Slide 1Profitability in the U.S. Retailing Industry, 1996-2001Why Internal Analysis?Innovation vs. Efficiency: 3MInnovation vs. Efficiency: 3M (Cont’d)Analyzing the Internal OrganizationSlide 7Resources and CapabilitiesResources & CapabilitiesEvaluation of ResourcesCore CompetenciesSlide 12Slide 13SonySlide 15Sustainable 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 27Think back to the Southwest example…Slide 29Low cost - Primary Activity examples….Slide 31Slide 32Differentiation - Primary Activity examples…...Slide 34Slide 35Slide 36OutsourcingThe Internal OrganizationResources, Capabilities, Core Competencies, and Competitive AdvantagesPages 68 - 94Profitability in the U.S. Retailing Industry, 1996-2001Why Internal Analysis?Early strategy theory rooted in industry structural analysis - external focusThis approach has lost its appeal because:internationalization & deregulation has all but removed safe havenstechnology and changes in demand have blurred industry lines4Innovation vs. Efficiency: 3MDiversified technology into 6 business segmentsHistorically: Commitment to innovationSlogan: The Spirit of Innovation. That’s 3M.Relied on skills of scientists and engineersHistorically 1/3 annual sales from products introduced into marketplace in most recent 5 yrs.30-plus core technologies basis for > 55,000 productsChanging times: by mid-2007 only 25% sales earned from products introduced over previous 5 yrs – why?5Innovation vs. Efficiency: 3M (Cont’d)…LeadershipCEO McNerney (formerly of GE) implemented Six-Sigma, a management technique to decrease product defects and increase efficiencySix Sigma doesn’t lend itself to creativity / innovation, something imperative in the R&D arenaSix SigmaFocuses on actions to define, measure, analyze, improve and control – efficiencyEfficiency vs. innovation – it’s one or the other!New CEO Buckley – reenergized R&D6Analyzing the Internal OrganizationContext 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 capabilitiesUnderstand how to leverage these bundlesAn organization's core competencies creates and sustains its competitive advantageCreating Value7Resource Based View Model of Competitive Advantage and Strategic Competitiveness8Resources and CapabilitiesTangible Financial, Organizational, Physical, and TechnologicalAssets that can be seen, touched and quantifiedExamples include equipment, facilities, distribution centers, formal reporting structuresIntangibleHuman, Innovation and Reputational ResourcesAssets rooted deeply in the firm’s history, accumulated over timeUsually can’t be seen or touched Examples include knowledge, trusts, organizational routines, capabilities, innovation, brand name, reputationResources & CapabilitiesResources are what you have; Capabilities are what you can doEvaluation of ResourcesStrength or Weaknessrelative to competitorsbasic business requirementskey vulnerabilitiesCore Competenciescentral to the firm’s competitiveness rewarded in market placecombination of skills & knowledge, not products or functionsflexible, long term platformsembedded in the organization’s systemsdistinctive competencies are those the firm performs better than rivalsAll core competencies have the potential to become core rigiditiesSonySustainable Competitive AdvantageMust be valuable, rare, inimitable, and non-substitutableSustainability is a function ofDurability - 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 ImitationPhysical Uniqueness Path Dependency Causal Ambiguity Social Complexity Absorptive CapacitySustainable Competitive Advantage?Competitive consequences includeDisadvantage, parity, temporary advantage and sustainable advantagePerformance implications include returnsAbove, below or averageAnother Tool to ConsiderPorter’s Value ChainRelative costs and prices Where do cost/price differences come from?raw materials and componentsdifferences in technology, plant, equipmentefficiencies, learning, experience, wages, productivitymarketing, sales, promotion, warehousing, distribution, administration costsdistributioninflation, 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 ActivitiesInbound logistics – Supply Chain ManagementOperationsOutbound logistics - DistributionMarketing and salesCustomer serviceContribute 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 ActivitiesCompany infrastructure – General AdminHuman resource managementR&D, Technology and Systems DevelopmentProcurement26The 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 aircraftShort haulsNo meals, transfers, seat assignmentsSecondary airportsNo 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 - ToyotaOperations - SubwayOutbound - Campbell Soup’ Continuous ReplenishmentMarketing/Sales - WalMartCustomer Service - Federal ExpressA differentiation strategy…..Company
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