Chapter 3 Internal Analysis Presentation PDF

Chapter 3: Internal Analysis and Competitive Advantage Agenda ► SWOT: Internal Analysis ► Distinctive Competencies ► Resources and Capabilities ▪ The VRIO Framework ► Value Creation and Profitability ► The Value Chain ► The Building Blocks of Competitive Advantage S...

Chapter 3: Internal Analysis and Competitive Advantage Agenda ► SWOT: Internal Analysis ► Distinctive Competencies ► Resources and Capabilities ▪ The VRIO Framework ► Value Creation and Profitability ► The Value Chain ► The Building Blocks of Competitive Advantage SWOT: Internal Analysis Internal Analysis External Analysis Strengths What do you do best? Strengths Opportunities What competitive advantages do you have? What resources do you have? What is our reputation in the industry? How much experience does your team have? How well do we know our customers? How well funded are we? Do we have exclusive access to any Weaknesses Threats resources? Do we have proprietary technology, intellectual property, or other valuable assets? Which parts of our business run efficiently? SWOT: Internal Analysis Internal Analysis External Analysis Weaknesses Does our team lack any skills or expertise Strengths Opportunities to compete? Why are our employees quitting? Are we adequately staffed? Is our supply chain limited? What are our most common customer complaints? Where are we overspending? Are we taking on too much debt? Weaknesses Threats Do we have an updated disaster plan? Which parts of our business run inefficiently? Distinctive Competencies ► Firm-specific strengths that allow a company to differentiate its products and/or achieve substantially lower costs to achieve a competitive advantage. ► Competency = Skill + Proficiency Level ► Examples: Brand Distinctive Competencies Apple Product Design Toyota Manufacturing Techniques Google Consistent High Quality SAP Adaptability McDonald’s Formidable Size and Buying Power Resources and Capabilities ► Resources ▪ factors of production that a company uses to transform inputs into outputs that it can sell in the marketplace. ▪ Resources include basic factors of production such as labor, land, management, physical plant, and equipment. ▪ Could be tangible or intangible Resources and Capabilities ► Capabilities ▪ a company’s skills at coordinating its resources and putting them to productive use ▪ Examples: ❑ Process Knowledge ❑ Organizational Architecture ❑ Intellectual Property Resources and Capabilities Resources and Capabilities: The VRIO Framework Value Rarity Inimitability Organization Resources and Capabilities: The VRIO Framework Value ► Are the company’s resources valuable because they enable the Value Rarity enterprise to exploit opportunities and counter threats in the external environment? ► enable a company to create strong demand for its products Inimitability Organization ► lower the costs of producing those products. Resources and Capabilities: The VRIO Framework Rarity ► Are those resources rare? If they are not rare and rivals also have access to them, by definition they cannot be a Value Rarity source of competitive advantage ► Superior resources: It cannot be a commodity; it must be uncommon ► A company’s rare and valuable process knowledge can be very hard for rivals to copy; the barriers to Inimitability Organization imitation are high: o partly tacit, o hidden from view within the firm, and o socially complex. Resources and Capabilities: The VRIO Framework Inimitability ► Are they easy or hard to copy? ► If they are easy to copy, rivals will Value Rarity quickly do so, and the company’s competitive advantage will erode. Inimitability Organization Resources and Capabilities: The VRIO Framework Organization ► Is the company organized and managed in a way that enables it to Value Rarity exploit its rare, valuable, and inimitable resources and capture the value it produces? ► Does the firm have the broader organizational architecture required to make the most out of its unique Inimitability Organization strengths? Value Creation and Profitability A company’s profitability depends on three factors: ► Value or utility customers place on the company’s products ► Price that a company charges for its products ► Costs of creating those products Value Creation and Profitability ► V - P is a measure of the value the consumer captures ► P - C is a measure of the value the company captures Value Creation and Profitability ► Option 1 is to raise prices to reflect the higher value: the company raises prices more than its costs increase, and profit per unit (P - C ) increases. ► Option 2 involves a very different set of choices: The company lowers prices in order to expand unit volume. Value Chain ► Refers to the idea that a company is a chain of functional activities that transforms inputs into outputs. ► Value is added to the product at each stage in the chain Primary Activities Support Activities R & D = design and production Materials Mgmt. = transmission of Production = creation of materials good/service HR = ensures right mix of skilled Marketing = brand positioning & people advertising I. S. = managing, tracking Customer Service = after-sales Infrastructure = context in which service & support all other activities take place Value Chain Building Blocks of Competitive Advantage Building Blocks of Competitive Advantage Why Companies Fail? INERTIA PRIOR STRATEGIC ICARUS PARADOX difficult to adapt strategies & COMMITMENTS so specialized/inner-directed by structures to changing limit ability to imitate & cause past success lose sight of conditions competitive disadvantage market realities