inb 480 4 internal analysis

7/28/2019 INB 480 4 Internal Analysis

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Introduction

Many business writers believe that strategicdecision makers should focus on how a firm canleverage its resources, rather than on what the

competitors and other stakeholders are doing.

Rumelts (1991) stated that only 4% of thevariance of return on assets was attributable to the

influence of the industry, while 73% was due tobusiness unit effect (unique firm resources)

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Key Questions???

What type of unique resources and capabilities

they have?

What and who creates value within the firm?

How the firms resources compare with those of

other firms?

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Positioning Perspective

The focus on external business environment isassociated with the Positioning Perspective .

The Positioning Perspective assumes that theexternal business environment determines afirms freedom to manoeuvre.

Firm must be market driven and externallyoriented

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Once a firm position itself in an attractive market,it needs to respond to challenges by rival firms, it needs to react to shift in customer needs, and it

needs to deal with product and price change bysuppliers.

Therefore advocates of positioning perspective

suggest that external environment (businessopportunity), not the internal resources, should beconsidered as the starting point for developingsuccessful strategies.

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Positioning Perspective


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Stalk et al. (1992) suggested that competition was awar of position

when the world was characterized by DURABLE PRODUCTS,

STABLE CUSTOMER NEEDS, WELL DEFINED NATIONAL AND REGIONAL MARKETS, AND CLEARLY IDENTIFIED COMPETITORS.

Thus the main criticism of positioning perspective is

that positioning can no longer lead to success in aworld which is constantly changing.According to Stalk et al. (1992), the key to success is nolonger Where a company chooses to compete but How.

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Criticism


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Resource-Based Perspective

The focuses on firm resources are associatedwith the Resource-Based Perspective .

This approach assumes that a firm can usesuperior resources and capabilities to modifythe industry structure and/ or change the rulesof the competitive game.

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Positioning Vs. R.B.Perspective

The concept of STRATEGIC FIT suggests that firms must adapt their resources and activitiesto take advantage of external business

opportunities.

Hamel and Prahalad argued that the concept of fit is unbalanced, and should be supplementedby the idea of strategy development bySTRETCH.

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Analyzing Firm Resources &Capabilities

ResourcesCapabilitiesCore CompetenciesVRIO framework

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Resources

Resources are all assets, capabilities,organizational processes, firm attributes,information, knowledge etc. controlled by a

firm that improve its efficiency andeffectiveness.

firm-specific assets that are difficult if not impossible to imitate

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Resources

Resources can be both- tangible as well asintangible

A resource audit identifies and classifies theresources controlled by the firm with a view tosupporting the firms strategies.

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Capabilities

Resources are of limited use by themselves thus firms need capabilities to combine resources in a meaningfulway.Capabilities are complex bundles of skills and collectivelearning, exercises through organizational processesthat ensure superior coordination of functionalactivities.Capabilities are about the firms ability to integratedifferent tangible and intangible resources in order toprovide products or services to customers that arevalued

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Core-Competence

Core competencies refer to the combination of individual technologies and production skillsthat underlie a companys multiple production

lines and critically underpin the firms competitive advantage.

Core competencies are about communication,involvement, and a deep commitment toworking across organizational boundaries.

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The core competencies gave rise to a number of core products, which in turn influenced thedevelopment of end products. Hence corecompetencies can help multinational firms toconcentrate on centrally pursuing innovation andcentrally initiating the development of new endproducts.

Focus on core competencies can help firms to think of markets in novel ways, to use existing resourcesin new ways, and to develop new businesses.

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Core-Competence


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VRIO Framework

In order to identify a firms core competencies,firms has to evaluate their resources on thebasis of VRIO framework.

Firms need to identify whether their resourcesand capabilities are

Valuable,

Rare,Costly to Imitate, andExploited by the organization

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Valuable: whether resources and capabilities enablethe firm to respond to environmental threats andopportunities.Rareness: How many competing firms already possessparticular valuable resources and capabilities?Imitability: how easily and cheaply competitors couldimitate your product.Organization: Whether Firm is organized to exploit the full competitive potential of the resources andcapabilities.

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VRIO Framework


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Sustainable competitive advantage only arises if firmshave resources which combine all of these fourattributes.For instance, Xerox demonstrates that it is not sufficient for a firm to spend vast sums on research anddevelopment or to have unique resources andcapabilities. A firm must be market oriented and must be able to effectively coordinate all its activities to

deliver value to the customer.

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VRIO Framework


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Global Value Chain and Value System

With the onset of globalization firms have come underimmense pressure to obtain many value creatingactivities from outside the company.

Key questions:Which resources and capabilities the organizationshould retain inside the company, and which shouldbe obtained from outside the companyWhere the resources and capabilities should belocated?

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Value Added

Value added is the difference between the cost of inputs and the market value of outputs; it isthe value that a firm adds to its bought-in

materials and services through its ownproduction and marketing efforts within thefirm.

Knowledge about where value is created in thefirm can further help managers to takeimportant investment decision.

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Inboundlogistics

OperationsOutboundLogistics

Sales &Marketing

Service Profit Margin

Primary Activities

Procurement

Technology & Systems DevelopmentHuman Resources Management

Firm Infrastructure

Support Activities

The Firm as a Value Chain


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Value System

A value system is a wider system of creating valuewhich involves the value chains of the firms suppliers,distributors and customers.Value system analysis depicts the main activities insideand outside the firm, and aims to reveal the firms linkage with its suppliers value chain, its distributors value chains and its customers value chains.The value system concept is essentially an extension of the value chain concept to inter-firm relationship.A firms value chain and its value system must match itsbusiness strategy.

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Applying VC & VS Analysis

Allows firms to understand their organizations cost structureFacilitate outsourcing decision; however, some

activities may be obtained more cheaply in themarket, but a firm should not relinquish anactivity which is of critical strategic importanceto its survival. E.g. Apricot Help firms to decide to move into new activitieswhich promises a higher a value added(manufacturer becomes retailer)

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Value Chain and Global LocationDecisions

Key QUESTIONS???

The general rule is that a firm should locate avalue activity in those countries that possess acomparative advantage in terms of a specificfactor of production.

Managers need to select location based on thedistinction between labour intensive andcapital intensive activities in the value chain

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VC Activities

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Comparative Analysis

Chen(1996) suggested that firm should comparethemselves with competitors along two dimensions inorder to anticipate their strategic behaviour.

Market commonality refers to the degree of presencethat a competitor manifests in the markets where it overlaps with the firm.Resource similarity refers to the extent to which agiven competitor possesses strategic endowmentscomparable in type and quantity to those of your firm.

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Competitive intelligence and benchmarking can help thefirm to compare itself with others, so that managers avoidoverestimating their own abilities.Benchmarking is the search for industry best practices that

will lead to the superior performance of a company. The aimof benchmarking is to find better practice processes whichshow higher levels of performance, and which can be copiedand adopted internally by the organization.Thus competitive intelligence may not only help you toassess the strengths of your own resources and capabilities,but may also help you to understand your competitors likely strategies.

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Comparative Analysis


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inb 480 4 internal analysis

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