1. Internal Analysis: Resources, Capabilities, and Activities By Cecilia, Christine, and Savanna
STOCKPILE:

2. From Good to Great to Gone:
ChapterCase 4
From Good to Great to Gone:
Circuit City
A GREAT performer from 1982 – 2000
CC created world-class logistics & customer responsiveness
4S: service, selection, savings, & satisfaction
6 times better investment than GE under Jack Welch!
In a book by Jim Collins in 2001, he reported that “CC outperformed the market 18.5 times during ”
Bankruptcy in fall of 2008!
Outflanked by firms like Best Buy and Amazon
4-2
Christine

3. Savings – how does that work?
ChapterCase 4
From Good to Great to Gone:
4 S’s
Service – describe it
Selection – define it
Savings – how does that work?
Satisfaction – what makes them come back?
4-3
Christine

4. ChapterCase 4 Circuit City (cont’d)
What are the key issues in Circuit City’s demise?
Management distracted by other businesses
Creation of CarMax, DivX DVD player, and the merger with Blockbuster (who also filed for bankruptcy in 2010)
CC wanted to become more cost-competitive with Best Buy and on-line retailers such as Amazon
Insufficient investments in core competencies
Neglected to upgrade and protect them
Laid-off 3,000 highly paid, dedicated, very experienced sales staff
Loyal to company and better able to provide superior customer service
Recruited by Best Buy
4-4
Christine

5. INTERNAL ANALYSIS: Inside the Firm
Comparing two firms in same industry: Internal focus
Core Competencies
Unique strengths deep inside that differentiate products and services unique to a firm
Can drive competitive advantage
Important note: Core Competencies that are not continuously nourished will eventually lose their ability to yield a competitive advantage (e.g. Circuit City)
Strategic Fit
Internal strengths change with external environment
Christine
4-5

6. Creating Strategic Fit to Leverage Internal Strengths
EXHIBIT 4.1
Creating Strategic Fit to Leverage Internal Strengths
Christine
4-6

7. Internal Analysis: Link to Superior Performance
Combination of Resources & Capabilities
Builds core competencies
Competencies drive activities
To transform inputs into goods & services
Activities can produce competitive advantage & performance
Reinvest profits from superior performance
Hone and upgrade core competencies
4-7

8. EXHIBIT 4.2 Linking Resources & Capabilities to Firm Performance
Assets such as cash, buildings, intellectual property that a company can draw on
FA enable firms to add value by transforming inputs into goods and services
SFP in the marketplace generates profits that can be reinvested into the firm – helps to upgrade a firm’s resources and capabilities in its pursuit of competitive advantage and improved profitability
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text.
Organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically
Christine
4-8

9. Company Examples of Core Competencies & Applications
EXHIBIT 4.3
Company Examples of Core Competencies & Applications
4-9
Christine

10. THE RESOURCE-BASED VIEW
Resource-Base View
Is a model that aids to identify
The core competences
* This model include all assets that a firm can draw upon when formulating and implementing strategies
4-10
Cecilia

11. THE RESOURCE-BASED VIEW
Two Categories of Resources:
Tangible Resources
Visible; physical attributes
Intangible Resources
Invisible; no physical attributes
4-11
Cecilia

12. Tangible & Intangible Resources
EXHIBIT 4.4
Tangible & Intangible Resources
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text.
4-12
Cecilia

13. THE RESOURCE-BASED VIEW
Example: Google
Has its Tangible resources: “Fixed Assets” valued at $5 billion
Has its Intangible resources: “The Google brand” valued at over $100 billion
Googleplex has BOTH tangible and intangible aspects
4-13
Cecilia

14. THE RESOURCE-BASED VIEW
According to Rothaermel (2013)
“Competitive Advantage is more likely to spring from intangible rather than tangible resources”
Tangible resources: Fixed Assets
Buy them if you have money
Intangible resources: Brand name
Is built often over long periods of time
* Google brand name – Faster– than Microsoft, Coca-Cola, IBM, and McDonald —took much longer
4-14
Cecilia

15. Exercise: When Brands = Categories
CONDITIONS:
Brand valuation can be a major intangible resource for the firm
Some product brands are so well established that the entire category of products (incl. competitors) may be called by the brand name
Can you tell me an example of firm or company where this is happening in the marketplace?
4-15
Cecilia

16. Exercise: When Brands = Categories
“IPot”----- when referring to any type of personal portable media player “Jell-O”----- when people mean gelatin dessert “Hoover”----- when people mean vacuum cleaner “Power Point”----- when people mean electronics presentations “Post - its”----- when people mean sticky notes
4-16
Cecilia

17. Two Critical Assumptions in Resource-Base View
Resource heterogeneity
Bundles of resources and capabilities differ across firms
Resource immobility
Resources tend to be “sticky” and don’t move easily from firm to firm
4-17
Cecilia

18. Two Critical Assumptions in RBV
Resource heterogeneity (differ across firm)
Example
Southwest Airlines (SWA) & Alaska Airlines have different resources
SWA
– Higher employee productivity
Job descriptions are informal; pilots help load luggage
Resource immobility (difficult to replicate)
Southwest Airlines sustained advantage
Several decades superior performance
Competitors (Continental and Delta) have unsuccessfully imitated SWA model
4-18
Cecilia

19. LO 4-2 Differentiate between tangible and intangible resources.
LO 4-1 Distinguish among a firm’s resources, capabilities, core competencies, and firm activities.
LO 4-2 Differentiate between tangible and intangible resources.
LO 4-3 Describe the critical assumptions behind the resource-based view.
LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources.
LO 4-5 Identify competitive advantage as residing in a network of firm activities.
LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.
LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.
LO 4-8 Conduct a SWOT analysis.
4-19
Cecilia

20. The VRIO Framework Evaluation of firm’s competitive advantage
Must satisfy VRIO criteria to sustain
Valuable
Rare
Costly to Imitate
Organized to Capture
Savannah
4-14

21. EXHIBIT 4.5 Applying RBV: Decision Tree Competitive Implications
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text.
4-21
Savannah

22. The VRIO Framework Valuable Honda
Increase perceived value in the eye of customer
Attractive features, lower price
Increase revenues
Increase profitability
Honda
Competency in design
Efficient engines
Lean manufacturing, built-in
Savannah

23. The VRIO Framework cont.
Rare
Few firms possess
Commonality = perfect competition
Toyota
Leading innovator of lean manufacturing
Lower production costs + high quality ‘mass-customized’ cars
Valuable + common = competitive parity
Savannah

24. The VRIO Framework cont.
Costly to Imitate
unable to buy or develop at reasonable price
Apple
V+R+I
Sony has strength in inventing
Difficult to imitate design, integration, marketing
Crocs
Imitators pop up
Share price $74.75 in 2007, $0.94 in 2008
Savannah

25. The VRIO Framework cont.
Organized to Capture
Firm’s ability to capture value
Effective organizational structure
Coordinating systems
Xerox PARC
First word processing application
Failure to exploit PARC breakthroughs
Nintendo Wii
Casual Gamer
52 million world wide, 31 Xbox, 23 Playstation
Savannah

26. STRATEGY HIGHLIGHT 4.1
How Nintendo Focused on
the Casual Gamer
Video Gaming Business
$22 billion in 2009, growing to $60 billion in 2013
Nintendo understands the casual gamer
Game Boy handheld devices in 1990
DS in 2004
Wii consoles in 2007
49% of game console market in 2010
Microsoft Kinect introduced in November of 2010
Competition continues…
INSTRUCTOR: There is a link to a 4-minute video on how Nintendo plans to continue marketing to the casual gamer in new games and devices. This link may run an advertisement before playing the video so you may want to download the clip to your local computer or pre-screen the video and pause it at the appropriate point before the start of class.
Nintendo Marketing Video
4-26
Savannah

27. Porter’s Value Chain Not focused on departments or accounting costs
Focus on systems
How inputs change into outputs purchased by the consumer
Broken down into activities
Activities add incremental value
Savannah

28. THE VALUE CHAIN Primary Activities Support Activities
Add value directly in transforming inputs into outputs
Raw materials through production to customers
Support Activities
Indirectly add value
Provide support to the primary activities
Information systems, human resources, accounting, etc.
System of Activities
Firm = network of interconnected activities
Managers use to gain and sustain competitive advantage
4-28
Savannah

29. Primary Inbound logistics Operations Outbound logistics
Receiving, storing, distributing inputs internally
Operations
Transformational activities-change inputs to outputs sold
Outbound logistics
Activities to deliver product or service to customer
Marketing and sales
Process to persuade clients to purchase from you
Service
Activities to maintain value of product or service
Savannah

30. Support Activities Procurement Human resource management
Process of getting resources needed
Human resource management
Recruit, hire, train, motivate, reward, & retain workers
Technological development
Managing and processing information, protecting company’s knowledge base
Infrastructure
Company’s support system, functions that allow day to day operation
Accounting, legal, admin, general management
Savannah

31. Value Chain: Primary & Support Activities
EXHIBIT 4.6
Value Chain: Primary & Support Activities
4-31
Savannah

32. Value Chain
Savannah

33. Dynamic Strategic Activity Systems
In order for a firm to sustain competitive advantage, strategic activity systems need to evolve over time.
Christine

34. Dynamic Strategic Activity Systems
A network of interconnected activities in the firm
Evolve over time – external environment changes
Add new activities & upgrade or remove obsolete ones
Vanguard’s Mission
“ to help clients reach their financial goals by being the world’s highest-value provide of investment products and services”
4-34
Christine

35. Dynamic Strategic Activity Systems (cont.)
Vanguard Example
A global investment firm - $1.4 trillion managed assets
Emphasis on low-cost investing and quality service
Among the lowest expense ratios in the industry (0.20%)
Updated the activity system from 1997 to 2011
New customer segmentation core – catering to the more traditional as well as those who trade often
Christine

36. Vanguard Group’s Activity System 1997
EXHIBIT 4.7
Vanguard Group’s Activity System 1997
Six large circles depict Vanguard’s strategic core activities – these six are supported by tightly linked activities reinforcing the strategic activity network
Legend
Core
Support
4-36
Christine

37. Vanguard Group’s Activity System 2011
Six large symbolize Vanguard’s strategic core activities that help it realize its strategic position as the low-cost leader in the industry. However, system evolved over time as mgmt added a new core activity – customer segmentation.
EXHIBIT 4.8
Vanguard Group’s Activity System 2011
Legend
Core
Support
4-37
Christine

38. Dynamic Capabilities Perspective
Dynamic Capabilities Perspective describes a firm’s ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage
Essential in order to gain and sustain competitive advantage
4-38
Christine

39. Dynamic Capabilities Perspective (cont.)
A firm can modify its resource base to gain & sustain a competitive advantage
Advantage is gained from reconfiguring a firm’s resource base
Honda core competency in gas-powered engine design
Could decrease in value if consumers move toward electric- powered cars
BYD (Chinese automaker) competency in batteries would gain advantage over Honda
Christine

40. Dynamic Capabilities Perspective (cont.)
Dynamic capabilities are an intangible resource
Intangible is something that cannot be touched or grasped – basically it doesn’t have a physical presence
Resource stocks (firm’s current level of intangible resources) and flows (firm’s level of investments to maintain or build a resource) are a useful view
Exhibit 4.10 uses the bathtub example
Outflows are a reduction in the firm’s intangible-resource stocks, employee turnover (e.g key employees), or if they don’t engage in an activity for a period of time, and then forget how to do that activity.
Christine

41. Role of Inflows & Outflows in Building Stocks
EXHIBIT 4.10
Role of Inflows & Outflows in Building Stocks
4-41
Christine

42. LO 4-2 Differentiate between tangible and intangible resources.
LO 4-1 Distinguish among a firm’s resources, capabilities, core competencies, and firm activities.
LO 4-2 Differentiate between tangible and intangible resources.
LO 4-3 Describe the critical assumptions behind the resource-based view.
LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources.
LO 4-5 Identify competitive advantage as residing in a network of firm activities.
LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.
LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.
LO 4-8 Conduct a SWOT analysis.
4-42
Cecilia

43. HOW TO PROTECT A COMPETITIVE ADVANTAGE
Better Expectations of Future Values
Buy Resources at a low cost
Real Estate Development - highway expansion
Path Dependence
Current alternatives are limited by past decisions
U.S. is the ONLY industrial nation not on the metric system
Honda’s core competency in gas engines took decades to build
Sony took many decades to build its core competences in electronic miniaturization
4-43
Cecilia

44. HOW TO PROTECT A COMPETITIVE ADVANTAGE
3. Causal Ambiguity
Describe a situation in which the cause of success or effect are not apparent
Apple: iMac, iPod, iPhone
Why has Apple had such a string of successful products?
Role of Steve Jobs’ vision?
Unique talents of the Apple design team?
Timing of product introductions?
4. Social Complexity (describe situations in which different social and business systems interact)
Two or more systems interact creating many possibilities
A group of 3 people has 3 relationships
A group of 5 people has 12 relationships
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Cecilia

45. THE SWOT ANALYSIS External and internal analysis completed
SWOT combines the two
Evaluate current situation + future prospects
Internal Strengths and Weaknesses
From VRIO framework
External Opportunities and Threats
From PESTEL or competitive forces analysis
Internal strengths to exploit external opportunities
Achieving a dynamic fit yields sustained competitive advantage
Savannah
4-31

46. EXHIBIT 4.11 Strategic Questions in the SWOT Analysis
4-46
Savannah

47. THE SWOT MATRIX (cont.)
The SWOT matrix utilizes the SWOT analysis to develop strategic alternatives for the firm
Look for combinations of internal and external factors that might lead to an alternative
INSTRUCTOR: THIS SLIDE COVERS MATERIAL NOT IN THE TEXTBOOK. It is presented to complement the textbook discussion of SWOT analysis. Note there is also an extension of SWOT analysis in Small Group Exercise #2 at the end of the chapter.
4-47
Savannah

48. SWOT Matrix: (Text Extension) 4 Categories of Alternatives
Strength-Opportunity: “Offensive” alternatives, utilize a strength to address an opportunity
Weaknesses-Threat: “Defensive” alternatives, eliminate or minimize a weakness in order to minimize the effect of a threat
Strength-Threat: Utilize a strength to minimize the effect of a threat
Weakness-Opportunity: Shore up a weakness to enable the organization to take advantage of an opportunity
INSTRUCTOR: THIS SLIDE COVERS MATERIAL NOT IN THE TEXTBOOK. It is presented to complement the textbook discussion of SWOT analysis. Note there is also an extension of SWOT analysis in Small Group Exercise #2 at the end of the chapter.
4-48
Savannah

49. SWOT Matrix: Hypothetical Example for McDonald’s
Opportunities
1. Growth in developing nations
2. Health consciousness of U.S. population
Threats
1. Possible increase in minimum wage
2. Popularity of easy-to-prepare grocery items
Strengths
1. Financial stability/resources
2. Brand name/recognition
3. Consistency
Launch new locations in China & Mexico (S1, S2, O1) 
2) Develop and emphasize more healthy food menu items (W1, W2, O2) 
3) Launch McDonald’s frozen foods in grocery outlets (S2, S3, T2)
4) New ads showing ease of drive-thru order/take home (W1, T2)
Weaknesses
1. Market share decline
2. Dependence on fried foods on menu
Alternatives:
INSTRUCTOR: THIS SLIDE COVERS MATERIAL NOT IN THE TEXTBOOK. It is presented to complement the textbook discussion of SWOT analysis. Note there is also an extension of SWOT analysis in Small Group Exercise #2 at the end of the chapter.
4-49
Savannah

50. Strategic Alternatives
SWOT matrix to develop alternatives-combination of internal and external factors with each alternative
Pros and cons to each alternative
Select one or more alternatives to implement
INSTRUCTOR: THIS SLIDE COVERS MATERIAL NOT IN THE TEXTBOOK. It is presented to complement the textbook discussion of SWOT analysis. Note there is also an extension of SWOT analysis in Small Group Exercise #2 at the end of the chapter.
4-50
Savannah

51. CHAPTERCASE 4 Consider This…
Circuit City employees shocked when the company closed rather than being sold and remaining largely open.
Why did Circuit City lose its competitive advantage?
What could Circuit City’s management have done differently?
4-51
Savannah

52. Minicase 4

53. Starbucks
Howard Schultz, CEO, created what became the trademark of Starbucks – the ambiance
Christine

54. Starbucks (cont.)
Core competency was to create a unique consumer experience the world over – but someone forgot about that
Intangible resources atrophied when cookies, books, sandwiches, and other retail merchandise were introduced
The unique culture of Starbucks became diluted in the new culture
Schultz entered the scene again in 2008
Baristas now working on only two drinks at a time – starting a second while ending the first.
Christine

55. Starbucks Discussion Questions
How did Starbucks create its uniqueness in the first place?
Was Starbucks’s uniqueness a VRIO resource? Did it help Starbucks gain and sustain a competitive advantage? Why or why not?
Why and how did Starbucks lose its uniqueness?
Team

56. Starbucks Discussion Questions (cont.)
How is Starbucks attempting to recreate it uniqueness? Do you think it will be successful? Why or why not?
Explain Starbucks’s ups and downs using (a) strategic activity systems (interconnected activities) and (b) the dynamic capabilities perspective (modifying resources). What implications can you draw?
What recommendations would you give Howard Schultz? Support your arguments.
Team