Slide 1Profitability in the U.S. Retailing IndustryWhy Internal Analysis?Innovation vs. Efficiency: 3MInnovation vs. Efficiency: 3M (Cont’d)Slide 6Resources and CapabilitiesResources & CapabilitiesEvaluation of ResourcesCore CompetenciesSlide 11Slide 12SonySlide 14Sustainable 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 26Think back to the Southwest example…Slide 28Low cost - Primary Activity examples….Slide 30Slide 31Differentiation - Primary Activity examples…...Slide 33Slide 34Slide 35OutsourcingThe Internal OrganizationResources, Capabilities, Core Competencies, and Competitive AdvantagesPages 68 - 94Profitability in the U.S. Retailing IndustryWhy 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 lines4Innovation vs. Efficiency: 3MDiversified technology into 6 business segmentsHistorically: Commitment to innovationSlogan: The Spirit of Innovation. That’s 3M.Relied on skills of scientists and engineersHistorically 1/3 annual sales from products introduced into marketplace in most recent 5 yrs.30-plus core technologies basis for > 55,000 productsChanging times: by mid-2007 only 25% sales earned from products introduced over previous 5 yrs – why?5Innovation vs. Efficiency: 3M (Cont’d)…LeadershipCEO McNerney (formerly of GE) implemented Six-Sigma, a management technique to decrease product defects and increase efficiencySix Sigma doesn’t lend itself to creativity / innovation, something imperative in the R&D arenaSix SigmaFocuses on actions to define, measure, analyze, improve and control – efficiencyEfficiency vs. innovation – it’s one or the other!New CEO Buckley – reenergized R&D6Resource Based View Model of Competitive Advantage and Strategic Competitiveness7Resources 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 rigiditiesSonySustainable Competitive AdvantageMust be valuable, rare, costly to imitable, 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 - easy to see?Transferable - can it be done elsewhere?Replicable - can we do it here?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Procurement25The Basic Value ChainA low cost strategy…..Company InfrastructureHRMProcurementInboundLogisticsOperationsOutboundLogisticsMarketing& SalesServiceMarginMargin…tries to pull the arrow back…..R&D, Technology & Systems DevelopmentThink back to the Southwest example…Single aircraftShort haulsNo meals, transfers, seat assignmentsSecondary airportsNo use to travel agents…..Fewer 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 -