Slide 1Why Internal Analysis?Slide 3Resources and CapabilitiesResources & CapabilitiesEvaluation of ResourcesCore CompetenciesSustainable Competitive AdvantageFactors that Limit ImitationSustainable Competitive Advantage?Another Tool to ConsiderRelative costs and pricesValue Creation per UnitComparing Toyota and General MotorsPorter’s Value ChainPorter’s Value Chain (cont.)Porter’s Value Chain (cont)The Basic Value ChainSlide 19Slide 20Low cost - Primary Activity examples….Slide 22Slide 23Differentiation - Primary Activity examples…...Slide 25OutsourcingThe Internal OrganizationResources, Capabilities, Core Competencies, and Competitive AdvantagesPages 68 - 94Why Internal Analysis?Early strategy theory rooted in industry structural analysis - external focusThis approach has lost its appeal because:internationalization & deregulation has all but removed safe havenstechnology and changes in demand have blurred industry lines3Resource Based View Model of Competitive Advantage and Strategic Competitiveness4Resources and CapabilitiesTangible Financial, Organizational, Physical, and TechnologicalAssets that can be seen, touched and quantifiedExamples include equipment, facilities, distribution centers, formal reporting structuresIntangibleHuman, Innovation and Reputational ResourcesAssets rooted deeply in the firm’s history, accumulated over timeUsually can’t be seen or touched Examples include knowledge, trust, organizational routines, capabilities, innovation, brand name, reputationResources & CapabilitiesResources are what you have; Capabilities are what you can doEvaluation of ResourcesStrength or Weaknessrelative to competitorsbasic business requirementskey vulnerabilitiesCore Competenciescentral to the firm’s competitiveness rewarded in market placecombination of skills & knowledge, not products or functionsflexible, long term platformsembedded in the organization’s systemsdistinctive competencies are those the firm performs better than rivalsAll core competencies have the potential to become core rigiditiesSustainable Competitive AdvantageMust be valuable, rare, costly to inimitable, and non-substitutableSustainability is a function ofDurability - how long will it last?Technology? Reputation? Fixed Assets?Imitability - how quickly can it be copied?Transparent - Transferable - Replicable -Factors that Limit ImitationPhysical Uniqueness Path Dependency Causal Ambiguity Social Complexity Absorptive CapacitySustainable Competitive Advantage?Competitive consequences includeDisadvantage, parity, temporary advantage and sustainable advantagePerformance implications include returnsAbove, below or averageAnother Tool to ConsiderPorter’s Value ChainRelative costs and prices Where do cost/price differences come from?raw materials and componentsdifferences in technology, plant, equipmentefficiencies, learning, experience, wages, productivitymarketing, sales, promotion, warehousing, distribution, administration costsdistributioninflation, exchange and tax ratesValue Creation per UnitComparing Toyota and General MotorsPorter’s Value ChainViews the organization as a series (chain) of activities, which may or may not create valuePorter’s Value Chain (cont.)Primary ActivitiesInbound logistics – Supply Chain ManagementOperationsOutbound logistics - DistributionMarketing and salesCustomer serviceContribute to the physical creation of the product/service, its sale and transfer to the buyer, and its service after the salePorter’s Value Chain (cont)Support ActivitiesCompany infrastructure – General AdminHuman resource managementR&D, Technology and Systems DevelopmentProcurement18The Basic Value ChainA low cost strategy…..Company InfrastructureHRMProcurementInboundLogisticsOperationsOutboundLogisticsMarketing& SalesServiceMarginMargin…tries to pull the arrow back…..R&D, Technology & Systems DevelopmentFewer layers of managementPolicies to reduce turnoverWalMart’s inventory systemMonitor supplier performanceInboundLogisticsOperationsOutboundLogisticsMarketing& SalesServiceMarginMarginLow Cost - Support Activity examples…...Low cost - Primary Activity examples….Inbound - ToyotaOperations - SubwayOutbound - Campbell Soup’ Continuous ReplenishmentMarketing/Sales - WalMartCustomer Service - Federal ExpressA differentiation strategy…..Company InfrastructureHRMProcurementInboundLogisticsOperationsOutboundLogisticsMarketing& SalesServiceMarginMargin….tries to pull the arrow forward...R&D, Technology & Systems DevelopmentCommitment to qualityCompensation rewarding innovationAmazon recommendationsPurchasing high-quality componentsInboundLogisticsOperationsOutboundLogisticsMarketing& SalesServiceMarginMarginDifferentiation - Support Activity examples…...Inbound - DellOperations - MarriottOutbound - WebVanMarket/Sales - Nordstrom’sCustomer Service - PirtekDifferentiation - Primary Activity examples…...SuppliersBuyersYour FirmYour Rivals26OutsourcingDefinition: Purchase of a value-creating activity from an external supplierEffective execution includes an increase in flexibility, risk mitigation and capital investment reductionTrend continues at a rapid paceFirms must outsource activities where they cannot create value or are at a substantial disadvantage compared to competitorsCan cause concernsUsually revolves around innovative ability and loss of