Presentation on theme: "Questions for the next case Brief discussion of the Apollo case"— Presentation transcript:
1 Class Plan 3 “The early bird may get the worm, but the second mouse gets the cheese” Anonymous Questions for the next caseBrief discussion of the Apollo caseReview of 5-forces, including exercise Move on to Chapter 3 on Internal Analysis + extra information on VRIO approachExercises & video on Internal Analysis
2 Questions for the Nokia case Have Nokia’s mission and vision (or their implementation) been partially responsible for their faltering performance?Using the 5-forces model, what industry threats should Nokia have identified in their strategic pursuits?What can Nokia do to continue to compete globally and domestically?
3 Porter’s Five Forces Model (Fig 2.2 p45 adapted) Rivalry among established firmsRisk of entry by potential competitorsBargaining power of suppliersBargaining power of buyersThreat of substitute productsSpecial role of complements
4 Product Lifecycle Declining Time Demand Embryonic Growth Shakeout MatureDeclining
5 Macro-environmental Forces [Environmental Scanning] Macroeconomics: growth rate of the economy, interest rates, currency exchange rates, inflation ratesTechnological: “creative destruction”, shifting barriers to entrySocial: lifestyles, trends and attitudesDemographics: composition of the population, factors such as income distribution, education, labour mobility, genderPolitical & Legal : deregulation and free tradeGlobal: falling barriers to trade, new economic development
6 More on 5-forces modelStrategic Groups Def.: subsections of industry with the same basic strategy in-groupImplications:closest competitors are in the same groupgroups, to some extent, face different 5+-forcesexit & entry barriers exist between groupsLimitations of 5+-Forces & Strategic Groups modelsStatic picture with limited attention to innovation. Industries evolve “unfrozen and reshaped” by technology : punctuated equilibrium hyper-competitive industries with no equilibriumdownplays individual company differencesstudies show that industry only accounts for 10%-20% of variance in firms’ profit rates
7 Internal Analysis Internal Analysis includes an assessment of: The purpose of internal analysis is to pinpoint the strengths and weaknesses of the organization.Strengths lead to superior performance. Weaknesses lead to inferior performance.Internal Analysis includes an assessment of:Quantity and quality of a company’s resources and capabilitiesWays of building unique skills and company-specific or distinctive competencies
8 The Theory Behind Internal Analysis The Resource-Based View• developed to answer the question: Why do somefirms achieve better economic performancethan others?• used to help firms achieve competitive advantageand superior economic performance• assumes that a firm’s resources and capabilitiesare the primary drivers of competitive advantageand economic performance
9 The Resource-Based View Resources and CapabilitiesResources:• tangible and intangible assets of a firm» tangible: factories, products intangible: reputation• used to conceive of and implement strategiesCapabilities:• a subset of resources that enable a firm totake full advantage of other resources» marketing skill, cooperative relationships
10 The VRIO ApproachValue: Do a firm’s resources & capabilities in each section of the Value Chain enable the firm to respond to environmental threats or opportunities?Rarity: Is a resource currently controlled by only a small number of firms?(In)Imitability: Do firms without a resource face cost disadvantages in obtaining or developing it?Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable rare and costly to imitate resources?
11 The VRIO Framework Applying the Tool • a resource or bundle of resources is subjected toeach question to determine the competitiveimplication of the resource• each question is considered in a comparativesense (competitive environment)For further application information, seeConner, Tom (2002) “The resource-based view of strategyand its value to practising managers” ,Strategic Change 11, )
12 Applying the VRIO Framework The Question of Value• in theory: Does the resource enable the firmto exploit an external opportunity or neutralizean external threat?• the practical: Does the resource result in anincrease in revenues, a decrease in costs, orsome combination of the two? (Levi’s reputationallows it to charge a premium for its Docker’s pants)
13 Applying the VRIO Framework The Question of Rarity• if a resource is not rare, then perfect competitiondynamics are likely to be observed (i.e., nocompetitive advantage, no above normal profits)• a resource must be rare enough that perfectcompetition has not set in• thus, there may be other firms that possess theresource, but still few enough that there is scarcity(several pharmaceuticals sell cholesterol-loweringdrugs, but the drugs are still scarce—look at prices)
14 Applying the VRIO Framework Valuable and RareIf a firm’s resources are:The firm can expect:Not ValuableCompetitive DisadvantageValuable, but Not RareCompetitive ParityCompetitive Advantage(at least temporarily)Valuable and Rare
15 Applying the VRIO Framework The Question of Inimitability• the temporary competitive advantage of valuableand rare resources can be sustained only ifcompetitors face a cost disadvantage in imitatingthe resource» intangible resources are usually morecostly to imitate than tangible resources(Harley-Davidson’s styles may be easilyimitated, but its reputation cannot)
16 Applying the VRIO Framework The Question of Inimitability• if there are high costs of imitation, then the firmmay enjoy a period of sustained competitiveadvantage» a sustained competitive advantage will lastonly until a duplicate or substitute emergesif a firm has a competitive advantage, otherswill attempt to imitate it (Razor scooterswere a big hit and others quickly imitated them)
17 Applying the VRIO Framework Value, Rarity, & InimitabilityIf a firm’s resources are:The firm can expect:Valuable, Rare, butnot Costly to ImitateTemporaryCompetitive AdvantageSustainedCompetitive Advantage(if Organized appropriately)Valuable, Rare, andCostly to Imitate
18 Applying the VRIO Framework The Question of Organization• a firm’s structure and control mechanismsmust be aligned so as to give people abilityand incentive to exploit the firm’s resources• examples: formal and informal reporting structures,management controls, compensation policies,relationships, etc.• these structure and control mechanisms complementother firm resources—taken together, they can help afirm achieve sustained competitive advantage
19 The VRIO Framework Costly to Imitate? Organization? Competitive ImplicationsEconomicImplicationsValuable?Rare?BelowNormalNoNoDisadvantageYesNoParityNormalTemporaryAdvantageAboveNormalYesYesNoSustainedAdvantageAboveNormalYesYesYesYes
21 A Typical Value Chain (Oil-based refined products) Exploring for crude oilDrilling for crude oilPumping crude oilShipping crude oilBuying crude oilRefining crude oilSending refined products to distributorsShipping refined productsSelling refined products to final customers
22 Value Chain ApproachAnalyze each of the functions that lead to production of the final product or serviceHow well do they each perform?- quantitative & qualitative tools needed hereHow effectively do the different functions interact?Are the supporting functions adequate?
23 The Building Blocks Approach (Figure 3.6, p 95) Efficiency: What is the usual measure of efficiency?Quality: Excellence and reliabilityInnovation: Importance of both process and product innovation, role of innovation in becoming uniqueCustomer responsiveness: Includes response time, customization, and after sales service and support
24 Applying the Building Blocks Approach Itemize instance of significant operational and managerial achievements and/or deficiencies under each of the categories.Use these noted observations to guide your recommendations.
25 Why companies fail Inertia Prior Strategic Commitments Companies find it difficult to change their strategies and structuresPrior Strategic CommitmentsLimit a company’s ability to imitate and cause competitive disadvantageThe Icarus ParadoxA company can become so specialized and inner directed based on past success that it loses sight of market realitiesCategories of rising and falling companies:• Craftsmen • Builders • Pioneers • Salespeople
26 Avoiding Failure Focus on the Building Blocks of Competitive Advantage Develop distinctive competencies and superior performance in:Efficiency QualityInnovation Responsiveness to CustomersInstitute Continuous Improvement and LearningRecognize the importance of continuous learning within the organizationTrack Best Practices and Use BenchmarkingMeasure against the products and practices of the most efficient global competitorsOvercome InertiaOvercome the internal forces that are barriers to change
27 Questions for Starbucks’ Video 1) List Starbucks’ major capabilitiesand discuss the strategic implications of these capabilities.2) How is Starbucks’ utilizing their resources and capabilities to develop their brand overseas?3) Describe Starbucks’ people-to-people business philosophy. How has this resource/capability contributed to Starbucks’ strategic success?
28 Questions1) What is the role of luck in gaining possession of a particular resource or capability? Can a firm manage luck? Give 3 examples of resources or capabilities that specific organizations gained through luck.2) Some firms’ products are so well known that the entire category of products offered in the industry (including rivals’ products) is often referred to by the leading firm’s brand name (which is called an eponym). Identify three such products, and for each case discuss whether their brand recognition gives the leading firm a competitive advantage. Why or why not?