The Internal Organization

Resources, Capabilities, Core Competencies, and Competitive AdvantagesPages 68 - 94

Why 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 lines

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Analyzing the Internal Organization

Context 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 capabilities

Understand how to leverage these bundles An organization's core competencies creates and sustains

its competitive advantage

Creating Value

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Resource Based View Model of Competitive Advantage and Strategic Competitiveness

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Resources and Capabilities

Tangible Financial, Organizational, Physical, and Technological Assets that can be seen, touched and quantified Examples include equipment, facilities, distribution

centers, formal reporting structures Intangible

Human, Innovation and Reputational Resources Assets rooted deeply in the firm’s history, accumulated

over time Usually can’t be seen or touched Examples include knowledge, trusts, organizational

routines, capabilities, innovation, brand name, reputation

Resources & Capabilities

Resources are what you have; Capabilities are what you can do

Evaluation of Resources

Strength or Weaknessrelative to competitorsbasic business requirementskey vulnerabilities

Core 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 rigidities

Sustainable Competitive AdvantageMust be valuable, rare, inimitable, and non-

substitutable

Sustainability is a function ofDurability - how long will it last?

Technology? Reputation? Fixed Assets? Imitability - how quickly can it be copied?

Transparent - Transferable - Replicable -

Factors that Limit Imitation

Physical Uniqueness Path Dependency Causal Ambiguity Social Complexity Absorptive Capacity

Sustainable Competitive Advantage? Competitive consequences include

Disadvantage, parity, temporary advantage and sustainable advantage

Performance implications include returns Above, below or average

Another Tool to Consider

Porter’s Value Chain

Relative 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 costsdistribution inflation, exchange and tax rates

Value Creation per Unit

Comparing Toyota and General Motors

Porter’s Value Chain

Views the organization as a series (chain) of activities, which may or may not create value

Porter’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 sale

Porter’s Value Chain (cont)

Support ActivitiesCompany infrastructure – General AdminHuman resource managementR&D, Technology and Systems DevelopmentProcurement

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The Basic Value Chain

A low cost strategy…..

Company Infrastructure

HRM

Procurement

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R&D, Technology & Systems Development

Fewer layers of management

Policies to reduce turnover

WalMart’s inventory system

Monitor supplier performance

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Low Cost - Support Activity examples…...

Low cost - Primary Activity examples….

Inbound - Toyota Operations - Subway Outbound - Campbell Soup’ Continuous

Replenishment Marketing/Sales - WalMart Customer Service - Federal Express

A differentiation strategy…..

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R&D, Technology & Systems Development

Commitment to quality

Compensation rewarding innovation

Amazon recommendations

Purchasing high-quality components

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Differentiation - Support Activity examples…...

Inbound - Dell Operations - Marriott Outbound - WebVan Market/Sales - Nordstrom’s Customer Service - Pirtek

Differentiation - Primary Activity examples…...

Suppliers Buyers

Your Firm

Your Rivals

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Outsourcing

Definition: Purchase of a value-creating activity from an external supplier Effective execution includes an increase in flexibility, risk

mitigation and capital investment reduction Trend continues at a rapid pace Firms must outsource activities where they cannot

create value or are at a substantial disadvantage compared to competitors

Can cause concerns Usually revolves around innovative ability and loss of

jobs