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Admission in India 2015
By:admission.edhole.com
Assessing the Internal
Environment of the Firm
Chapter Three
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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Learning ObjectivesAfter reading this chapter, you should have a good
understanding of:LO3.1 The benefits and limitations of SWOT analysis in
conducting an internal analysis of the firm.LO3.2 The primary and support activities of a firm’s value
chain.LO3.3 How value-chain analysis can help managers create
value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.
LO3.4 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities.
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Learning Objectives (cont.)LO 3.5 The four criteria that a firm’s resources must
possess to maintain a sustainable advantage and how value created can be appropriated by employees.
LO 3.6 The usefulness of financial ratio analysis, its inherent limitations, and how to make meaningful comparisons of performance across firms.
LO 3.7 The value of the “balanced scorecard” in recognizing how the interests of a variety of stakeholders can be interrelated.
LO 3.8 How firms are using Internet technologies to add value and achieve unique advantages. (Appendix)
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The Limitations of SWOT Analysis
Strengths may not lead to an advantageSWOT’s focus on the external environment is
too narrowSWOT gives a one-shot view of a moving
targetSWOT overemphasizes a single dimension of
strategy
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Value-Chain Analysis
Value-chain analysis a strategic analysis of an organization that
uses value creating activities.
Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue
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Value-Chain Analysis
Primary activities contribute to the physical creation of the
product or service, its sale and transfer to the buyer, and its service after the sale.
inbound logistics, operations, outbound logistics, marketing and sales, and service
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QUESTION
In assessing its primary activities, an airline would examine: A. Employee training programsB. Baggage handlingC. Criteria for lease versus purchase decisionsD. The effectiveness of its lobbying activities
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Value-Chain Analysis
Support activities activities of the value chain that either add
value by themselves or add value through important relationships with both primary activities and other support activities
procurement, technology development, human resource management, and general administration.
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The Value Chain
3-10Exhibit 3.1admission.edhole.com
Primary Activity: Inbound Logistics
Associated with receiving, storing and distributing inputs to the product Location of distribution facilities Warehouse layout
and designs
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Primary Activity: Operations
Associated with transforming inputs into the final product form Efficient plant operations Incorporation of appropriate process
technology Efficient plant layout and workflow design
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Primary Activity: Outbound Logistics
Associated with collecting, storing, and distributing the product or service to buyers Effective shipping processes to provide quick
delivery and minimize damages Shipping of goods in large lot sizes to
minimize transportation costs.
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Primary Activity: Marketing and Sales
Associated with purchases of products and services by end users and the inducements used to get them to make purchases Innovative approaches to promotion and
advertising Proper identification of customer segments
and needs
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Primary Activity: Service
Associated with providing service to enhance or maintain the value of the product Quick response to customer needs and
emergencies Quality of service
personnel and ongoing training
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Support Activity: Procurement
Function of purchasing inputs used in the firm’s value chain Procurement of raw material inputs Development of collaborative “win-win”
relationships with suppliers Analysis and selection of alternate sources
of inputs to minimize dependence on one supplier
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Support Activity: Human Resource Management
Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel Effective recruiting, development, and
retention mechanisms for employees Quality relations with trade unions Reward and incentive programs to motivate
all employees
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Support Activity: Technology Development
Related to a wide range of activities and those embodied in processes and equipment and the product itself Effective R&D activities for process and
product initiatives Positive collaborative relationships between
R&D and other departments Excellent professional qualifications of
personnel
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Support Activity: General Administration
Typically supports the entire value chain and not individual activities Effective planning systems Excellent relationships with diverse
stakeholder groups Effective information technology to integrate
value-creating activities
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Interrelationships among Value-Chain Activities within and across Organizations
Interrelationships among activities within the firm
Relationships among activities within the firm and with other organization (e.g., customers and suppliers)
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Two levels
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Value Chains in Service Industries
3-21Exhibit 3.4admission.edhole.com
Resource-Based View of the Firm
Resource-based view of the firm perspective that firms’ competitive
advantages are due to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute.
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Resource-Based View of the Firm
Two perspectives The internal analysis of phenomena within a
company An external analysis of the industry and its
competitive environment
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Types of Resources
Tangible resources organizational assets that are relatively easy
to identify, including physical assets, financial resources, organizational resources, and technological resources.
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Types of Resources
Intangible resources organizational assets that are difficult to identify and
account for and are typically embedded in unique routines and practices, including human resources, innovation resources, and reputation resources.
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Types of Resources
Organizational capabilities The competencies
and skills that a firm employs to transform inputs into outputs.
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QUESTION
Gillette combines several technologies to attain unparalleled success in the wet shaving industry. This is an example of their A. Tangible resourcesB. Intangible resourcesC. Organizational capabilitiesD. Strong primary activities
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Firm Resources and Sustainable Competitive Advantages
First, the resource must be valuable in the sense that it exploits opportunities and/or neutralizes threats in the firm’s environment.
Second, it must be rare among the firm’s current and potential competitors.
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Firm Resources and Sustainable Competitive Advantages
Third, the resource must be difficult for competitors to imitate.
Fourth, the resource must have no strategically equivalent substitutes.
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Sources of Inimitability
Physical uniqueness
Path dependencyCausal ambiguitySocial complexity
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The Generation and Distribution of a Firm’s Profits
Employee bargaining powerEmployee replacement costEmployee exit costsManager bargaining power
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Four factors help explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits that they generate
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Evaluating Firm Performance
Financial ratio analysis Balance sheet Income statement Historical
comparison Comparison with
industry norms Comparison with
key competitors
Stakeholder perspective Employees Customers Owners
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Financial Ratio Analysis
Five types of financial ratios Short-term solvency or liquidity Long-term solvency measures Asset management (or turnover) Profitability Market value
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Financial Ratio Analysis
Historical comparisonsComparison with industry normsComparison with key competitors
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Five Types of Financial Ratios
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The Balance Scorecard
Provides a meaningful integration of many issues that come into evaluating a firm’s performance
Four key perspectives How do customers see us? What must we excel at? Can we continue to improve and create
value? How do we look to shareholders?
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Customer Perspective
TimeQualityPerformance and serviceCost
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Internal Business Perspective
ProcessesDecisionsActionsCoordinationResources and
capabilities
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Innovation and Learning Perspective
Introduction of new products and servicesGreater value for customersIncreased operating efficiencies
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Financial Perspective
ProfitabilityGrowthShareholder valueIncreased market shareReduced operating expensesHigher asset turnover
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Potential Limitations of the Balanced Scorecard
Lack of a clear strategyLimited or ineffective executive sponsorshipToo much emphasis on financial measures
rather than non-financial measuresPoor data on actual performanceInappropriate links to scorecard measures to
compensationInconsistent or inappropriate terminology
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