Title: Strategic Management
1Session 9
Internal Analysis
2Session Topics
- Resource-Based View of the Firm
- Three Basic Resources
- What Makes a Resource Valuable?
- Using the Resource-Based View in Internal
Analysis - SWOT Analysis
- The Functional Approach
- Value Chain Analysis
- Internal Analysis Making Meaningful Comparisons
- Comparison with Past Performance
- Stages of Industry Evolution
- Benchmarking
- Comparison with Success Factors in the Industry
3Ingredients Critical to a Successful Strategy
Be consistent with conditions in the
competitive environment
Place realistic requirements on the
firms resources
Be carefully implemented/executed
4What is the Resource-Based View of the Firm?
Firms differ in fundamental ways because each
firm possesses a unique bundle of resources -
tangible and intangible assets and organizational
capabilities to make use of those assets.
5The RBV of The Firm
- More internally oriented
- Key analytic tool is value chain analysis
- Resources are not mobile/transferable across
company and industry boundaries - Focuses on sharpening your skills at executing
value chain activities that create superior
efficiency, innovation, quality, and/or company
responsiveness.
6The Industrial/Organizational Economics
Perspective
- More externally oriented
- Key Analytic tool is Porters Five Forces Model
- Assumes that resources are transferable/mobile
across across company boundaries - More of a free-agent mentality
- Choose your industry wisely and then set about to
develop resource proficiency
7The Three Basic Resources
- Tangible assets
- Easiest to identify and often found on a firms
balance sheet - Include physical and financial assets
- Examples Production facilities, raw materials,
financial resources, real estate, computers - Intangible assets
- Cannot be seen or touched
- Often very critical in creating competitive
advantage - Examples Brand names, company reputation,
company morale, patents and trademarks,
accumulated experience - Organizational capabilities
- Involve skills - ability to combine assets,
people, and processes - used to transform inputs
into outputs
8Examples of Different Resources
9What Makes a Resource Valuable?
1. Competitive superiority Does the resource
help fulfill a customers need better than those
of firms competitors?
2. Resource scarcity Is the resource in short
supply?
3. Inimitability Is the resource easily copied
or acquired?
4. Appropriability Who actually gets the profit
created by a resource?
5. Durability How rapidly will the resource
depreciate?
6. Substitutability Are other alternatives
available?
10Characteristics Making Resources Difficult to
Imitate
- Physically unique resources
- Resources virtually impossible to imitate
- Examples One-of-a-kind real estate location,
mineral rights, patents - Path-dependent resources
- Resources that must be created over time in a
manner that is often expensive and difficult to
accelerate - Examples Dell Computers system of direct sales
of customized PCs via the Internet, Coca-Colas
brand name, Gerber Baby Foods reputation for
quality
11Characteristics Making Resources Difficult to
Imitate
- Causal ambiguity (How do they do that?)
- Situations where it is difficult for competitors
to understand how a firm has created its
advantage - Example Southwest Airlines approach
- Same plane, routes, gate procedures, number of
attendants - Culture of fun, family, and frugal yet focused
services - Economic deterrence
- Involves large capital investments in capacity to
provide products or services in a given market
that are scale sensitive
12Resource Inimitability
- Cannot be imitated
- Patents
- Unique locations
- Unique assets
- Difficult to imitate
- Brand loyalty
- Employee satisfaction
- Reputation for fairness
- Can be imitated
- Capacity preemption
- Economies of scale
- Easy to imitate
- Cash
- Commodities
13Guidelines Using the RBV in Internal Analysis
- Disaggregate resources - break them into more
specific competencies rather than use broad
categories - Use a functional perspective in disaggregating
tangible and intangible assets and organizational
capabilities - Look at organizational processes and combinations
of resources, not only at isolated assets or
capabilities - Use the value chain approach to uncover
potentially valuable capabilities, activities,
and processes
14Key Resources Across Functional Areas
- Marketing
- Firms products/services
- Concentration of sales in a few products or to a
few customers - Ability to gather needed information about
markets - Market share
- Product-service mix and expansion potential
- Channels of distribution
- Effective sales organization
- Product-service image, reputation, and quality
- Imaginativeness, efficiency, effectiveness of
sales promotion - Pricing strategy and flexibility
- After-sale service and follow-up
- Goodwill - brand loyalty
- Financial and Accounting
- Ability to raise short-term and long-term
capital debt-equity - Corporate-level resources
- Cost of capital relative to competitors
- Tax considerations
- Relations with owners, investors, and
stockholders - Leverage position
- Cost of entry and barriers to entry
- Price-earnings ration
- Working capital
- Effective cost control
- Financial size
- Efficiency and effectiveness of accounting system
15Key Resources Across Functional Areas (continued)
- Production, Operations, Technical
- Raw materials cost and availability, supplier
relationships - Inventory control systems
- Location, layout, and use of facilities
- Economies of scale
- Technical efficiency of facilities
- Effectiveness of subcontracting use
- Degree of vertical integration
- Efficiency and cost-benefit of equipment
- Effectiveness of operation control procedures
- Costs and technological competencies relative to
competitors - Research and development
- Patents and trademarks
- Personnel
- Management personnel
- Employees skills and morale
- Labor relations costs compared to competitors
- Efficiency and effectiveness of personnel
policies - Effectiveness of incentives used to motivate
performance - Ability to level peaks and valleys of employment
- Employee turnover and absenteeism
- Specialized skills
- Experience
16Key Resources Across Functional Areas (continued)
- Quality Management
- Relationship with suppliers, customers
- Internal practices to enhance quality of products
and services - Procedures for monitoring quality
- Information Systems
- Timeliness and accuracy of information about
sales, operations, cash, and suppliers - Relevance of information for tactical decisions
- Information to manage quality issues customer
service - Ability of people to use information provided
17Fig. 6-5 Key Resources Across Functional Areas
(concluded)
- Organization and General Management
- Organizational structure
- Firms image and prestige
- Firms record in achieving objectives
- Organization of communication system
- Overall organizational control system
- Organizational climate and culture
- Use of systematic procedures in decision making
- Top-management skills, capabilities, and interest
- Strategic planning system
- Intra-organizational synergy
18SWOT Analysis
Based on assumption an effective strategy derives
from a sound fit between a firms internal
resources and its external situation
Opportunities A major favorable situation in a
firms environment
Threats A major unfavorable situation in a firms
environment
Strengths A resource advantage relative to
competitors and the needs of markets firm serves
Weaknesses A limitation or deficiency in one or
more resources or competencies relative to
competitors
19SWOT Analysis Diagram
20What is Value Chain Analysis?
- Focuses on how a business creates customer value
by examining contributions of different internal
activities to that value - Divides a business into sets of activities within
the business - Starts with inputs a firm receives
- Finishes with firms products or services and
after-sales service to customers - Allows better identification of a firms
strengths and weaknesses since the business is
viewed as a process
21The Value Chain
22Internal Analysis Making Meaningful Comparisons
1. Comparison with past performance
2. Stages of industry evolution
3. Benchmarking - Comparison with competitors
4. Comparison with success factors in the
industry