Analysis of The Internal Environment
Analysis of The Internal Environment
Analysis of The Internal Environment
Management of Strategy
PowerPoint Presentation by Charlie Cook The University of West Alabama 2007 Thomson/South-Western. All rights reserved.
K NOWLEDGE O BJECTIVES Studying this chapter should provide you with the strategic management knowledge needed to: 1. Explain the need for firms to study and understand their internal environment. 2. Define value and discuss its importance. 3. Describe the differences between tangible and intangible resources. 4. Define capabilities and discuss how they are developed. 5. Describe four criteria used to determine whether resources and capabilities are core competencies.
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K NOWLEDGE O BJECTIVES
(contd)
Studying this chapter should provide you with the strategic management knowledge needed to: 6. Explain how value chain analysis is used to identify and evaluate resources and capabilities. 7. Define outsourcing and discuss the reasons for its use. 8. Discuss the importance of identifying internal strengths and weaknesses.
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Competitive Advantage
Firms achieve strategic competitiveness and earn above-average returns when their core competencies are effectively:
Acquired. Bundled. Leveraged.
Over time, the benefits of any value-creating strategy can be duplicated by competitors.
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By studying the external environment, firms identify what they might choose to do.
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Global Mind-Set
The ability to study an internal environment in ways that are not dependent on the assumptions of a single country, culture, or context.
Analysis Outcome
Understanding how to leverage the firms bundle of heterogeneous resources and capabilities.
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FIGURE 3.1
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Creating Value
By exploiting their core competencies or competitive advantages, firms create value. Value is measured by:
Product performance characteristics Product attributes for which customers are willing to pay
Firms create value by innovatively bundling and leveraging their resources and capabilities. Superior value Above-average returns
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FIGURE
3.2
Conditions Affecting Managerial Decisions about Resources, Capabilities, and Core Competencies
Source: Adapted from R. Amit & P. J. H. Schoemaker, 1993, Strategic assets and organizational rent, Strategic Management Journal, 14: 33. 2007 Thomson/South-Western. All rights reserved.
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Resources
Tangible Intangible
Are the source of a firms capabilities. Are broad in scope. Cover a spectrum of individual, social and organizational phenomena. Alone, do not yield a competitive advantage.
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Resources
Resources
Are a firms assets, including people and the value of its brand name. Represent inputs into a firms production process, such as:
Capital equipment Skills of employees Brand names Financial resources Talented managers
Types of Resources
Tangible resources
Financial resources Physical resources Technological resources Organizational resources
Intangible resources
Human resources Innovation resources Reputation resources
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TABLE
3.1
Tangible Resources The firms borrowing capacity The firms ability to generate internal funds The firms formal reporting structure and its formal planning, controlling, and coordinating systems Sophistication and location of a firms plant and equipment Access to raw materials Stock of technology, such as patents, trademarks, copyrights, and trade secrets
Financial Resources
Organizational Resources
Physical Resources
Technological Resources
Sources: Adapted from J. B. Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100 102. 2007 Thomson/South-Western. All rights reserved.
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TABLE
3.2
Intangible Resources Knowledge Trust Managerial capabilities Organizational routines Ideas Scientific capabilities Capacity to innovate Reputation with customers Brand name Perceptions of product quality, durability, and reliability Reputation with suppliers For efficient, effective, supportive, and mutually beneficial interactions and relationships
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Human Resources
Innovation Resources
Reputational Resources
Sources: Adapted from R. Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal, 13: 136139; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101104. 2007 Thomson/South-Western. All rights reserved.
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Capabilities are often developed in specific functional areas or as part of a functional area.
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TABLE 3.3
Management Manufacturing
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Resources and capabilities that are the sources of a firms competitive advantage: Distinguish a company competitively and reflect its personality. Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities.
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Activities that a firm performs especially well compared to competitors. Activities through which the firm adds unique value to its goods or services over a long period of time.
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TABLE 3.4
Help a firm neutralize threats or exploit opportunities Are not possessed by many others Historical: A unique and a valuable organizational culture or brand name Ambiguous cause: The causes and uses of a competence are unclear Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers
No strategic equivalent
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Rare capabilities
Are not possessed by many others.
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Ambiguous cause
The causes and uses of a competence are unclear
Social complexity
Valuable Rare Costly to Imitate Nonsubstitutable
Interpersonal relationships, trust, and friendship among managers, suppliers, and customers
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Nonsubstitutable Capabilities
No strategic equivalent
Firm-specific knowledge Organizational culture Superior execution of the chosen business model
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le ?
to
ub
te ? st itu ta bl e?
Competitive Consequences
Competitive Disadvantage Competitive Parity Temporary Competitive Advantage Sustainable Competitive Advantage
Performance Implications
Below Average Returns Average Returns Above Average to Average Returns Above Average Returns
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ab
C os t
e?
ly
Va lu
No
No
R ar
No
No
No Yes Yes
No No Yes
N on s
Table
3.5
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Support Activities
Provide the assistance necessary for the primary activities to take place.
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FIGURE
3.3
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Table 3.6
Inbound Logistics
Activities, such as materials handling, warehousing, and inventory control, used to receive, store, and disseminate inputs to a product.
Operations
Activities necessary to convert the inputs provided by inbound logistics into final product form. Machining, packaging, assembly, and equipment maintenance are examples of operations activities.
Outbound Logistics
Activities involved with collecting, storing, and physically distributing the final product to customers. Examples of these activities include finished goods warehousing, materials handling, and order processing.
Service
Activities designed to enhance or maintain a products value. Firms engage in a range of service-related activities, including installation, repair, training, and adjustment. Each activity should be examined relative to competitors abilities. Accordingly, firms rate each activity as superior, equivalent, or inferior.
Source: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage: Creating and Sustaining Superior Performance, by Michael E. Porter, pp. 3940, Copyright 1985, 1998 by Michael E. Porter. 2007 Thomson/South-Western. All rights reserved.
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Table 3.7
Procurement
Activities completed to purchase the inputs needed to produce a firms products. Purchased inputs include items fully consumed during the manufacture of products (e.g., raw materials and supplies, as well as fixed assetsmachinery, laboratory equipment, office equipment, and buildings).
Technological Development
Activities completed to improve a firms product and the processes used to manufacture it. Technological development takes many forms, such as process equipment, basic research and product design, and servicing procedures.
Firm Infrastructure
Firm infrastructure includes activities such as general management, planning, finance, accounting, legal support, and governmental relations that are required to support the work of the entire value chain. Through its infrastructure, the firm strives to effectively and consistently identify external opportunities and threats, identify resources and capabilities, and support core competencies. Each activity should be examined relative to competitors abilities. Accordingly, firms rate each activity as superior, equivalent, or inferior.
Source: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage: Creating and Sustaining Superior Performance, by Michael E. Porter, pp. 4043, Copyright 1985, 1998 by Michael E. Porter. Thomson/South-Western. All rights reserved. 2007
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Operations
Activities necessary to convert the inputs provided by inbound logistics into final product form
Outbound Logistics
Activities involved with collecting, storing, and physically distributing the product to customers
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Service
Activities designed to enhance or maintain a products value Each activity should be examined relative to competitors abilities and rated as superior, equivalent or inferior.
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Technological Development
Activities completed to improve a firms product and the processes used to manufacture it.
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Figure
3.4
Source: Reprinted by permission of Harvard Business Review from Strategy and the Internet by Michael E. Porter, March 2001, p. 75. Copyright 2001 by the Harvard Business School Publishing Corporation; all rights reserved.
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Outsourcing
The purchase of a value-creating activity from an external supplier
Few organizations possess the resources and capabilities required to achieve competitive superiority in all primary and support activities.
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Outsourcing Decisions
A firm may outsource all or only part of one or more primary and/or support activities.
n gi ar M ar gi
Technological Development
Support Activities
Firm Infrastructure
Service Marketing and Sales Procurement Outbound Logistics Operations Inbound Logistics Primary Activities
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Sharing risks
Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities.
Outsourcing Issues
Seeking greatest value
Outsource only to firms possessing a core competence in terms of performing the primary or supporting the outsourced activity.
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