INTERNAL ANALYSIS.pptx

CHAPTER 4...

CHAPTER 4 Internal Analysis: Resources, Capabilities, and Core Competencies ©ISerg/iStock/Getty Images RF ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  The AFI Strategy Framework Exhibit 1.3 Jump to Appendix 1 long image description ©McGraw-Hill Education.  Learning Objectives (1 of 2) LO 4-1 Differentiate among a firm’s core competencies, resources, capabilities, and activities. LO 4-2 Compare and contrast tangible and intangible resources. LO 4-3 Evaluate the two critical assumptions behind the resource-based view. LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources. LO 4-5 Evaluate different conditions that allow a firm to sustain a competitive advantage. ©McGraw-Hill Education.  Learning Objectives (2 of 2) LO 4-6 Outline how dynamic capabilities can enable a firm to sustain a competitive advantage. LO 4-7 Apply a value chain analysis to understand which of the firm’s activities in the process of transforming inputs into outputs generate differentiation and which drive costs. LO 4-8 Identify competitive advantage as residing in a network of distinct activities. LO 4-9 Conduct a SWOT analysis to generate insights from external and internal analysis and derive strategic implications. ©McGraw-Hill Education.  What Are Core Competencies? Unique strengths Embedded deep within a firm Allows differentiation of products and services from rivals Results in: Creating higher value for the customer or Offering products and services at lower cost ©McGraw-Hill Education.  Examples of Core Competencies IKEA Designing modern functional home furnishings at low cost Beats Electronics Marketing: perception of coolness Facebook IT capabilities to provide reliable social network services globally on a large scale. Netflix Creating proprietary algorithms-based on ©McGraw-Hill Education. individual customer preferences.  Links to Competitive Advantage and Superior Firm Performance Exhibit 4.3 Jump to Appendix 2 long image description ©McGraw-Hill Education.  Resources, Capabilities and Activities Help deliver core competencies Resources: Any assets that a firm can draw on Capabilities: Organizational and managerial skills Activities: Distinct and fine-grained business processes ©McGraw-Hill Education.  The Resource Based View Resources are key to superior firm performance Aids in identifying core competencies Resources fall into two categories: Tangible Resources that have physical attributes Visible Intangible Resources that do not have physical attributes ©McGraw-Hill Education.  Tangible and Intangible Resources ©McGraw-Hill Education. Jump to Appendix 3 long image description Exhibit  Two Critical Assumptions of the RBV Resource Heterogeneity A firm is a unique bundle of resources and capabilities These bundles differ across firms Resource Immobility Resources don’t move easily from firm to firm Resources are difficult to replicate Resources can last for a long time ©McGraw-Hill Education.  The VRIO Framework Tool for evaluating firm resource endowments To be the basis of a competitive advantage, resources must be: Valuable, Rare, Costly to Imitate, and the firm must be Organized to capture the value of the resource ©McGraw-Hill Education.  The VRIO Decision Tree ©McGraw-Hill Education. Jump to Appendix 4 long image description Exhibit 4.5  A Resource Is… Valuable if: Helps exploit an opportunity or offset a threat Rare if: Only one or a few firms possess it Costly to Imitate if: Competitors can’t develop the resource for a reasonable price The firm is organized to capture value through: Effective organizational structure and coordinating systems ©McGraw-Hill Education.  Isolating Mechanisms Barriers to imitation Prevents rivals from competing away firm advantage Better expectations of future resource value Path dependence Causal ambiguity Social complexity Intellectual property (IP) protection ©McGraw-Hill Education.  Core Rigidity A former core competency Turned into a liability Result of an environment change No longer fits in the external environment Turns a resource from an asset to a liability ©McGraw-Hill Education.  Dynamic Capabilities A firm’s ability to: Adapt resources over time Create, deploy, modify, reconfigure, upgrade, leverage In consideration of the external environment The goal: Develop resources, capabilities, and competencies Create a strategic fit with the firm’s environment ©McGraw-Hill Education.  The Dynamic Capabilities Perspective A model that emphasizes a firm’s ability to: Modify and leverage its resource base Gain and sustain competitive advantage in a constantly changing environment Dynamic markets are due to: Technological change Deregulation Globalization Demographic shifts ©McGraw-Hill Education.  Resource Stocks and Flows Resource stocks The firm’s current level of intangible resources New product development Engineering expertise Innovation capability Reputation for quality Resource flows The firm’s level of investments to maintain or build a resource ©McGraw-Hill Education.  The Bathtub Metaphor Exhibit 4.6 SOURCE: Figure based on metaphor used in I. Dierickx and K. Cool (1989), “Asset stock accumulation and sustainability of competitive advantage,” Management Science 35: 1504–1513. Jump to Appendix 5 long image description ©McGraw-Hill Education.  The Value Chain Internal activities a firm engages in when transforming inputs into outputs Through primary and support activities Each activity adds incremental value Raw materials  components  products Each activity adds incremental costs ©McGraw-Hill Education.  A Generic Value Chain ©McGraw-Hill Education. Jump to Appendix 6 long image description Exhibit 4.7  Primary Activities Firm activities that add value directly Transform inputs into outputs as the firm moves a product or service horizontally along the internal value chain. Supply chain management Operations Distribution Marketing and sales After-sales service ©McGraw-Hill Education.  Support Activities Firm activities that add value indirectly Necessary to sustain primary activities Research and development (R&D) Information systems Human resources Accounting and finance Firm infrastructure Processes, policies, and procedures ©McGraw-Hill Education.  Strategic Activity Systems A network of interconnected activities Socially complex and causally ambiguous Enhance likelihood of sustained competitive advantage Characteristics: Elements can be easily observed How activities are managed is not easily observed Difficult to imitate ©McGraw-Hill Education. Strategic Activity Systems Must Evolve External environment changes Competitors develop their activity systems How activity systems are updated: Add new activities Remove activities that are no longer relevant Upgrade activities that have become stale ©McGraw-Hill Education.  The Vanguard Group’s Activity System - 1997 Exhibit 4.8 Source: Adapted from N. Siggelkow (2002), “Evolution toward fit,” Administrative Science Quarterly 47: 146. Jump to Appendix 7 long image description ©McGraw-Hill Education.  The Vanguard Group’s Activity System - 2017 Exhibit 4.9 Source: Adapted from N. Siggelkow (2002), “Evolution toward fit,” Administrative Science Quarterly 47: 146. Jump to Appendix 8 long image description ©McGraw-Hill Education.