Slide 1Profitability in the U.S. Retailing Industry, 1996-2001Why Internal Analysis?Slide 4Tangible ResourcesIntangible ResourcesEvaluation of ResourcesSlide 8Slide 9Slide 10Examples of Firm’s CapabilitiesCore CompetenciesSlide 13Slide 14SonySlide 16Slide 17Tools for Building Core CompetenciesSustainable Competitive AdvantageFactors that Limit ImitationSlide 21Creating ValueValue Creation per UnitComparing Toyota and General MotorsWhat are some of Detroit’s Problem?Relative costs and pricesPorter’s Value ChainPorter’s Value Chain (cont.)Slide 29Porter’s Value Chain (cont)The Value-Creating Potential of Support ActivitiesSlide 32Slide 33Slide 34Low cost - Primary Activity examples….Slide 36Slide 37Differentiation - Primary Activity examples…...Slide 39Slide 40Slide 41OutsourcingOutsourcing ViabilityBenefits of OutsourcingChapter 3Examining the Internal Environment: Resources, Capabilities and ActivitiesProfitability 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 linesComponents of Internal Analysis Leading to Competitive Advantage and Value CreationTangible ResourcesIntangible ResourcesEvaluation 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, inimitable, and non-substitutable, exploitableSustainability 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 – 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 knowledgeOutcomes 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 08Relative 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After-sales 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 examples…...Inbound - DellOperations - MarriottOutbound - WebVanMarket/Sales - Nordstrom’sCustomer Service - PirtekDifferentiation - Primary Activity examples…...SuppliersBuyersYour FirmYour RivalsSuppliersBuyersYour FirmYour RivalsOpportunities forAdvantageSuppliersBuyersYour FirmYour RivalsOpportunities forAdding ValueOpportunities forAdding ValueOutsourcingKey TermsOutsourcing – purchase of a value-creating activity from an external supplierOutsourcing ViabilityWhen a firm does not have the capabilities in the areas needed to succeedWhen a firm lacks a resource or possesses inadequate skills needed to implement a