Topic 3 Internal Analysis

1. Topic 3 Internal Analysis

2. Topics • Resource-based View of the Firm • SWOT Analysis • Value Chain Analysis

3. What is the Resource-based View of the Firm? Firms differ in fundamental ways because each firm possesses a unique “bundle” of resources –tangibleandintangible assetsand organizational capabilitiesto make use of those assets

4. The Three Basic Resources • Tangible assets • Easiest to identify and often found on a firm’s balance sheet • Include physical and financial assets • Examples: production facilities, raw materials, financial resources • Intangible assets • Cannot be seen or touched • Often very critical in creating competitive advantage • Examples: brand names, company reputation, company morale • Organizational capabilities • Involve skills – ability to combine assets, people, and processes – used to transform inputs into outputs

5. Examples of Different Resources(selected)

6. Competitive superiority:Does the resource help fulfill a customer’s need better than those of the firm’s competitors? Resource scarcity: Is the resource in short supply? Easily Imitated?: Is the resource easily copied or acquired? (look to next 2 slides) Durability: How rapidly will the resource depreciate? Substitutability? Are other alternatives available? What Makes a Resource Valuable?

7. Easily Imitated?Isolating Mechanisms • 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 manner that is often expensive and difficult to accelerate • E.g., Dell Computer’s system of direct sales of customized PCs via the Internet, Coca-Cola’s brand name, Gerber Baby Food’s reputation for quality

8. Easily Imitated?Isolating Mechanisms • Causal ambiguity • Situations where it is difficult for competitors to understand how a firm has created its advantage • E.g., Southwest Airlines’ approach • Same plane, routes, gate procedures, number of attendants • Culture of fun, family, and frugal yet focused service • Economic deterrence • Involves large capital investments in capacity to produce products or services in a given market that are scale sensitive

9. Competitive superiority:Does the resource help fulfill a customer’s need better than those of the firm’s competitors? Resource scarcity: Is the resource in short supply? Easily Imitated?: Is the resource easily copied or acquired? Durability:How rapidly will the resource depreciate? Substitutability? Are other alternatives available? What Makes a Resource Valuable? Again…

10. Company Competencies vs. Core Competencies vs.Distinctive Competencies • A company competence is the product of organizational learning and experience and represents“realproficiencyin performing aninternal activity” • Acore competence is a well-performed internal activity that iscentral (not peripheral or incidental)to a company’scompetitiveness and profitability • A distinctive competence is acompetitively valuable activitythat a companyperforms better than its rivals

11. SWOTAnalysis Based on assumption: an effective strategy derives from a sound “fit” between a firm’s internal resources and its external situation Strengths Resource advantages relative to competitors and the needs of markets firm serves . Weaknesses Limitations or deficiencies in one or more resources or competencies relative to competitors. Opportunities Major favorable situations in a firm’s environment Threats Major unfavorable situations in a firm’s environment

12. Potential Resource Strengths Potential Resource Weaknesses Potential Company Opportunities Potential External Threats • Powerful strategy • Strong financial condition • Strong brand name image/reputation • Widely recognized market leader • Proprietary technology • Cost advantages • Strong advertising • Product innovation skills • Good customer service • Better product quality • Alliances or JVs • No clear strategic direction • Obsolete facilities • Weak balance sheet; excess debt • Higher overall costs than rivals • Missing some key skills/competencies • Subpar profits • Internal operating problems . . . • Falling behind in R&D • Too narrow product line • Weak marketing skills • Serving additional customer groups • Expanding to new geographic areas • Expanding product line • Transferring skills to new products • Vertical integration • Take market share from rivals • Acquisition of rivals • Alliances or JVs to expand coverage • Openings to exploit new technologies • Openings to extend brand name/image • Entry of potent new competitors • Loss of sales to substitutes • Slowing market growth • Adverse shifts in exchange rates & trade policies • Costly new regulations • Vulnerability to business cycle • Growing leverage of customers or suppliers • Reduced buyer needs for product • Demographic changes SWOTAnalysisSome things to Look For …

13. 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 outputs that customers value

14. What is Value Chain Analysis? • Focuses on how a business creates customer value by examining contributions of different internal activities to that value • Divides a business into a set of activities within the business • Starts with inputs a firm receives • Finishes with firm’s products or services and after-sales service to customers • Allows for better identification of a firm’s strengths and weaknesses since the business is viewed as a process

15. General Administration Human Resource Management Procurement Research and Product Development Inbound Logistics Production Operations Outbound Logistics Service Marketing and Sales Value Chainactivities … (selected items)