chapter 4 internal analysis: distinctive competencies, competitive advantage, and profitability
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Chapter 4Chapter 4
Internal Analysis: Distinctive Internal Analysis: Distinctive Competencies, Competitive Competencies, Competitive Advantage, and ProfitabilityAdvantage, and Profitability
Why Internal Analysis?Why Internal Analysis?
Early strategy theory rooted in Early strategy theory rooted in industry structural analysis - industry structural analysis - external focusexternal focus
This approach has lost its appeal This approach has lost its appeal because:because: internationalization & deregulation has internationalization & deregulation has
all but removed safe havensall but removed safe havens technology and changes in demand technology and changes in demand
have blurred industry lines have blurred industry lines
A product of the Resource Based ViewA product of the Resource Based View
Resources
Capabilities
Core Competencies
Strategies
Competitiveness & Profit
The Role of Resources and Capabilities in The Role of Resources and Capabilities in the Creation of Profitthe Creation of Profit
DistinctiveCompetencies
Competitive Advantages
Build
Build
Shape
StrengthStrength
Skill, specialized expertise, or Skill, specialized expertise, or important capabilityimportant capability
Physical assetPhysical asset Human assets or intellectual capitalHuman assets or intellectual capital Organizational assetOrganizational asset Intangible assetsIntangible assets Competitive achievementCompetitive achievement Alliance or cooperative ventureAlliance or cooperative venture
Evaluation of ResourcesEvaluation of Resources
Strength or WeaknessStrength or Weakness relative to competitorsrelative to competitors basic business requirementsbasic business requirements key vulnerabilitieskey vulnerabilities
Other ThreatsOther Threats Emergence of cheaper/better technologiesEmergence of cheaper/better technologies Introduction of better products by rivalsIntroduction of better products by rivals Entry of lower-cost foreign competitorsEntry of lower-cost foreign competitors Onerous regulationsOnerous regulations Rise in interest ratesRise in interest rates Potential of a hostile takeoverPotential of a hostile takeover Unfavorable demographic shiftsUnfavorable demographic shifts Adverse shifts in foreign exchange ratesAdverse shifts in foreign exchange rates Political upheaval in a countryPolitical upheaval in a country
Tangible
Resources
Intangible
Resources
Org.
Capabilities
Examples…..•Customer Service•Product Development•Employee Productivity
Inputs into Outputs
Core CompetenciesCore Competencies central to the firm’s competitiveness central to the firm’s competitiveness rewarded in market placerewarded in market place combination of skills & knowledge, not combination of skills & knowledge, not
products or functionsproducts or functions flexible, long term platformsflexible, long term platforms embedded in the organization’s embedded in the organization’s
systemssystems distinctive competencies are those the distinctive competencies are those the
firm performs better than rivalsfirm performs better than rivals All core competencies have the All core competencies have the
potential to become potential to become core rigiditiescore rigidities
Sustainable Competitive Sustainable Competitive AdvantageAdvantage
Must be valuable, rare, inimitable, and non-Must be valuable, rare, inimitable, and non-substitutablesubstitutable
Sustainability is a function ofSustainability is a function of Durability - how Durability - how longlong will it last? will it last?
Technology? Reputation? Fixed Assets?Technology? Reputation? Fixed Assets? Imitability - how quickly can it be Imitability - how quickly can it be copiedcopied??
Transparent - easy to see?Transparent - easy to see? Transferable - can it be done elsewhere?Transferable - can it be done elsewhere? Replicable - can we do it here?Replicable - can we do it here?
Factors that Limit Factors that Limit ImitationImitation
Physical Uniqueness –Physical Uniqueness – Path Dependency –Path Dependency – Causal Ambiguity – Causal Ambiguity – Social Complexity – Social Complexity –
Absorptive Capacity – Absorptive Capacity –
Relative costs and prices Relative costs and prices
Where do cost/price differences come Where do cost/price differences come from?from? raw materials and componentsraw materials and components differences in technology, plant, equipmentdifferences in technology, plant, equipment efficiencies, learning, experience, wages, efficiencies, learning, experience, wages,
productivityproductivity marketing, sales, promotion, warehousing, marketing, sales, promotion, warehousing,
distribution, administration costsdistribution, administration costs distributiondistribution inflation, exchange and tax ratesinflation, exchange and tax rates
Value Creation per UnitValue Creation per Unit
Comparing Toyota and Comparing Toyota and General MotorsGeneral Motors
Porter’s Value ChainPorter’s Value Chain
Views the organization as a series Views the organization as a series (chain) of activities, which may or (chain) of activities, which may or may not create valuemay not create value
Porter’s Value Chain Porter’s Value Chain (cont.)(cont.)
Primary ActivitiesPrimary Activities– Inbound logistics – Supply Chain Inbound logistics – Supply Chain
ManagementManagement– OperationsOperations– Outbound logistics - DistributionOutbound logistics - Distribution– Marketing and salesMarketing and sales– Customer serviceCustomer service
– Contribute to the physical creation of the Contribute to the physical creation of the product/service, its sale and transfer to product/service, its sale and transfer to the buyer, and its service after the salethe buyer, and its service after the sale
Porter’s Value Chain Porter’s Value Chain (cont)(cont)
Support ActivitiesSupport Activities Company infrastructure – General Company infrastructure – General
AdminAdmin Human resource managementHuman resource management R&D, Technology and Systems R&D, Technology and Systems
DevelopmentDevelopment ProcurementProcurement
Company Infrastructure
HRM
R&D, Technology & Systems Development
Procurement
Inbo
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The Value Chain
Support
Primary
A low cost strategy…..
Company Infrastructure
HRM
Procurement
Inbo
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Margin
…tries to pull the arrow back…..
R&D, Technology & Systems Development
Fewer layers of management
Policies to reduce turnover
IBM Printer - 150 to 62 parts, 3.5 minutes
Monitor supplier performance
Inbo
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Low Cost - Support Activity examples…...
Low cost - Primary Activity Low cost - Primary Activity examples….examples….
Inbound - Inbound - Operations - Operations - Outbound - Outbound - Marketing/Sales - Marketing/Sales - Customer Service - Customer Service -
A differentiation strategy…..
Company Infrastructure
HRM
Procurement
Inbo
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….tries to pull the arrow forward...
R&D, Technology & Systems Development
Commitment to quality
Compensation rewarding innovation
Amazon Recommendations
Purchasing high-quality components
Inbo
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Differentiation - Support Activity examples…...
Inbound - Inbound - Operations - Operations - Outbound - Outbound - Market/Sales - Market/Sales - Customer Service - Customer Service -
Differentiation - Primary Activity Differentiation - Primary Activity examples…...examples…...
Suppliers Buyers
Your Firm
Your Rivals
Suppliers Buyers
Your Firm
Your Rivals
Opportunities forAdvantage
Suppliers Buyers
Your Firm
Your Rivals
Opportunities forAdding Value
Opportunities forAdding Value
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