Internal Analysis: Resource StrengthWeakness And Competitive Capabilities

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• Internal Analysis Resource Strength/Weakness And
  Competitive Capabilities

By Sanjib Chowdhury, Ph.D.
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Internal Resource Analysis

• Resource Strengths and Weaknesses
• Value Chains
• Strategic Cost Analysis

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Resource Strengths

• A resource strength is a firms asset/resource
  that enhance its competitiveness
• Physical assets
• Human assets
• Intangible assets
• Organizational assets

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Resource Weakness Competitive Disadvantage

• A resource weakness is a firms lack of
  asset/resource that decline its competitiveness
• Incompetence may result from
• Resource weakness
• Lack of know-how and expertise
• Lack of important capabilities

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Competitive Capabilities

• A competitive capability is a well performed
  activity that enhances a firms competitiveness
• Valuable competencies or know-how
• Capabilities in performing important activities
• Important alliances with capable partners

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From Resource to Sustainable Competitive Advantage
Resource
Capability
Competency
Sustainable Competitive Advantage
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Competencies

• A firms competency is its proficiency in
  performing an activity.
• By utilizing its resource strengths, know-how and
  experience, a company achieves proficiencies
• A core competence is a proficiency in core
  activity (a competitively important activity)
• A distinctive competence is a core competence
  that a firm is more proficient than its rivals.
• A distinctive competence is a source of
  competitive advantage

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Developing Competence

• Typically competencies reside in collaborative
  know-how, experiences, and learning of the
  workforce
• Attract the right people with knowledge,
  experience, and ability to learn
• Extend their knowledge by adequate training
• Expose them to collaborative work to develop
  organizational knowledge, experience, and learning

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Developing Competencies and Capabilities

• Stem from skills, expertise, and experience
  usually representing an
• Accumulation of learning over time and
• Gradual buildup of real proficiency in performing
  an activity
• Involve deliberate efforts to develop the ability
  to do something, often entailing
• Selection of people with requisite knowledge and
  expertise
• Upgrading or expanding individual abilities
• Molding work products of individuals into a
  cooperative effort to create organizational
  ability
• A conscious effort to create intellectual capital

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Core Competencies AValuable Company Resource

• A competence becomes a core competence when the
  well-performed activity is central to the
  companys competitiveness and profitability
• Often, a core competence results from
  collaboration among different parts of an
  organization
• Typically, core competencies reside in a
  companys people, not in assets on the balance
  sheet
• A core competence gives a company a potentially
  valuable competitive capability and represents a
  definite competitive asset

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Types of Core Competencies

• Expertise in building networks and systems to
  enable e-commerce
• Speeding new/next-generation products to market
  electronic telecommunication
• Skills in manufacturing a high quality product -
  Automotive
• Innovativeness in developing popular product
  features consumer electronics

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Distinctive Competence-- ACompetitively Superior
Resource

• A distinctive competence is a competitively
  significant activity that a company performs
  better than its competitors

• A distinctive competence
• Represents a competitively valuable capability
  rivals do not have
• Presents attractive potential for being a
  cornerstone of strategy
• Can provide a competitive edge in the
  marketplacebecause it represents a competitively
  superior resource strength

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ExamplesDistinctive Competencies

• Sharp Corporation
• Expertise in flat-panel display technology
• Toyota, Honda, Nissan
• Low-cost, high-quality manufacturing capability
  and short design-to-market cycles
• Intel
• Ability to design and manufacture ever more
  powerful microprocessors for PCs
• Motorola
• Defect-free manufacture (six-sigma quality) of
  cell phones

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Core competence to Sustainable Competitive
Advantage (SCA)

• The competence should be superior to the rivals
• The competence should be valuable to the
  customers
• The competence should be durable
• The competence should be hard to copy
• The competence should be hard to trump with
  different competencies of rivals.

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Activity Analysis and Competitiveness

• Competitiveness in performing activities
• Value chain analysis
• Strategic cost analysis

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Company Value Chain

• Activities and functions performed by a company
  to deliver value to its customers.
• A companys value shows a chronological chain of
  its activities that add value for the ultimate
  consumer
• Two types of company activities
• Primary activity
• Activities directly related to producing
  products/services, this type of activity adds
  most of the value for customers
• Support activity
• Activities that supports efficient functioning of
  primary activities.

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Company Value Chain
Primary Activities
Inbound logistics
Out bound logistics
Distribution Activity
Margin
Purchasing Activity
Operations Activity
Sales Marketing Service Activity
Human Resource Activity Accounting General
Administrative Activity RD Technology
Development Activity
Secondary / Support Activities
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Industry Value Chain System
A Companys Value Chain
Forward Channel Value Chains
Supplier Value Chains
Suppliers Activities
Industry Members Internal Activities
Distributors Forward Channels Activities
End Users
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Cost Differences Among Companies

• Difference in prices paid to suppliers vary
• Different supplies
• Different suppliers
• Different Purchasing Contract
• Difference in the scale of economy
• Difference in the technology/equipment efficiency
• Difference in the wage rate and labor
  productivity
• Difference in operating/administrative
  efficiency (expense)
• Difference in shipping costs

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Strategic Cost Analysis Activity Based Costing

• A firms costs relative to its rivals costs
• Activity by activity cost comparison with rivals
  (all internal activities)
• Identify activities with cost advantages or
  disadvantages

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Activity Based Costing

• Requires activity by activity accounting data
  (activity based accounting systems)
• Helps compare cost and value of each activity of
  a company with its rivals.

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Importance of Industry Value Chain Analysis

• A companys cost competitiveness depends on
  evaluating its costs along the industry value
  chain
• Importance of suppliers value chains
• Costs and quality of supplies influence costs and
  quality of a firms products or services
• Importance of distributors and forward channels
  partners value chains
• Costs and margins of distributors and forward
  channel partners influence price paid by ultimate
  consumers
• Quality of activities performed by distributors
  and forward channel partners influence the
  quality of products/services of the company to
  the end-user

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Benchmarking in Strategic Cost Analysis

• Identify the best practice in performing an
  activities
• Identify the best in the industry in performing
  each activity
• Operations, marketing, inventory control, etc.
• Compare companys own activities with the best
  practice
• Learn from the best practice
• Improve companys activities by increasing value
  compared to its cost and become cost competitive

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Cost Competitiveness

• A companys cost competitiveness depends on
• Suppliers activities
• Companys internal activities
• Distributors forward channel partners
  activities

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Improving Suppliers Activities

• Build relationships with suppliers
• Negotiate with suppliers
• Look for low price/high value substitute supplies
• Backward integration

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Improve Forward Channel Partners Activities

• Build relationships with forward channel members
• Negotiate for favorable terms
• Change distribution channels
• Forward integration