The Internal Environment

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The Internal Environment

• The Strengths and Weakness of the Firm
• A Firms Tangible Intangible Resources combine
  with Firms Capabilities to create Distinctive
  Competencies
• Distinctive Competencies those activities that
  a firm performs better than any competing firm

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The Internal Environment

• The Strengths and Weakness of the Firm
• Sustained Competitive Advantage firms that
  possess and exploit costly to imitate, rare, and
  valuable resources capabilities in choosing and
  implementing their strategies may enjoy a period
  of sustained competitive advantage and above
  normal economic profit.

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The Internal Environment

• The Strengths and Weakness of the Firm
• Tangible Resources
• Dow Chemicals research laboratory and facilities
  
• Intels semiconductor fabrication facilities
• ATTs network of wire, cable, and satellites

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The Internal Environment

• The Strengths and Weakness of the Firm
• Intangible Resources
• Toyotas well-known and trusted brand names,
• New Seasons good reputation,
• Intels knowledgeable and creative workforce,
• Sun Microsystems unifying corporate culture,
• Subways international experience with different
  countrys regulations on franchising,
• Norm Thompson Outfitters visionary leader with
  strong motivation and communications skills,

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The Internal Environment

• The Strengths and Weakness of the Firm
• Capabilities
• Emerge over time through complex interaction
  between and among tangible and intangible
  resources.
• Become stronger and more valuable strategically
  through repetition and practice.
• Skills and knowledge of firms employees,
  including functional expertise (human capital)

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The Internal Environment

• The Strengths and Weakness of the Firm
• Capabilities
• Examples
• Toyotas efficient distribution systems -
  Just-in-time (JIT) delivery, strong supplier
  relationships, and well-trained inventory
  specialists.
• L.L. Beans customer segmentation procedures and
  systems - database management systems, effective
  market research efforts and strong supplier
  relationships.
• Nikes new product development procedures
  creative workforce and innovation-driven culture,
  strong leadership, and effective market research.

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The Internal Environment

• The Strengths and Weakness of the Firm
• Distinctive Competencies The VRIO Framework
• Question of Value Do a firms resources and
  capabilities enable the firm to respond to
  neutralize external threats and/or capitalize on
  external opportunities?
• Example Are InFocus engineers and marketing
  staff able to develop and sell home-based
  projector systems before its competitors?

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The Internal Environment

• The Strengths and Weakness of the Firm
• Distinctive Competencies The VRIO Framework
• Question of Rarity Is a resource or capability
  currently controlled by only a small number of
  competing firms?
• Example Does InFocus have the technical
  expertise and market access that other firms do
  not have to innovate and sell home-based
  projector systems?

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The Internal Environment

• The Strengths and Weakness of the Firm
• Distinctive Competencies The VRIO Framework
• Question of Inimitability Do firms without the
  resource or capability face a cost disadvantage
  in obtaining or developing it?
• Example Is it quite expensive for Toshiba to
  internally develop the expertise to manufacture
  home-based projector systems?

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The Internal Environment

• The Strengths and Weakness of the Firm
• Distinctive Competencies The VRIO Framework
• Question of Organization Are a firms other
  policies and procedures organized to support the
  use of its valuable, rare, and costly to imitate
  resources and/or capabilities?
• Example Are InFocus organizational structure
  and compensation policies appropriate to support
  its efforts to develop, manufacture and
  distribute home-based projector systems?

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The Internal Environment

• The Strengths and Weakness of the Firm
• Value Chain Analysis
• Examines contributions of individual activities
  to overall level of customer value and ultimately
  financial performance.
• Customer value product differentiation, low
  cost, and/or responsiveness

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The Internal Environment

• The Strengths and Weakness of the Firm

Value Chain Analysis

• Primary Activities
• Inbound Logistics
• Operations
• Outbound Logistics
• Marketing and Sales
• Customer Service

• Secondary Activities
• Firm Infrastructure
• Human Resource Management
• Technology Development
• Procurement

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The Internal Environment

• So strengths and weaknesses are based on how well
  value chain activities are performed
• Resources and capabilities determine the
  performance of value chain activities. Look at
• Corporate culture and Leadership
• Marketing management issues
• Financial management issues
• RD management issues
• HR management issues
• Operations management issues
• Information systems management issues
• Stakeholder management issues

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The Internal Environment

• The Strengths and Weakness of the Firm
• Is a resource or capability
• Costly to Exploited Competitive
• Valuable? Rare? Imitate? By Firm? Implications
• No -- -- No Comp. Disadv.
• Yes No -- Comp. Parity
• Yes Yes No Temp Comp. Adv.
• Yes Yes Yes Yes Sustained Comp. Adv.

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The Internal Environment

• Life Expectancy of Sustained Competitive
  Advantage
• Length of Innovation Cycle the faster the cycle,
  the easier it is to take away competitive
  advantage
• Example New generation of cameras born about
  every 10 months
• Number of Dimensions of Customer Value the more
  dimensions, the easier it is for competitors to
  find ways of eroding competitive advantage
• Example An I-beam is an I-beam, but an
  automobile comes in many shapes, sizes, etc.

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The Internal Environment

• Life Expectancy of Sustained Competitive
  Advantage
• Switching Costs Between Rivals the easier it is
  to switch, the easier it is to take away
  competitive advantage
• Example Difficulty in switching between office
  systems management service providers versus ease
  of switching between office supplies provider.

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Internal Factor Analysis Summary
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Internal Factor Analysis Summary

• Same basic procedure as the External Factor
  Analysis Summary.
• See page 101 and 102 of the text for more
  discussion of the IFAS.

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Internal Scanning

• Example Proctor Gamble (circa 1992)
• Resources
• Research and Development
• PG invests 4 of worldwide sales in research and
  development ahead of most of its global
  competitors. In 1997-98 this amounted to 1.5
  billion.
• PG has a world class, global research and
  development organization, with over 7,500
  scientists working in 22 research centers in 12
  countries around the world.
• Innovative Workforce
• PG holds more than 24,000 active patents
  worldwide, and on average, receives about 3,800
  more patents per year. This makes PG among the
  world's largest holders of U.S. and global
  patents, putting it on a par with Intel, Lucent
  and Microsoft.

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• Proctor Gamble
• Capability
• Directed growth and maximized chances of success
  by leveraging considerable technical competencies
  across product categories and national
  boundaries.
• Competencies
• A deep understanding of consumers, their habits
  and product needs.
• The ability to acquire, develop and apply
  technology across PG's broad array of product
  categories.
• The ability to make "connections" between
  consumers' wants and what technology can deliver
• Strategic Issue
• Market research revealed brand loyal consumers
  were paying 725/year more than families buying
  private-label or store brands.
• ?Need new strategy to reduce costs and better
  meet consumer demand?

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• Factors for Assessment
• Technology Development (RD) was the initiator
  of product development, produced technologically
  superior productS
• Firm Infrastructure Relationship between RD and
  Marketing Sales -- Marketing released new
  products under new brand names
• Marketing Sales complex with 17 pricing
  brackets for 34 product categories
• Manufacturing Capacity utilization averaged
  about 55, with excess needed to handle bubble
  demand brought on by occasional price wars
• Outbound Logistics heavily paper-laden
• Methods for Assessment
• Organizational Perspective
• Superior products no longer matched needs of
  marketplace, particularly in
• developing markets.
• Devolve products less technology, lower price.
  
• Put marketing research in charge of setting
  initial new product development
• guidelines.
• Improve internal processes for product
  development.

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• Methods for Assessment
• Customer value
• Brand equity for existing brands is high (e.g.
  Ivory). Release new
• developments under existing brand names rather
  than creating new ones.
• Improve customer value by strengthening brand
  relationship to new products.
• Financial Perspective
• Outbound logistics unnecessarily expensive. Work
  with industry stakeholders,
• including competitors, to simplify delivery
  system through standardization and
• computerization. Improves industrys
  profitability.
• Reduce number of brands and product lines.
  Simplifies manufacturing
• process and eliminate slack in capacity
  utilization. Better ROA, and hopefully
• better P/E ratio.