Slide 1Profitability in the U.S. Retailing Industry, 1996-2001Why Internal Analysis?Outcomes from Organizational AnalysesSlide 5Tangible ResourcesIntangible ResourcesIncreasing Value of Intangible ResourcesEvaluation of ResourcesSlide 10Slide 11Slide 12Examples of Firm’s CapabilitiesCore CompetenciesSlide 15Slide 16SonySlide 18Slide 19Tools for Building Core CompetenciesSustainable Competitive AdvantageFour Criteria for Determining Core CompetenciesFactors that Limit ImitationCore Competencies as a Strategic CapabilitySlide 25Creating ValueValue Creation per UnitComparing Toyota and General MotorsWhat are some of Detroit’s Problem?Passengers per EmployeeRelative costs and pricesPorter’s Value ChainPorter’s Value Chain (cont.)Slide 34Porter’s Value Chain (cont)The Value-Creating Potential of Support ActivitiesSlide 37Slide 38Slide 39Low cost - Primary Activity examples….Slide 41Slide 42Differentiation - Primary Activity examples…...Slide 44Slide 45Slide 46Source of Competitive AdvantageOutsourcingOutsourcing ViabilityBenefits of OutsourcingEssential Skills for OutsourcingCompeting For AdvantageChapter 4 – The Internal Organization: Resources, Capabilities, and Core CompetenciesProfitability in the U.S. Retailing Industry, 1996-2001Why 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 linesOutcomes from Organizational AnalysesComponents of Internal Analysis Leading to Competitive Advantage and Value CreationTangible ResourcesIntangible ResourcesIncreasing Value of Intangible ResourcesLess visibility and less imitableMore sustainabilityMore leverage within network of usersEvaluation of ResourcesStrength or Weaknessrelative to competitorsbasic business requirementskey vulnerabilitiesTangible ResourcesIntangible ResourcesOrg.CapabilitiesExamples…..•Customer Service•Product Development•Employee ProductivityInputs into OutputsExamples of Firm’s CapabilitiesCore 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 rigiditiesSonySupporting and nurturing more than four core competencies may prevent a firm from developing the focus needed to fully exploit its competencies in the marketplaceTools for Building Core CompetenciesFour Criteria of Sustainable Competitive AdvantageValue Chain AnalysisSustainable 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?Four Criteria for Determining Core CompetenciesFactors that Limit ImitationPhysical Uniqueness – location, patentsPath Dependency – accumulation effectCausal Ambiguity – unable to disentangleSocial Complexity – social interactions are not readily understood nor duplicatedAbsorptive Capacity – ability to identify, value, assimilate and use knowledgeCore Competencies as a Strategic CapabilityOutcomes from Combinations of the Criteria for Sustainable Competitive AdvantageCreating ValueKey Terms Value – measured by a product's performance characteristics and by its attributes for which customers are willing to payValue Creation per UnitComparing Toyota and General MotorsWhat are some of Detroit’s Problem?America’s largest purchaser of Viagra – GMGM Pension PlansSalaried Pension Plan116,000 Salaried Retirees and Survivors receiving payments in the plan – $2.5B in 08 Hourly Pension Plan377,000 Retirees and Survivors receiving payments in the plan – $6.5B in 08Passengers per EmployeeUnited – 938Delta – 1,493Alaska Air – 1,518Southwest Air – 2,424Relative 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 ratesPorter’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ProcurementTechnological developmentHuman resource managementFirm infrastructureThe Value-Creating Potential of Support ActivitiesFirm InfrastructureHRMTechnological DevelopmentProcurementInboundLogisticsOperationsOutboundLogisticsMarketing& SalesServiceMarginMarginThe Value ChainSupportPrimaryA low cost strategy….. Firm InfrastructureHRMProcurementInboundLogisticsOperationsOutboundLogisticsMarketing& SalesServiceMarginMargin…tries to pull the arrow back…..Technological DevelopmentFewer layers of managementPolicies to reduce turnoverIBM Printer - 150 to 62 parts, 3.5 minutesMonitor 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…..Firm InfrastructureHRMProcurementInboundLogisticsOperationsOutboundLogisticsMarketing& SalesServiceMarginMargin….tries to pull the arrow forward...Technological DevelopmentCommitment to qualityCompensation rewarding innovationAmazon RecommendationsPurchasing high-quality componentsInboundLogisticsOperationsOutboundLogisticsMarketing& SalesServiceMarginMarginDifferentiation - Support Activity