Chapter 3 Examining the Internal Environment: Resources, Capabilities, and Activities

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Chapter 3Examining the Internal Environment
Resources, Capabilities, and Activities
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OBJECTIVES
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Explain the internal context of strategy
Identify a firms resources and capabilities and
explain their role in its performance
2
Define dynamic capabilities and explain their
role in both strategic change and a firms
performance
3
Explain how value-chain activities are related to
firm performance and competitive advantage
4
Explain the role of managers with respect to
resources, capabilities, and value-chain
activities
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COMPARATIVE INDUSTRY REFORMANCE
ROA
Global Auto
ROS

• Semiconductor

Grocery Store
How dosuch differences in profitability
materialize?
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RESOURCES, CAPABILITIES, AND MANAGERIAL DECISIONS

Resources
Managers
Competitive advantage/disadvantage
Strategy
Performance
Management strategic decision making
Capabilities
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RESOURCES AND CAPABILITIES FUNDAMENTAL BUILDING
BLOCKS OF STRATEGY
Strategy
Capabilities (competencies)
Resources
A firms skill in using its resources to create
goods and services. The combination of
procedures and expertise that the firm relies
on to engage in distinct activities in the
process of producing goods and services

• The inputs that firms use to create goods and
  services
• Undifferentiated or firms-specific
• Tangible or intangible
• Easy to acquire or difficult

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TRUST AS AN ORGANIZATIONAL RESOURCE
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KNOWLEDGE
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EXAMPLES OF CAPABILITIES
Capability
Result
Company
Logistics -- distributing vast amounts of goods
quickly and efficiently to remote locations
200,000-percent return to share-holders during
first 30 years since IPO1
An extraordinarily frugal system for delivering
the lowest cost structure in the mutual fund
industry, using both techno-logical leadership
and economies of scale
25,000-percent return to share-holders during the
30-plus year tenure of CEO John Connelly.2 As
for ongoing expenses, share-holders in Vanguard
equity funds pay, on average, just 30 per
10,000, vs. a 159 industry average. With bond
funds, the bite is just 17 per 10,000
Generating new ideas then turning those ideas
into new, profitable products
30 percent of revenue from products introduced
within the past four years
1 Stalk, Evans, and Shulman, 1992 2 Makadok,
2003
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THE VRINE MODEL
Performance implication
Test
Competitive implication
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SUSTAINABILITY
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TANGIBLE AND INTANGIBLE ADVANTAGES
Intangible
Tangible



Location selection
Rural real-estate

Wal-Mart
High traffic real-estate


Brand
McDonalds
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HOW WOULD YOU DO THAT?
Do patents on Zoloft provide value?
Valuable?
Do Pfizer's patents provide rarity?
Rare?
PfizersZoloft
Inimitable andnon-substitutable?
Can competitors imitate? Can they substitute?
Exploitable?
Can Pfizer exploit?
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DYNAMIC CAPABILITIES
Mail Boxes Etc. franchise
Start-up plans
People
Brand
Location
Processes
Dynamic capability how we integrate
recon-figure, acquire, or divest resources for
competitiveadvantage?
Mail boxes, etc., has developed the ability to
combine resources better than the competition
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VALUE CHAIN INTERNET STARTUP EXAMPLE
Firm Infrastructure
Financing, legal support, accounting
Recruiting, training, incentive system, employee
feedback
Support Activities
HumanResources
Technology Development
Procurement
Inbound shipment of top titles

• Server operations
• Billing
• Collections

• Picking and shipment of top titles from warehouse
• Shipment of other titles from third- party
  distributors

• Pricing
• Promotions
• Advertising
• Product information and reviews
• Affiliations with other websites

• Returned items
• Customer feedback

Warehousing
Inbound Logistics
Operations
Outbound Logistics
Marketing Sales
After-Sales Service
Primary Activities
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GUIDELEINES FOR OUTSOURCING
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USING VALUE CHAINS TO GAIN COMPETITIVE ADVANTAGE
Identical
Differentiated
Find a different way to perform activities
Longer-lasting advantage
Shorter-term advantage (competitors catch up)
Find a better way to perform the same activities
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TRADE OFF PROTECTION YOUR RIVALS CHOOSE NOT TO
COPY YOU
Selected difference between Southwest and large
Airlines
Southwest made choices so that competitors did
not copy - because copying would require them to
abandon activities essential to their strategies
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INNOVATION AND INTEGRATION OF THE VALUE CHAIN
   
Area of innovation
Assemble
Source
Deliver
Transferred assembly and delivery to the consumer
IKEA
Choose an entirely direct distribution model
(rather than through retailers) and outsourced
component manufacturing
Dell
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STRATEGIC LEADERSHIP
Companies that overlook the role of leadership
in the early phases of strategic planning often
find themselves scrambling when its time to
execute. No matter how thorough the plan,
with-out the right leaders it is unlikely to
succeed McKinsey Company