Assessing firm internal characteristics

1
Assessing firm internal characteristics

• Understanding how firms differ in their
  competitive advantages

2
Why assess internal characteristics?

• Firms in same industry using same strategies
  often vary in performance
• Not due to industry or strategy
• Must be due to individual organizational
  differences resources
• Resources not equally distributed across firms

3
Overview of internal analysis

• Use the value chain to identify internal
  potential for creating value
• Explain competitiveness using the resource-based
  view of the firm
• Assess firm performance through financial ratio
  analysis and stakeholder satisfaction

4
Value chain

• Organization as sequential process of activities
  that create value

5
Value chain

• Exists within larger context
• Industry supply chain suppliers, customers,
  alliance partners
• Value chain primary activities
• Contribute to physical creation of product or
  service
• Inbound logistics, operations, outbound
  logistics, marketing and sales, service

6
Value chain

• Support activities add value
• By themselves or
• Through important relationships with primary and
  other support activities
• Procurement, technology development, human
  resource management, general administration

7
Inbound logistics

• Receiving, storing, and distributing (within the
  firm) product inputs
• Materials handling, warehousing, inventory
  control, vehicle scheduling, returns to suppliers

8
Operations

• Transforming inputs into final form
• Machining, packaging, assembly, testing,
  printing, facility operations

9
Outbound logistics

• Collecting, storing, and distributing product or
  service to buyers
• Finished goods, warehousing, material handling,
  delivery vehicle operation, order processing,
  scheduling

10
Marketing and sales

• Purchases of products and services by end users,
  sales activities by firm members, and inducements
  to influence the purchases

11
Service

• Providing service to enhance or maintain product
  value
• Installation, repair, training, parts supply,
  product adjustment

12
Procurement

• All activities related to the arrangement for
  purchasing (not handling) inputs used in the
  firms value chain

13
Technology development

• Knowledge, techniques, processes, procedures, and
  methods used at various stages of the value chain

14
Human resource management

• Recruiting, hiring, training, development, and
  compensation of all types of personnel
• Supports both individual primary and support
  activities and entire value chain

15
General administration

• General management, planning, finance,
  accounting, legal and government affairs, quality
  management, information systems
• Typically supports entire value chain rather than
  individual activities

16
Interrelationships of the value chain

• Interrelationships exist among value chain
  activities within and across organizations
• Interrelationships with the firm
• Relationships among activities within the firm
  and with other organizations (e.g., customers and
  suppliers) that are part of the firms expanded
  value chain

17
Value chain and service organizations

• Operations are any transformation processes in
  which inputs are converted through a work process
  into outputs that add value
• Service firms also have operations activities
• Accounting firms convert records of transactions
  (inputs) into financial records
• Travel agency creates itinerary including
  transportation, accommodations, and activities
  customized to ones budget and travel dates
• See Exhibit 3.4

18
Recap

• Value chain
• Sequence of activities that add value to firm
  inputs
• Primary activities inbound logistics,
  operations, outbound logistics, marketing and
  sales, and service
• Support activities procurement, technology
  development, human resources management, general
  administration

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Resource-based view of the firm

• Explanation of firm competitiveness combines
• Analysis of internal firm conditions
• Analysis of external conditions in general
  environment and industry and competitive
  environment
• Evaluates extent to which firms resources
  provide capabilities that are valuable, rare,
  difficult to imitate, and non-substitutable

20
Types of resources

• Tangible relatively easy to identify, document,
  or observe
• Intangible typically embedded in unique routines
  and practices that have evolved or accumulated
  over time

21
Organizational capabilities

• Competencies or skills used by a firm to convert
  inputs into outputs
• Capacity to use tangible and intangible resources
  over time and in combination
• Examples customer service, product development,
  innovation, manufacturing capability

22
Creating sustainable competitive advantage
through resources and capabilities (VRIN
framework)

• Value
• Rarity

23
Creating sustainable competitive advantage
through resources and capabilities

• Difficult to imitate
• Physical uniqueness
• Path dependence series of events occurring at
  various junctures in firms development
• Causal ambiguity difficulty in precisely
  identifying cause-effect relationships of what a
  firm does and the product it produces
• Social complexity interpersonal relations among
  the employees and managers of a firm, its
  culture, and its reputation among suppliers and
  customers

24
Creating sustainable competitive advantage
through resources and capabilities

• Non-substitutable
• Limited availability of strategically equivalent
  substitutes
• Substitute a similar resource that leads to same
  strategy
• Different resources become substitutes for each
  other (e.g., Amazon and Barnes and Noble)

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Summary Internal analysis

• Value chain analysis identifies activities that
  potentially add value
• The resource-based view
• identifies key resources that are potential
  sources of capabilities
• Sustained competitiveness depends on capabilities
  that are valuable, rare, difficult to imitate,
  and non-substitutable