Topic 4

Internal Analysis
 Topic Outline

 Resource-based View of the Firm

 SWOT Analysis

 Value Chain Analysis

 Internal
Analysis;
Making Meaningful Comparisons
Ingredients Critical to Successful Strategy

Be consistent with cond

itions in the competitive
environment

Place realistic requ Be carefully execute

Strategy must …
irements on the fir d
m’s resources
Ingredients Critical to Successful Strategy
 Consistent; must take advantage of opport
unities and minimize the impact of major th
reats
 Realistic;the firm’s pursuit of market oppor
tunities must be based on external opportu
nities and competitive advantages arises fr
om the firm’s key resources
 focus on “realistic analysis of the firm’s re
sources” …. critical to effective strategic m
anagement
What is the Resource-based View (R
BV) of the Firm?
Firms differ in fundamental ways because ea
ch firm possesses a unique “bundle” of res
ources – tangible and intangible assets an
d organizational capabilities to make use of
those assets
Each firm develops competencies from these
resources and, when developed especially
well, these become the source of the firm’s
competitive advantage
 Resource-based View (RBV)
 Core competence; capability or skill running thro
ugh a firm’s businesses that once identified, nurt
ured, and deployed throughout the firm became t
he basis for lasting competitive advantage
 The RBV; the way to make the core competency
concept more focused and measurable – creatin
g a more meaningful internal analysis
 There are three basic types of resources that tog
ether create “the building blocks for distinctive co
mpetencies”
 The Three Basic Resources
 Tangible assets
•Easiest to identify and often found on a firm’s balance sheet
•Include physical and financial assets uses to provide value to cu
stomers
•Examples: production facilities, raw materials, financial resource
s

 Intangible assets
•Cannot be seen or touched
•Often very critical in creating competitive advantage
•Examples: brand names, company reputation, company morale

 Organizational capabilities
•Are not specific “inputs” like tangible or intangible assets
•Involve skills – ability to combine assets, people, and processes
– used to transform inputs into outputs
 Examples of Different Resources

Tangible Assets Intangible Assets Organizational Cap

abilities
Hampton Inn’s reserva Nike’s brand name Dell Computer’s custo
tion system mer service
Ford Motor’s cash rese Dell Computer’s reput Wal-mart’s purchasing
rves ation and inbound logistics
3M’s patents Wendy’s advertising wi Sony’s product develop
th Dave Thomas ment process
Georgia Pacific’s land Jack Welch as GE’s le Coke’s global distributi
holdings ader on coordination
What Makes a Resource Valuable?

 Competitive superiority:  Appropriability:

Does the resource help fu Who actually gets the pro
lfill a customer’s need bet fit created by a resource?
ter than those of the firm’
s competitors?  Durability: How rapidly w
ill the resource depreciate
 Resource scarcity: Is th ?
e resource in short supply
?  Substitutability? Are oth
er alternatives available?
 Imitatability: Is the resou
rce easily copied or acqui
red? – needed “isolating
mechanisms”
 Isolating Mechanisms;
that make resources difficult to imitate

 Physically unique resources

•Resources virtually impossible to imitate
•E.g., one-of-a-kind real estate location, mineral rights
, patents

 Path-dependent resources
Resources that must be created over time in a mann
er that is often expensive and difficult to accelerate
E.g., Coca-Cola’s brand name
 Isolating Mechanisms;
that make resources difficult to imitate
 Causal ambiguity
•Situations where it is difficult for competitors to under
stand how a firm has created its advantage
•E.g., Southwest Airlines’ approach
Same plane, routes, gate procedures, number of attend
ants
Culture of fun, family, and frugal yet focused service

 Economic deterrence
•Involves large capital investments in capacity to prod
uce products or services in a given market that are sc
ale sensitive
 Resource Imitatability

 Easy to imitate
•Cash, commodities
 Can be imitated (but may not be)
•Capacity preemption, economies of scale
 Difficult to imitate
•Brand loyalty, employee satisfaction, reputation fo
r fairness
 Cannot be imitated
•Patents, unique locations, unique assets
 Guidelines:
Using the RBV in Internal Analysis

 Disaggregate resources – break them down into more

specific competencies rather than use broad categories
 Utilize a functional perspective in disaggregating tangi
ble and intangible assets and organizational capabilities
 Look at organizational processes and combinations o
f resources, not only at isolated assets or capabilities
 Use the value chain approach to uncover potentially val
uable capabilities, activities, and processes
Key Resources Across Functional Areas
(Selected)

Marketing Financial and Accounting

 Firm’s products/services  Ability to raise short-term and l
 Concentration of sales in a few ong-term capital; debt-equity
products or a few customers  Corporate-level resources
 Ability to gather needed inform  Cost of capital relative to com
ation about markets petitors
 Market share  Tax considerations
 Product-service mix and expan  Relations with owners, investo
sion potential rs, and stockholders
 Channels of distribution  Leverage position
 Effective sales organization  Cost of entry and barriers to e
ntry
Key Resources Across Functional Areas
(contd.)

Production, Operations, Techni

cal Personnel

 Raw materials cost and availabi  Management personnel

lity, supplier relationships  Employees’ skills and morale
 Inventory control systems  Labor relations costs compare
 Location, layout, and use of faci d to competitors
lities  Efficiency and effectiveness of
 Economies of scale personnel policies
 Technical efficiency of facilities  Effectiveness of incentives use
 Effectiveness of subcontracting d to motivate performance
use  Ability to level peaks and valle
 Degree of vertical integration ys of employment
Key Resources Across Functional Areas
(contd.)

Quality Management Information Systems

 Relationships with suppli  Timeliness and accuracy
ers, customers of information about sales
 Internal practices to enha , operations, cash, and su
nce quality of products an ppliers
d services  Relevance of information
 Procedures for monitorin for tactical decisions
g quality  Information to manage qu
ality issues, customer ser
vice
 Ability of people to use inf
ormation provided
Key Resources Across Functional Areas
(contd.)

Organization and General Management

 Organizational structure
 Firm’s image and prestige
 Firm’s record in achieving objectives
 Organization of communication system
 Organizational climate and culture
 Use of systematic procedures in decision making
 Top management skills, capabilities, and interest
 Strategic planning system
 Intra-organizational synergy
 SWOT Analysis

Based on assumption an effective strategy derives from a sound “f

it” between a firm’s internal resources and its external situation

Opportunities Threats
A major favorable situation in A major unfavorable situation in
a firm’s environment a firm’s environment

Strengths Weaknesses
A resource advantage relative t A limitation or deficiency in one or
o competitors and the needs of more resources or competencies rel
markets firm serves ative to competitors
 SWOT Analysis Diagram
Numerous environmental opportun
ities

Cell 3: Supports a tur Cell 1: Supports a

naround-oriented stra n aggressive strat
tegy egy
Substantial inter
Critical internal we
nal strengths
aknesses
Cell 4: Supports a de Cell 2: Supports a
fensive strategy diversification str
ategy

Major environmental threats

 What is a Value Chain?

The term value chain describes a way

of looking at a business as a chain of
activities that transform inputs into ou
tputs that customers value
 What is Value Chain Analysis?

 Focuses on how a business creates customer v

alue by examining contributions of different inter
nal activities to that value
 Divides a business into a set of activities withi
n the business
Starts with inputs a firm receives
Finishes with firm’s products or services and after-sal
es service to customers
 Allows for better identification of a firm’s stren
gths and weaknesses since the business is vie
wed as a process
 The Value Chain

General Administration
Human Resource Management
Research, Technology, and Systems Development
Procurement

Inbound OperationsOutbound LMarketing Service

Logistics ogistics and Sales

Primary Activities
Conducting a Value Chain Analysis

 Identify activities
 Allocate costs
 Recognize the difficulty in activity-based cost ac
counting
 Identify the activities that differentiate the firm
 Examine the value chain
 Compare to competitors
 Possible Factors for Assessing Sources of Differ
entiation in Primary and Support Activities of the
Value Chain
(selected items)

General Administration Human Resource Management

 Capability to identify new prod  Effectiveness of procedures for r
uct market opportunities and p ecruiting, training, and promotin
otential environmental threats g all levels of employees
 Quality of strategic planning sy  Appropriateness of reward syste
stem to achieve corporate obje m for motivating and challenging
ctives employees
 Ability to obtain relatively low-c  A work environment minimizing
ost funds for capital expenditur absenteeism and keeping turno
es and working capital ver low
Possible Factors for Assessing Sources of Different
iation in Primary and Support Activities of the Value
Chain
(selected items)

Technology Development Procurement

 Success of R&D activities in le  Development of alternate so
ading to product and process i urces for inputs to minimize
nnovation dependence on a single sup
 Quality of working relationship plier
s between R&D personnel and  Procurement of raw material
other departments s (1) on a timely basis, (2) at
 Timeliness of technology devel lowest possible cost, and (3)
opment activities in meeting cri at acceptable levels of qualit
tical deadlines y
 Procedures for procurement
of plant, machinery, and buil
dings
Possible Factors for Assessing Sources of Different
iation in Primary and Support Activities of the Value
Chain
(selected items)

Inbound Logistics Operations Outbound Logistics

Soundness of material and Productivity of equipment c Timeliness and efficiency of

inventory control systems ompared to key competitors delivery of finished goods a
nd services
Efficiency of raw material Appropriate automation of Efficiency of finished goods
warehousing activities production processes warehousing activities

Effectiveness of production
control systems to improve
quality and improve costs
Possible Factors for Assessing Sources of Differen
tiation in Primary and Support Activities of the Valu
e Chain
(selected items)

Marketing and Sales Service

 Effectiveness of research to id  Means to solicit customer input

entify customer segments and for product improvements
needs  Promptness of attention to cust
 Innovation in sales promotion omer complaints
and advertising
 Appropriateness of warranty a
 Evaluation of alternate distribut
ion channels nd guarantee policies
 Motivation and compensation  Quality of customer education
of sales force and training
 Development of quality image  Ability to provide replacement
and favorable reputation parts and repair services
 Internal Analysis:
Making Meaningful Comparisons

1. Comparison with past p

erformance

4. Comparison with s
2. Stages of indus
try evolution
Perspectives t uccess factors in ind
o use ustry

3. Benchmarking – comparis
on with competitors
Sources of Distinctive Competence at Diffe
rent Stages of Industry Evolution

Functional Introduction Growth Maturity Decline

Area
Marketing Resources/skills t Ability to esta Skills in aggress Cost effective
o create widesprea blish brand rec ively promoting means of efficie
d awareness and fi ognition, find products to new nt access to sele
nd acceptance fro niche, reduce p markets and hol cted channels a
m customers ; adv rice, solidify st ding existing m nd markets; stro
antageous access t rong distributi arkets; pricing f ng customer loy
o distribution on relations, a lexibility; skills alty or depende
nd develop ne in differentiatin nce; strong com
w channels g products and pany image
holding custom
er loyalty
 Sources of Distinctive Competence at Differ
ent Stages of Industry Evolution

Functional A Introduction Growth Maturity Decline

rea
Production ope Ability to expand Ability to add pr Ability to impro Ability to prune
rations capacity effective oduct variants, c ve product and r product line; cos
ly, limit number o entralize product educe costs; abil t advantage in pr
f designs, develop ion, or otherwise ity to share or re oduction, locatio
standards lower costs; abil duce capacity; a n or distribution;
ity to improve pr dvantageous sup simplified inven
oduct quality; se plier relationshi tory control; sub
asonal subcontra ps; subcontracti contracting or lo
cting capacity ng ng production ru
ns
 Sources of Distinctive Competence at Differ
ent Stages of Industry Evolution

Functional A Introduction Growth Maturity Decline

rea
Finance Resources to su Ability to financ Ability to gener Ability to reuse
pport high net c e rapid expansi ate and redistri or liquidate un
ash overflow an on, to have net bute increasing needed equip
d initial losses; a cash outflows b net cash inflow ment; advanta
bility to use leve ut increasing pr s; effective cost ge in cost of fac
rage effectively ofits; resources control system ilities; control s
to support prod s ystem accuracy
uct improveme ; streamlined m
nts anagement con
trol
 Sources of Distinctive Competence at Differ
ent Stages of Industry Evolution

Functional Ar Introduction Growth Maturity Decline

ea
Personnel Flexibility in sta Existence of an Ability to cost Capacity to red
ffing and trainin ability to add s effectively, red uce and realloc
g new managem killed personne uce workforce, ate personnel
ent; existence of l; motivated an increase efficie
employees with d loyal workfor ncy
key skills in ne ce
w products or m
arkets
 Sources of Distinctive Competence at Differ
ent Stages of Industry Evolution

Functional Ar Introduction Growth Maturity Decline

ea
Engineering and Ability to make Skill in quality Ability to reduc Ability to supp
R&D engineering cha and new featur e costs, develop ort other grown
nges, have techn e development variants, differe areas or to appl
ical bugs in pro ; ability to start ntiate products y product to uni
duct and proces developing suc que customer n
s resolved cessor product eeds

Key functional ar Engineering: ma Sales: consum Production effi Finance: maxi

ea and strategy f rket penetration er loyalty; mar ciency: success mum investme
ocus ket share or products nt recovery