Class4_444444444444444444444The Internal Organization.ppt

©2011 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
1 | 1
Main
Components
of the
Strategy-
Making
Process
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 



©2011 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
Strategic Management Inputs
The Internal Organization:
Resources, Capabilities, Core
Competencies
and Competitive Advantages

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Innovation in Action: Apple
• Record sales in midst of 2008 global recession
– Attributed to capabilities in innovation across all product
lines
• Laptops
• iPhone
• iPod (Shuffle)
• iPad
– Marketing capabilities
• Advertising
• Point of sale promotion
• Apple stores
• Potential negatives going forward
– Steve Jobs (health issues)
– Top management talent lured away by other firms

Analyzing the Internal Organization (IO) (Cont’d)
• 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
• The Challenge of Analyzing the IO

Components of Internal Analysis Leading to
Competitive Advantage and Strategic
Competitiveness

• Context of Internal Analysis
• Creating Value
–Develop core competencies that lead to
competitive advantage
–Value: measured by a product's
performance characteristics and by its
attributes for which customers are willing
to pay

• The Challenge of Analyzing the IO
–Strategic decisions are non-routine, have ethical
implications and influence the organization’s above-
average returns
•Involves identifying, developing, deploying and
protecting firms’ resources, capabilities and core
competencies
–Managers face uncertainty on many fronts --
•Proprietary technologies
•Changes in economic and political trends, societal values
and shifts in customer demands
•Environment – increases complexity
–Intraorganizational conflict
•Due to decisions about core competencies and how to
nurture them

Conditions Affecting Managerial Decisions
About Resources, Capabilities, and Core
Competencies

Resources, Capabilities and Core
Competencies
• Competitive Advantage (CA) foundation includes
– Resources
• Bundled to create organizational capabilities
• Tangible and intangible.
– Capabilities
• Source of a firm’s core competencies and basis for CA
• Purposely integrated to achieve a specific task/set of tasks
– Core Competencies
• Capabilities that serve as a source of CA for a firm over its
rivals
• Distinguish a company from its competitors – the personality

Resources, Capabilities and Core
Competencies
• Tangible Resources
– Assets that can be seen, touched and quantified
– Examples include equipment, facilities, distribution
centers, formal reporting structures
– Four specific types
• Intangible Resources
– Assets rooted deeply in the firm’s history, accumulated
over time
– In comparison to ‘tangible’ resources, usually can’t be
seen or touched
– Examples include knowledge, trusts, organizational
routines, capabilities, innovation, brand name, reputation
– Three specific types

Building Core Competencies:
Criteria and Value Chain Analysis
• Two tools firms use to identify and build on their
core competencies
– Four specific criteria of Sustainable CA
– Value Chain Analysis

• Four specific criteria of sustainable competitive
advantage – capabilities that are:
– Valuable
– Rare
– Costly-to-imitate
– Nonsubstitutable capabilities
• Competitive consequences:
– Focus on capabilities that yield competitive parity and
either temporary or sustainable competitive advantage
• Performance implications include:
– Parity = average returns
– Temporary advantage = avg. to above avg. returns
– Sustainable advantage = above average returns

• Value Chain Analysis
– Primary activities
• Involved with product’s physical creation, sales and
distribution to buyers, and service after the sale
– Service, marketing/sales, outbound/inbound logistics and operations
– Support activities
• Provide assistance necessary for the primary activities to take
place
• Includes firm infrastructure, HRM, technologies development
and procurement

The Basic Value Chain

The Concept of a Company Value Chain
• The Value Chain
– Identifies the primary internal activities that
create customer value and the related
support activities.
– Permits a deep look at the firm’s cost
structure and ability to offer low prices.
– Reveals the emphasis that a firm places on
activities that enhance differentiation and
support higher prices.

Comparing the Value Chains of Rival Firms
• Value Chain Analysis
– Facilitates a comparison, activity-by-activity, of how
effectively and efficiently a company delivers value
to its customers, relative to its competitors.
• The Value Chain Analysis Process:
– Segregate the firm’s operations into different types
of primary and secondary activities to identify the
major components of its internal cost structure.
– Use activity-based costing to evaluate the activities.
– Do the same for significant competitors.

4.4 Representative Value Chain System for an Entire
Industry

Value Chain System for an Entire Industry
• Industry Value Chain:
– The firm’s internal value chain
– The value chains of industry suppliers
– The value chains of channel intermediaries
• Effects of the Industry Value Chain:
– Costs and margins of suppliers and channel
partners can affect prices to end consumers.
– Activities of channel partners can affect industry
sales volumes and customer satisfaction.

Benchmarking and Value Chain Activities
• Benchmarking:
– Benchmarking is a process of measuring the performance
of a company's products, services, or processes against
those of another business considered to be the best in the
industry, OR “best in class.”
– Involves improving a firm’s internal activities based on
learning other companies’ “best practices.”
– Assesses whether the cost competitiveness and
effectiveness of a firm’s value chain activities are in line
with its competitors’ activities.
• Sources of Benchmarking Information
– Reports, trade groups, analysts and customers
– Visits to benchmark companies
– Data from consulting firms

8.4 Identifying the Competitive Advantage Potential of
Cross-Business Strategic Fit

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

Internal Organization Assessment and
Strategic Decisions
• Firms must identify their strengths and weaknesses
• Appropriate resources and capabilities needed to
develop desired strategy and create value for
customers/other stakeholders
• Tools (i.e., outsourcing) can help a firm focus on
core competencies as the source for CA
• Core competencies have potential to become core
rigidities
– Competencies emphasized when no longer competitively
relevant can become a weakness
• External environmental conditions and events
impact a firm’s core competencies

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