firms create sustainable competitive advantage by developing Core Competencies The specific resources and capabilities of a firm that allow it to differentiate its products or services from competitors Core competencies are the basis for strategy and competitive advantage Core competencies are most effective when they are based on intangible resources and organizational capabilities

VRIN Analysis To be a source of sustainable competitive advantage, a specific resource or capability must be: Valuable: Allows the firm to differentiate products/services and create unique value Rare: Competitors do not have access to the resource Inimitable: Competitors cannot easily copy or reproduce the resource Nonsubsitutable: Equivalent resources that may allow similar strategy are not readily available

VRIN Analysis Valuable: Allows the firm to differentiate products/services and create unique value Satisfies customers needs better than competitors Generates superior profits Rare: Competitors do not have access to the resource or an equivalent Resources that are valuable and rare allow temporary competitive advantage

VRIN Analysis Inimitable: Competitors cannot easily copy or reproduce the resource Path dependent Causal ambiguity; social complexity Nonsubsitutable: Equivalent resources that may allow similar strategy are not readily available Resources that are inimitable and nonsubstitutable allow sustainable competitive advantage

VRIN Analysis Identify specific resources and capabilities Construct a VRIN Table CompetencyValuableRareInimitableNon- SubConclusion Superior Engineering YesNo YesComp. Parity Automated Production Yes No Temp. comp. adv. Integrated Design Yes Sustainable comp. adv. Look for bundles of resources and capabilities Assess strategic implications for success