Strategic Management Chapter 3 PDF

CHAPTER 3 Assessing the Internal Environment of the Firm Copyright Anatoli Styf/Shutterstock  Learning Objectives Studying this chapter should provide you with the strategic management knowledge needed to: 1. Explain why firms need to study and...

CHAPTER 3 Assessing the Internal Environment of the Firm Copyright Anatoli Styf/Shutterstock  Learning Objectives Studying this chapter should provide you with the strategic management knowledge needed to: 1. Explain why firms need to study and understand their internal organization. 2. Define value and discuss its importance. 3. Describe the differences between tangible and intangible resources. 4. Define capabilities and discuss their development. 5. Explain how firms analyze their value chain for the purpose of determining where they are able to create value when using their resources, capabilities, and core competencies. 6. Define outsourcing and discuss reasons for its use.  Introduction Think about that: - Do these companies enjoy the same success in the marketplace? - Do you think that the external environment factors are the main reasons for the difference in success among these companies? -If not, how would you explain the difference in success among these companies? Samsung Lenovo HTC Mobile Phone Industry Apple Nokia Thinking point: - How can a company be different from Huawei its competitors?  Resource-Based View (RBV) Managers need to understand how their organizations are different from their rivals in ways that may be the basis of achieving competitive advantage and superior performance. These concepts underlie what has become known as the Resource-Based View (RBV) of competitive advantage. Resource-based View (RBV): - RBV is a management approach used to assess a company’s assets which based on the idea that the effective and efficient use of a company’s assets enable it to build competitive advantages and superior performance. - RBV argues that competitive advantages and superior performance of an organization are more explained by the distinctiveness of organizational resources and capabilities. - RBV is a school of strategy that believes competitive advantage is based on strategic resources/capabilities, those resources/capabilities that are unique to a particular firm.  Analyzing the Internal Organization Internal Analysis is a powerful tool for evaluating a company’s assets and determining whether the assets can provide a sustainable competitive advantage over market rivals. Concepts related to the internal Strategic Tools for the internal analysis Analysis Resources VRIO Framework Capabilities Value Chain Framework Core competencies  Resources resource something that they can utilize but a capability is something they develop Resources: - Resources describe what the firm has or owns as assets necessary for operating the business. Competitive Advantage - The firm’s assets that provide the firm the means to perform its activities and achieve its goals.  Categories of resources: Tangible and intangible Core Competencies  Tangible Resources:  Financial resources Capabilities  Cash flow, suppliers of funds,  Physical resources  Machines, buildings, raw materials, firm location, Resources  Technological resources Tangible  Superior production technology, patents, Intangible  Organizational resources  The firm’s structure, strategy process, coordinating system, communication and information systems, controlling system, etc.  Resoucres  Intangible Resources  Human resources Competitive Experienced and skilled workforce Advantage Managerial know-how and skills Talented employees in key areas  Reputational resources Core Brand, image, reputation, Competencies Perceptions of product quality, durability, and reliability Relationship with customers, employees, suppliers Capabilities  Company culture Innovation-oriented culture: Creativity, risk-taking, innovation, Resources Employee-oriented culture: involvement, development, Tangible engagement, empowerment, Intangible Customer-oriented culture: “Customer is king” Ethical culture: Trust, fairness, integrity, …..  Capabilities Capabilities:  Refer to the firm’s capacity to deploy its resources to achieve a desired purpose. “Resources are certainly important but how a firm employs and deploys Competitive its resources matters at least as much.” Advantage Example of capabilities: - Ability to innovate Core - Ability to produce complex products Competencies - Ability to get the right and on-time information - Ability to integrate advanced technology into products Capabilities - Ability to design quickly - Ability to deliver faster - Ability to make people share knowledge, work together, etc. Resources Tangible Intangible The terms “resources” and “capabilities” are used interchangeably and often in parallel.  Core competencies Core Competencies:  Resources and capabilities that serve as a source of a firm’s Competitive competitive advantages. Advantage  Resources and capabilities that are the most vital ones for a company’s success. Core Competencies Are the following resources/capabilities core competencies? - Innovation capability (ex.: Pick, Apple, ) Capabilities - Mass production (Economies of scale) (ex.: Ikea) - Famous leader (ex.: Virgin group) Resources - Advanced technology (ex.: IBM, Google, ) Tangible - Huge financial resources (ex.: Zain, ) Intangible - Strategic location (ex.: GUST, Starbucks, ) - ……etc.  VRIO Framework (By Jay B Barney) capability audit - another framework focusing on only the capabilities of the companies --> my gust capability capitalization  VRIO Analysis VRIO framework: It is a framework that aims to assess and determine whether a resource/capability is a source of competitive advantages. The VRIO Analysis can determine the company’s potential to gain competitive advantages. Figure - The VRIO framework Valuable Inimitable Does this How difficult is it to resource/capability add imitate this value? resource/capability? VRIO Analysis Organized Rare Is this How rare or limited is resource/capability this resource/capability? organized and supported by other resources? Video: VRIO Analysis have to take 1 resource/cpaability 1 by 1 cant apply framework to entire corporation https://www.youtube.com/watch?v=lEVrehWWV90 https://www.youtube.com/watch?v=V4mLR3FimKk  VRIO Analysis In-class activity: Assessment of the following assets using the above chart (CEO, key technology, innovation capability, location, internal process, organizational culture, customer service, etc.) of Kuwaiti companies. Value Chain Analysis (By Michael Porter)  Value Chain Value Chain: (Developed by Michael Porter) - A value chain is a set of activities that a firm carries out in order to create a product and get it delivered to final customers. Firm Infrastructure Support Activities provide the Human Resource Management assistance necessary for the Technological Development primary activities. Procurement Inbound Logistics Marketing and Sales Outbound Logistics Operations Service Inputs Outputs  Primary Activities  Inbound logistics: Activities such as materials handling, warehousing, inventory control, used to receive, store, and distribute inputs to a product.  Operations: Activities necessary to convert the inputs provided by inbound logistics into final product form (machining, packaging, assembly, testing, etc.)  Outbound logistics: Activities involved with collecting, storing, and physically distributing the final product to customers (finished goods warehousing, order processing, distribution, etc.)  Marketing and sales: Activities completed to provide means through which customers can purchase products and to induce them to do so. To effectively sell products, firms develop advertising campaigns, select appropriate distribution channels, etc.  Service: Activities designed to enhance or maintain a product’s value (installation, repair, training, adjustment, etc.)  Support Activities  Firm infrastructure: Activities that support the work of the entire value chain such as planning, finance, accounting, quality control, information management and organizational structure.  Technological development: Activities completed to improve a firm’s product and the processes used to manufacture it such as Research and Development, product design, etc.  Human resource management: Activities involved with recruiting, managing, training, developing, and rewarding people within the organization.  Procurement: Activities completed to purchase the inputs needed to produce a firm’s products such as raw materials, machines, buildings, etc.  Value Chain Analysis Value Chain Analysis: - Value Chain Analysis consists of analyzing a firm’s internal activities. It aims to assess whether and how each of the value chain’s primary and support activities adds value to the final product, which results in creating value for customers. Value creation: - We create value whenever we deliver a product or service that provides utility to others, and in turn generates additional economic return for our organization. Link: Measuring value creation Video: Value Chain Analysis https://www.truworthsinternational.com/annualreport2019 https://www.youtube.com/watch?v=A2GAgAzC-9k /pages/sustainable-value/measuring-value-creation.html  Outsourcing Outsourcing is a practice used by different companies by getting some of their activities done by others companies rather than completing them internally.  By outsourcing some of its activities, a firm can concentrate on key activities necessary for value creation.  The frequently Outsourced Business Activities: Customer Support, Accounting, R&D, Data Entry, Computer Programming, Web Design, and Advertising, etc. 1) Lack of necessary capabilities to perform The activity that activity well does not create much value 2) Performing that activity internally is costly Outsourcing the 3) That activity is not important part of the activity value chain 4) A choice to grow bigger and faster Offshoring: Refers to getting some activities of a company done in a different country. Reasons: Cheaper labor, access to customers, low tax rates, etc. SWOT Analysis Video: Starbucks SWOT Analysis https://www.youtube.com/watch?v=mR9eICQJLXA END CHAPTER 3