What the Firm Might Do

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What the Firm Might Do
External Environment
General Environment Industry Environment Competiti
ve Environment
Sustainable Competitive Advantage
Internal Environment
Resources, Capabilities and Core Competencies
What the Firm Can Do
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What a firm Has...
Resources
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Use of Finance in Strategic Management

• Identify Strengths and Weaknesses
• Diagnose Problems
• Declining Profitability
• Insufficient Liquidity
• Leverage Too High or Too Low
• Internal Mismanagement
• Determine Ability to Finance Future Plans
• Ability to Borrow
• Stock vs. Debt

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Some Commonly Used Ratios

• Profitability
• Gross Profit Margin
• Net Profit Margin
• ROA
• ROE
• Liquidity
• Current
• Quick
• Leverage
• Debt to Equity
• Total Debt to Total Assets (Asset Ratio)
• Activity
• Asset Turnover
• Average Collection Period
• Accounts Receivable Turnover
• Inventory Turnover

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Capabilities
What a firm Does...
Capabilities become important when they are
combined in unique combinations which create
core competencies which have strategic value.
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4 Criteria that Capabilities must meet to be Core
Competencies
Valuable
Capabilities that either help a firm to exploit
opportunities to create value for customers or to
neutralize threats in the environment
Rare
Capabilities that are possessed by few, if any,
current or potential competitors
Costly to Imitate
Capabilities that other firms cannot develop
easily, usually due to unique historical
conditions, causal ambiguity or social complexity
Nonsubstitutable
Capabilities that do not have strategic
equivalents, such as firm-specific knowledge or
trust-based relationships
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Intellectual Assets

• Intellectual Capital MV - BV
• Human Capital individuals ability to add to
  reservoir of knowledge, skills, and experience
• Social Capital network of relationships critical
  to the sharing and leveraging of knowledge and
  acquiring resources

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Human Capital

• Attract Focus on attitude, mindset, and social
  skills
• Task specific skills can be learned
• Develop Beyond the HR department
• For example, use the cascade approach
• Use 360 type evaluations
• Retain Create incentives
• Challenge, stimulation, rewards, flexibility

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Social Capital

• Networks of relationships with stakeholders
• Critical for obtaining information and resources
• Pied Piper Effect
• Creating Effective Teams
• collective wisdom of teams can lead to a CA
• Be aware of groupthink tendencies

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Assessing Strengths and Weaknesses Using The
Value Chain

• Primary Activities
• Inbound Logistics
• Operations
• Outbound Logistics
• Marketing and Sales
• Service
• Activities that Support the Primary Activities
• Administration
• Technology Development
• Human Resource Development
• Procurement

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Value Chain Analysis
helps to identify which resources and
capabilities can add value
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
Service
Marketing Sales
Inbound Logistics
Outbound Logistics
MARGIN
Operations
Primary Activities
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The Value Chain

• A tool used to disaggregate a firm into
  strategically relevant activities in order to
  understand the behavior of costs and the existing
  and potential sources of differentiation.
• Competitive advantage is gained by performing
  these activities more efficiently or effectively
  than competitors.

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Business-level Value Chain

• Value is the amount buyers are willing to pay.
• Value is measured in total revenues.
• Profits are realized if the value of a
  product/service exceeds the costs of creating the
  product.
• Creating value for buyers is the goal of
  business-level strategies.

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Linkages within the BU Value Chain

• Can lead to Competitive advantage in two ways
• Optimization
• use of tradeoffs
• Coordination
• organize activities to reduce costs or improve
  differentiation

• Linkages can occur through out the unit
• Across primary and secondary activities
• Between primary activities

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Linkages outside the BU Value Chain

• Vertical Linkages
• Links with suppliers
• Supplier activities impacts BU value chain
• Should be a win-win situation
• Channel links
• Closer to end user
• mark-up sales price to end user

• Buyers Value Chain
• Need to consider how value chain relates to
  buyers value chain
• Need to fit through low cost or differentiation

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Outsourcing
Definition the strategic choice to purchase
some activities from outside suppliers
Firms often purchase a portion of their
value-creating activities from specialty external
suppliers who can perform these functions more
efficiently
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What are the Strategic Rationales for Outsourcing?
Improve Business Focus
Lets company focus on broader business issues by
having outside experts handle various operational
details
Provide Access to World-Class Capabilities
The specialized resources of outsourcing
providers makes world-class capabilities
available to firms in a wide range of
applications
Share Risks
Reduces investment requirements and makes firm
more flexible, dynamic and better able to adapt
to changing opportunities
Free Resources for Other Purposes
Permits firm to redirect efforts from non-core
activities toward those that serve customers more
effectively
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Business Definition

• WHAT is our product or service?
• WHO are our customers? (markets and distribution
  channels)
• WHAT DO WE DO for them or provide for them?
  (functions served by our products or services)
• HOW DO WE PRODUCE the service or do it? (What are
  our resource conversion processes, technologies)