Analyzing Internal Firm Environment & Value Chain Analysis PDF

Assessing the Internal Environment of the Firm Copyright Anatoli Styf/Shutterstock  Strategic Management Process Strategic management process involves: ▪ Analysis ▪Strategic goals (vision, mission, strategic objectives) ▪Internal and external environment ▪ Deci...

Assessing the Internal Environment of the Firm Copyright Anatoli Styf/Shutterstock  Strategic Management Process Strategic management process involves: ▪ Analysis ▪Strategic goals (vision, mission, strategic objectives) ▪Internal and external environment ▪ Decisions - Formulation ▪What industries should we compete in? ▪How should we compete in those industries? ▪ Actions – Implementation of strategy ▪Allocate necessary resources. ▪Design the organization to bring intended strategies to reality.  Learning Objectives 3-1 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers. 3-2 The primary and support activities of a firm’s value chain. 3-3 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities. 3-4 The four criteria that a firm’s resources must possess to maintain a sustainable competitive advantage and how value created can be appropriated by employees and managers. 3-5 The usefulness of financial ratio analysis, its inherent limitations, and how to make meaningful comparisons of performance across firms. 3-6 The value of the “balanced scorecard” in recognizing how the interests of a variety of stakeholders can be interrelated. ©McGraw-Hill Education.  The Importance of the Internal Environment Consider... Which activities must a firm effectively manage and integrate in order to attain competitive advantages in the marketplace? Which resources and capabilities must a firm create and nurture in order to sustain a competitive advantage? ©McGraw-Hill Education.  Value-Chain Analysis Value-chain analysis looks at the sequential process of value-creating activities. Value is the amount buyers are willing to pay for what a firm provides. How is value created within the organization? How is value created for other organizations in the overall supply chain or distribution channel? The value received must exceed the costs of production. ©McGraw-Hill Education.  Value-Chain Analysis Primary Activities Primary activities contribute to the physical creation of the product or service; the sale & transfer to the buyer; and service after the sale. 1. Inbound logistics 2. Operations 3. Outbound logistics 4. Marketing & sales 5. Service ©McGraw-Hill Education.  Value-Chain Analysis Support Activities Support activities either add value by themselves or add value through important relationships with both primary activities & other support activities. 1. Procurement 2. Technology development 3. Human resource management 4. General administration ©McGraw-Hill Education.  The Value Chain Exhibit 3.1 The Value Chain: Primary and Support Activities Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by The Free Press. ©McGraw-Hill Education.  Primary Activity: Inbound Logistics Inbound logistics are primarily associated with receiving, storing & distributing inputs to the product. Material handling Warehousing Inventory control Vehicle scheduling Returns to suppliers Factors to consider include: Location of distribution facilities Warehouse layout ©McGraw-Hill Education.  Primary Activity: Operations Operations include all activities associated with transforming inputs into the final product form. Machining Packaging & Assembly Testing or quality control Printing Facility operations Factors to consider include: Efficient plant operations & layout Incorporation of appropriate process technology ©McGraw-Hill Education.  Primary Activity: Outbound Logistics Outbound logistics includes collecting, storing, & distributing the product or service to buyers. Finished goods & warehousing Material handling Delivery vehicle operation Order processing, scheduling & distribution Factors to consider include: Effective shipping processes Minimizing shipping costs by grouping goods into large lot sizes ©McGraw-Hill Education.  Primary Activity: Marketing & Sales Marketing & sales activities involve purchases of products & services by end users and includes how to induce buyers to make those purchases. Advertising & promotion Sales force management Pricing & price quoting Channel selection & channel relations Factors to consider include: Innovative approaches to promotion & advertising Proper identification of customer segments & needs ©McGraw-Hill Education.  Primary Activity: Service Service includes all actions associated with providing service to enhance or maintain the value of the product. Installation & repair Training Parts supply Product adjustment Factors to consider include: Quick response to customer needs Quality of service personnel, ongoing training ©McGraw-Hill Education.  Support Activity: Procurement Procurement involves the process of purchasing inputs used in its value chain. Procurement of raw material inputs Optimizing quality & speed Minimizing associated costs Development of collaborative win-win relationships with suppliers Analysis & selection of alternative sources of inputs to minimize dependence on one supplier ©McGraw-Hill Education.  Support Activity: Technology Development Technology development is related to a wide range of activities. Effective R&D activities for process & product initiatives Collaborative relationships between R&D and other departments State-of-the-art facilities & equipment Excellent professional qualifications of personnel Use of data analytics ©McGraw-Hill Education.  Support Activity: Human Resource Management Human resource management consists of activities involved in recruitment, hiring, training & development, & compensation of all types of personnel. Effective employee recruiting, development, & retention mechanisms Quality relations with trade unions Reward & incentive programs to motivate all employees ©McGraw-Hill Education.  Support Activity: General Administration General administration involves: Effective planning systems to attain overall goals & objectives Excellent relations with diverse stakeholder groups Effective information technology (IT) to coordinate & integrate value-creating activities across the value chain Ability of top management to anticipate & act on key environmental trends & events, create strong values, culture & reputation ©McGraw-Hill Education.  Interrelationships Among Value-Chain Activities Managers must not ignore the importance of relationships among value-chain activities. What are the interrelationships among activities within the firm? What are the relationships among activities within the firm and with other stakeholders such as customers & suppliers? Consider integrating customers into the value chain. Creating individualized products Soliciting ideas for products & services ©McGraw-Hill Education.  Example: The Value Chain in Service Organizations Exhibit 3.4 Some Examples of Value Chains in Service Industries ©McGraw-Hill Education.