Chapter 3 Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability.
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1 Chapter 3Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability
2 Why Internal Analysis?Early strategy theory rooted in industry structural analysis - external focusThis approach has lost its appeal because:internationalization & deregulation has all but removed safe havenstechnology and changes in demand have blurred industry lines
3 The Role of Resources and Capabilities in the Creation of Profit A product of the Resource Based ViewResourcesBuildShapeCoreCompetenciesDistinctiveCompetenciesCompetitiveAdvantagesStrategiesBuildCapabilitiesCompetitiveness& Profit
4 Types of Resources Tangible Resources PP&E Buildings Materials/InventoryMoneyIntangible ResourcesRelational ResourcesRelationshipsReputationNon-relationalKnowledgePatents, copyrights and trademarksAttitudes
6 TangibleResourcesOrg.CapabilitiesInputs into OutputsIntangibleResourcesExamples…..Customer ServiceProduct DevelopmentEmployee Productivity
7 Core Competencies central to the firm’s competitiveness rewarded in market placecombination of skills & knowledge, not products or functionsflexible, long term platformsembedded in the organization’s systemsdistinctive competencies are those the firm performs better than rivalsAll core competencies have the potential to become core rigidities
8 Sustainable Competitive Advantage Must be valuable, rare, inimitable, and non-substitutableSustainability is a function ofDurability - how long will it last?Technology? Reputation? Fixed Assets?Imitability - how quickly can it be copied?Transparent -Transferable -Replicable -
10 Relative costs and prices Where do cost/price differences come from?raw materials and componentsdifferences in technology, plant, equipmentefficiencies, learning, experience, wages, productivitymarketing, sales, promotion, warehousing, distribution, administration costsdistributioninflation, exchange and tax rates
13 Porter’s Value ChainViews the organization as a series (chain) of activities, which may or may not create value
14 Porter’s Value Chain (cont.) Primary ActivitiesInbound logisticsOperationsOutbound logisticsMarketing and salesCustomer serviceContribute to the physical creation of the product/service, its sale and transfer to the buyer, and its service after the sale
15 …tries to pull the arrow back….. A low cost strategy…..Company InfrastructureHRMInformation SystemsMarginProcurementServiceMarketing& SalesInboundLogisticsOperationsOutboundLogisticsMargin…tries to pull the arrow back…..
16 Low Cost - Support Activity examples…... Fewer layers of managementPolicies to reduce turnoverIBM Printer to 62 parts, 3.5 minutesMarginMonitor supplier performanceServiceMarketing& SalesInboundLogisticsOperationsOutboundLogisticsMargin
18 A differentiation strategy….. Company InfrastructureHRMInformation SystemsMarginProcurementServiceMarketing& SalesInboundLogisticsOperationsOutboundLogisticsMargin….tries to pull the arrow forward...
19 Differentiation - Support Activity examples…... Commitment to qualityCompensation rewarding innovationPackage tracking systemsMarginPurchasing high-quality componentsServiceMarketing& SalesInboundLogisticsOperationsOutboundLogisticsMargin
27 Ways to Increase ROIC Increase the company’s return on sales Reduce cost of goods soldReduce spending on sales force, marketing, general, and administrative expensesReduce R&D spendingIncrease sales revenue more than costsIncrease sales revenues from invested capitalReduce the amount of working capitalReduce amount of fixed capital
28 Balanced ScorecardComprehensive view of the firm from the customer, internal, financial and innovation/learning perspectives1) How do customers see us?Time, quality, service & performance, costs2) What must we excel at?3) How do we look to shareholders?4) Can we continue to improve and create value?