1. The Internal Environment: Understanding how a Firm’s Resources and Capabilities Lead to a Competitive Advantage Agenda Resource-based View of Strategy Resources and Capabilities SWOT Analysis Value Chain and Cost Analysis

2. Company Mission and Objectives External Environment Macro Industry Operating Internal Environment Resources Current Strategy Costs Strategic Options and Choice Desired?Possible?

3. Resource-based View of Strategy Views the firm as a unique bundle of heterogeneous resources and capabilities Strategy is concerned with matching a firm’s resources and capabilities to the opportunities that arise in the external environment (or creating opportunities). The key to profitability is not doing the same as other firms, but exploiting differences between firms.

4. Resource-based View of Strategy Resources are tangible, intangible and human. Examples include: Financial Physical Technology Reputation Culture Specialized skills and knowledge Communication patterns Employee motivation

5. Resources Capabilities Firm StrategyFirm Performance Resources/Capabilities OpportunitiesPerformance Will this lead to superior performance? On what basis do firms compete in this model?

6. Different Types of Resources Tangible Assets/Resources: Coca-Cola’s Formula Intangible Assets/Resources: Nike’s Brand Name, Jack Welch as GE’s former CEO, Reputation Organizational Capabilities: Dell Computer’s Customer Service, Wal-Mart’s purchasing and inbound logistics, 3M’s innovation process

7. How can one identify the key resources upon which a strategy can be built?

8. Competitive Advantage comes from: Scarcity of the Resource Relevance of the Resource (Key Success Factors)

9. Resources and KSFs P& G’s Brand Management Program Industry KSFs Price Competitiveness Market Share Brand Equity Access to Distribution Channels Product Differentiation

10. Sustainable Competitive Advantage comes from: Durability of the resource: Reputation, Life span of Capital Assets Transferability: Firm-specific resources whose ownership cannot be easily transferred Replicability: Resources that cannot be build by others

11. Sustainable Advantage is based on the following: Rare Not easily imitated (physical uniqueness, path dependency, causal ambiguity, economic deterrence) Not easily substitutable Transferability Firm-specific resources whose ownership cannot be easily transferred Durability (How quickly will this resource depreciate? (Investments in Technology) Competitive Superiority (Requires some disaggregation) Appropriability (Who captures the value that the resource creates? Physician/Hospital Relationships)

12. Financial Capital: Retained Earnings, Capital from Entrepreneurs, equity holders Physical Capital (examples): Computer hardware and software technology, automated warehouses, robots used in production, Geographic Location (Wal-Mart/operations in rural markets generate higher returns than more competitive urban markets) Human Capital (examples): training, experience, judgment, relationships (DuPont invests heavily in training their engineering staffs to be more assertive and open to new technologies) Organizational Capital (examples): formal reporting structures, formal and informal planning systems, culture and reputation (Merck uses its management reputation to gain access to managerial labor markets, distribution networks and customer groups.) Durability? Transferability? Replicability?

13. Resource-Based View and SWOT Analysis Strengths: something the company either possesses or is good at doing (e.g., assets, skills, knowledge, partnerships) Weaknesses: an area of current or potential vulnerability 1.The Question of Value 2.The Question of Rarity 3.The Question of Imitability 4.The Question of Organization

14. SW Questions The Question of Value: Does a resource enable a firm to exploit and environmental opportunity or neutralize an environmental threat? The Question of Rarity: Is a resource currently controlled by only a small number of competing firms? The Question of Imitability: Do firms without a resource face a cost disadvantage in obtaining or developing it? The Question of Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare and costly to imitate resources?

15. What is value? What is meant by value-adding activities? Do all of the activities of a firm create value?

16. Value Chain: Cost Analysis Purchased Supplies Inbound Logistics Operations Distribution and Outbound Logistics Sales and Marketing Service Margin Technology: Product R&D, Systems Development, Design Human Resource Management and Development General Administration: Planning, Finance, MIS, Legal

17. Perform proprietary research and gather proprietary information Create unique products and services Build a network of local offices to establish a local presence Use professional brokers paid by commission to deliver personal service and advice to clients Back office functions: clear trades, track account balances, distribute information and research reports, install and operate administrative and systems support for brokers. Value Chain of Full Service Brokerages

18. Create Web page and navigation software; install servers Provide clients access to trading information and account balances via the Internet Technical support and customer service personnel, automated record keeping Value Chain of Discount Brokerages