© 2000 the mcgraw-hill companies, inc. irwin/mcgraw-hill 1 session 9 internal analysis
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© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
1
Session 9Session 9
Internal Analysis
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
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Session TopicsSession Topics
Resource-Based View of the Firm Three Basic Resources What Makes a Resource Valuable? Using the Resource-Based View in Internal Analysis
SWOT AnalysisThe Functional ApproachValue Chain Analysis Internal Analysis: Making Meaningful Comparisons
Comparison with Past Performance Stages of Industry Evolution Benchmarking Comparison with Success Factors in the Industry
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Be consistent with conditions in the
competitive environment
Be consistent with conditions in the
competitive environment
Place realistic requirements on
the firm’s resources
Place realistic requirements on
the firm’s resources
Be carefully implemented/executed
Be carefully implemented/executed
Strategy must . . .
Ingredients Critical to a Successful StrategyIngredients Critical to a Successful Strategy
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What is the Resource-Based View of the Firm?What is the Resource-Based View of the Firm?
Firms differ in fundamental ways
because each firm possesses a
unique “bundle” of resources -
tangible and intangible assets and
organizational capabilities to make
use of those assets.
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The RBV of The FirmThe RBV of The Firm
More internally orientedKey analytic tool is value chain analysisResources are not mobile/transferable across
company and industry boundariesFocuses on sharpening your skills at executing
value chain activities that create superior efficiency, innovation, quality, and/or company responsiveness.
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The Industrial/Organizational Economics The Industrial/Organizational Economics PerspectivePerspective
More externally orientedKey Analytic tool is Porter’s Five Forces ModelAssumes that resources are transferable/mobile
across across company boundariesMore of a free-agent mentalityChoose your industry wisely and then set about
to develop resource proficiency
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The Three Basic ResourcesThe Three Basic Resources
Tangible assets Easiest to identify and often found on a firm’s balance sheet Include physical and financial assets Examples: Production facilities, raw materials, financial
resources, real estate, computers Intangible assets
Cannot be seen or touched Often very critical in creating competitive advantage Examples: Brand names, company reputation, company
morale, patents and trademarks, accumulated experience Organizational capabilities
Involve skills - ability to combine assets, people, and processes - used to transform inputs into outputs
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Examples of Different ResourcesExamples of Different Resources
Tangible Assets
• Hampton Inn’s reservation system
• McDonald’s locations
• Georgia Pacific’s land holdings
• Virgin Airlines’ plane fleet
• Coca-Cola’s Coke formula
Intangible Assets
• Nike’s brand name
• Dell Computer’s reputation
• Wendy’s advertising with Dave Thomas
• Disney’s image
• IBM’s management team
• Southwest Airlines culture
Organizational Capabilities
• Dell Computer’s customer service
• Wal-Mart’s purchasing and inbound logistics
• Sony’s product-development processes
• Coke’s global distribution coordination
• 3M’s innovation process
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What Makes a Resource Valuable?What Makes a Resource Valuable?
1. Competitive superiority: Does the resource help fulfill a customer’s need better than those of firm’s competitors?
1. Competitive superiority: Does the resource help fulfill a customer’s need better than those of firm’s competitors?
2. Resource scarcity: Is the resource in short supply? 2. Resource scarcity: Is the resource in short supply?
3. Inimitability: Is the resource easily copied or acquired?3. Inimitability: Is the resource easily copied or acquired?
4. Appropriability: Who actually gets the profit created by a resource?
4. Appropriability: Who actually gets the profit created by a resource?
5. Durability: How rapidly will the resource depreciate? 5. Durability: How rapidly will the resource depreciate?
6. Substitutability: Are other alternatives available? 6. Substitutability: Are other alternatives available?
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Characteristics Making Resources Difficult to ImitateCharacteristics Making Resources Difficult to Imitate
Physically unique resources Resources virtually impossible to imitate
Examples: One-of-a-kind real estate location, mineral rights, patents
Path-dependent resources Resources that must be created over time in a manner
that is often expensive and difficult to accelerate
Examples: Dell Computer’s system of direct sales of customized PCs via the Internet, Coca-Cola’s brand name, Gerber Baby Food’s reputation for quality
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Characteristics Making Resources Difficult to ImitateCharacteristics Making Resources Difficult to Imitate
Causal ambiguity (How do they do that?) Situations where it is difficult for competitors to
understand how a firm has created its advantage
Example: Southwest Airlines’ approach Same plane, routes, gate procedures, number of attendants
Culture of fun, family, and frugal yet focused services
Economic deterrence Involves large capital investments in capacity to
provide products or services in a given market that are scale sensitive
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Resource InimitabilityResource Inimitability
Easy to imitate• Cash• Commodities
Can be imitated• Capacity preemption• Economies of scale
Difficult to imitate• Brand loyalty• Employee satisfaction• Reputation for fairness
Cannot be imitated• Patents• Unique locations• Unique assets
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Guidelines: Using the RBV in Internal AnalysisGuidelines: Using the RBV in Internal Analysis
Disaggregate resources - break them into more specific competencies rather than use broad categories
Use a functional perspective in disaggregating tangible and intangible assets and organizational capabilities
Look at organizational processes and combinations of resources, not only at isolated assets or capabilities
Use the value chain approach to uncover potentially valuable capabilities, activities, and processes
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Marketing• Firm’s products/services• Concentration of sales in a few
products or to a few customers• Ability to gather needed information
about markets• Market share• Product-service mix and expansion
potential• Channels of distribution• Effective sales organization• Product-service image, reputation,
and quality’• Imaginativeness, efficiency,
effectiveness of sales promotion• Pricing strategy and flexibility• After-sale service and follow-up• Goodwill - brand loyalty
Financial and Accounting• Ability to raise short-term and long-
term capital; debt-equity• Corporate-level resources• Cost of capital relative to competitors• Tax considerations• Relations with owners, investors, and
stockholders• Leverage position• Cost of entry and barriers to entry• Price-earnings ration• Working capital• Effective cost control• Financial size• Efficiency and effectiveness of
accounting system
Key Resources Across Functional AreasKey Resources Across Functional Areas
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Production, Operations, Technical• Raw materials cost and availability,
supplier relationships• Inventory control systems• Location, layout, and use of facilities• Economies of scale• Technical efficiency of facilities• Effectiveness of subcontracting use• Degree of vertical integration• Efficiency and cost-benefit of
equipment• Effectiveness of operation control
procedures• Costs and technological competencies
relative to competitors• Research and development• Patents and trademarks
Personnel• Management personnel
• Employees’ skills and morale
• Labor relations costs compared to competitors
• Efficiency and effectiveness of personnel policies
• Effectiveness of incentives used to motivate performance
• Ability to level peaks and valleys of employment
• Employee turnover and absenteeism
• Specialized skills
• Experience
Key Resources Across Functional Areas (continued)Key Resources Across Functional Areas (continued)
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Quality Management
• Relationship with suppliers, customers
• Internal practices to enhance quality of products and services
• Procedures for monitoring quality
Information Systems
• Timeliness and accuracy of information about sales, operations, cash, and suppliers
• Relevance of information for tactical decisions
• Information to manage quality issues: customer service
• Ability of people to use information provided
Key Resources Across Functional Areas (continued)Key Resources Across Functional Areas (continued)
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Organization and General Management
• Organizational structure
• Firm’s image and prestige
• Firm’s record in achieving objectives
• Organization of communication system
• Overall organizational control system
• Organizational climate and culture
• Use of systematic procedures in decision making
• Top-management skills, capabilities, and interest
• Strategic planning system
• Intra-organizational synergy
Fig. 6-5: Key Resources Across Functional Areas (concluded)Fig. 6-5: Key Resources Across Functional Areas (concluded)
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SWOT AnalysisSWOT Analysis
Strengths
A resource advantage relative to competitors and the needs of markets firm serves
Weaknesses
A limitation or deficiency in one or more resources or competencies relative to competitors
Opportunities
A major favorable situation in a firm’s environment
Threats
A major unfavorable situation in a firm’s environment
Based on assumption an effective strategy derives from a sound “fit” between a firm’s internal resources and its external situation
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Numerous environmental opportunities
Major environmental threats
Substantial internal
strengths
Critical internal
weaknesses
Cell 3: Supports a turnaround-oriented strategy
Cell 1: Supports an aggressive strategy
Cell 4: Supports a defensive strategy
Cell 2: Supports a diversification strategy
SWOT Analysis Diagram SWOT Analysis Diagram
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What is Value Chain Analysis?What is Value Chain Analysis?
Focuses on how a business creates customer value by examining contributions of different internal activities to that value
Divides a business into sets of activities within the business Starts with inputs a firm receives Finishes with firm’s products or services and after-
sales service to customersAllows better identification of a firm’s strengths
and weaknesses since the business is viewed as a process
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Primary Activities
Su
pp
ort
Act
ivit
ies
Research, technology, and systems development
Human resource management
General administration
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
logi
stic
s
Mar
ket
ing
and
sal
es
Ser
vice
Mar
gin
Margin
The Value ChainThe Value Chain
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1.1. Comparison with past Comparison with past performanceperformance
1.1. Comparison with past Comparison with past performanceperformance
2.2. Stages of industry evolution Stages of industry evolution2.2. Stages of industry evolution Stages of industry evolution
3.3. Benchmarking - Comparison Benchmarking - Comparison with competitorswith competitors
3.3. Benchmarking - Comparison Benchmarking - Comparison with competitorswith competitors
4.4. Comparison with success Comparison with success factors in the industry factors in the industry
4.4. Comparison with success Comparison with success factors in the industry factors in the industry
Perspectives to use in evaluating how a firm stacks up based on its internal capabilities
Perspectives to use in evaluating how a firm stacks up based on its internal capabilities
Internal Analysis: Making Meaningful ComparisonsInternal Analysis: Making Meaningful Comparisons
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