1. Internal Analysis
Evaluating a Company’s Resources and Competitive Position
Pages

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

3. 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

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

5. 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

6. 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

7. Tangible
Resources
Org.
Capabilities
Inputs into Outputs
Intangible
Resources
Examples…..
Customer Service
Product Development
Employee Productivity

8. 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

9. 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?

10. Factors that Limit Imitation
Physical Uniqueness –
Path Dependency –
Causal Ambiguity –
Social Complexity –
Absorptive Capacity –

11. Another Tool to Consider
Porter’s Value Chain

12. 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

13. Value Creation per Unit

14. Comparing Toyota and General Motors

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

16. 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

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

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

19. …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…..

20. 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

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

22. 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...

23. 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

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

25. Your Firm
Buyers
Suppliers
Your Rivals

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

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

31. Other Threats Emergence of cheaper/better technologies
Introduction of better products by rivals
Entry of lower-cost foreign competitors
Onerous regulations
Rise in interest rates
Potential of a hostile takeover
Unfavorable demographic shifts
Adverse shifts in foreign exchange rates
Political upheaval in a country