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The Internal Organization
Resources, Capabilities, Core Competencies, and Competitive AdvantagesPages 68 - 94
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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
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Resources & Capabilities
Resources are what you have; Capabilities are what you can do
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Evaluation of Resources
Strength or Weaknessrelative to competitorsbasic business requirementskey vulnerabilities
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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
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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 -
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Factors that Limit Imitation
Physical Uniqueness Path Dependency Causal Ambiguity Social Complexity Absorptive Capacity
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Sustainable Competitive Advantage? Competitive consequences include
Disadvantage, parity, temporary advantage and sustainable advantage
Performance implications include returns Above, below or average
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Another Tool to Consider
Porter’s Value Chain
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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
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Value Creation per Unit
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Comparing Toyota and General Motors
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Porter’s Value Chain
Views the organization as a series (chain) of activities, which may or may not create value
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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
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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
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A low cost strategy…..
Company Infrastructure
HRM
Procurement
Inb
oun
dLo
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tics
Opera
tions
Outb
ound
Logis
tics
Mar k
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ng
& S
al e
s
Serv
ice
Mar
gin
Margin
…tries to pull the arrow back…..
R&D, Technology & Systems Development
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Fewer layers of management
Policies to reduce turnover
WalMart’s inventory system
Monitor supplier performance
Inb
ound
Log
isti
cs
Opera
tions
Outb
ound
Log
isti
cs
Mark
et i
ng
& S
ale
s
Serv
ice
Mar
gin
Margin
Low Cost - Support Activity examples…...
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Low cost - Primary Activity examples….
Inbound - Toyota Operations - Subway Outbound - Campbell Soup’ Continuous
Replenishment Marketing/Sales - WalMart Customer Service - Federal Express
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A differentiation strategy…..
Company Infrastructure
HRM
Procurement
Inb
oun
dLo
gis
tics
Opera
tions
Outb
oun
dLo
gis
tics
Mar k
eti
ng
& S
al e
s
Serv
ice
Mar
gin
Margin
….tries to pull the arrow forward...
R&D, Technology & Systems Development
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Commitment to quality
Compensation rewarding innovation
Amazon recommendations
Purchasing high-quality components
Inb
ound
Log
isti
cs
Opera
tions
Outb
ound
Log
isti
cs
Mark
et i
ng
& S
ale
s
Serv
ice
Mar
gin
Margin
Differentiation - Support Activity examples…...
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Inbound - Dell Operations - Marriott Outbound - WebVan Market/Sales - Nordstrom’s Customer Service - Pirtek
Differentiation - Primary Activity examples…...
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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