The Internal Organization Resources Capabilities Core Competencies and Competitive Advantages Pages 68 94 Profitability in the U S Retailing Industry 1996 2001 Why 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 lines Innovation 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 4 Innovation vs Efficiency 3M Cont d Leadership CEO McNerney formerly of GE implemented SixSigma 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 D 5 Analyzing the Internal Organization Context of Internal Analysis Global mind set Ability to study an internal environment in ways that do not depend on the assumptions of a single country culture or context Analyze firm s portfolio of resources and bundle heterogeneous resources and capabilities Understand how to leverage these bundles An organization s core competencies creates and sustains its competitive advantage Creating Value 6 Resource Based View Model of Competitive Advantage and Strategic Competitiveness 7 Resources 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 trusts organizational routines capabilities innovation brand name reputation 8 Resources Capabilities Resources are what you have Capabilities are what you can do Evaluation of Resources Strength or Weakness relative to competitors basic business requirements key vulnerabilities Core 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 rigidities Sony Sustainable Competitive Advantage Must be valuable rare inimitable and nonsubstitutable Sustainability 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 Capacity Sustainable Competitive Advantage Competitive consequences include Disadvantage parity temporary advantage and sustainable advantage Performance implications include returns Above below or average Another Tool to Consider Porter s Value Chain Relative 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 rates Value Creation per Unit Comparing Toyota and General Motors Porter s Value Chain Views the organization as a series chain of activities which may or may not create value Porter 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 sale Porter s Value Chain cont Support Activities Company infrastructure General Admin Human resource management R D Technology and Systems Development Procurement The Basic Value Chain 26 A low cost strategy Company Infrastructure HRM M ar R D Technology Systems Developmentg i n Service Marketing Sales Outbound Logistics Operations Inbound Logistics Procurement a M in rg tries to pull the arrow back Think back to the Southwest example Single aircraft Short hauls No meals transfers seat assignments Secondary airports No use to travel agents Low Cost Support Activity examples Fewer layers of management Policies to reduce turnover M ar gi n WalMart s inventory system Service Marketing Sales Outbound Logistics Operations Inbound Logistics Monitor supplier performance in g ar M Low cost Primary Activity examples Inbound Toyota Operations Subway Outbound Campbell Soup Continuous Replenishment Marketing Sales WalMart Customer Service Federal Express A differentiation strategy Company Infrastructure HRM M ar R D Technology Systems Developmentg in Service Marketing Sales Outbound Logistics Operations Inbound Logistics Procurement a M in rg tries to pull the arrow forward Differentiation Support Activity examples Commitment to quality Compensation rewarding innovation Amazon recommendations M ar gi n Service Marketing Sales Outbound Logistics Operations Inbound Logistics Purchasing high quality components in g ar M Differentiation Primary Activity examples Inbound Dell Operations Marriott Outbound WebVan Market Sales Nordstrom s Customer Service Pirtek Your Firm Buyers Suppliers Your Rivals Suppliers Your Firm Opportunities for Advantage Your Rivals Buyers Your Firm Opportunities for Adding Value Opportunities for Adding Value Buyers Suppliers Your Rivals Outsourcing 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