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Technological
i
External and Internal
Analyses
By studying the internal
environment, firms identify what
they
Unique resources,
capabilities, and core
competencies
(sustainable competitive
advantage)
V It is also known as ¶Internal Audit/appraisal·
V It is a systematic and methodical analysis of
the strengths and weaknesses of a firm·s
internal resources and capabilities and also its
functional areas
V The process of identifying and evaluating an
organization·s specific characteristics
× uesources, capabilities, and core competencies
× Looks at organization·s
a ! vision
a Mission(s)
a Strategic & financial objectives
a Strategies
V Enables a firm to identify its strengths and
weaknesses.
V To exploit the opportunities that are in line with
its capabilities
V Enables a firm to make good strategic
decisions
V To correct important weaknesses and defend
against threats
V To assess capability gaps and take steps to
enhance its capabilities
V Information from internal environment provides
basis for developing strategic alternatives.
along with the external analysis of the company·s
environment,
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V uesources and capabilities are the
primary sources of competitive
advantage and that firms are
heterogeneous in their resource and
capability base
V Popularized by Barney
uesources
Tangible Components of the Resource-
Intangible
Brand Equity Based View
!apabilities
!ore
!ompetencies
!ompetitive Above-Average
Above-
Advantage ueturns
Introduction
Assumptions:
V Firms are unique bundles of resources
V uesources are relatively immobile
è &() is a method of analyzing and
identifying a firm·s strategic advantages
based on examining its distinct
combination of assets, skills, capabilities,
and intangibles
2. The uBV·s underlying premise is that
firms differ in fundamental ways
because each firm possesses a unique
´bundleµ of resources
3. Each firm develops competencies from
these resources, and these become the
source of the firm·s competitive
advantages
è a
are the easiest
´resourcesµ to identify and are often
found on a firm·s balance sheet
*
are ´resourcesµ
such as brand names, company
reputation, organizational morale,
technical knowledge and
accumulated experience
+ ,
are not
specific ´inputs.µ They are the skills
that a company uses to transform
inputs into outputs
îhat if the firm does not possess necessary capabilities and resources?
Outsource
Outsource
Gimits to the ability of firms to possess all resources and
capabilities in all primary and support activities.
ƥ Valuable
Rare
ƥ costly to imitate
ƥ Non-substitutable
V Valuable resources help the firm
implement its strategy efficiently and
effectively.
!ompetitive Performance
!onsequences Implications
!ompetitive advantage is a firm·s ability
to outperform its competitors (earn
higher profits).
The source of competitive advantage is
value creation for customers.
Sustained competitive advantage
comes from maintaining higher profits
than competitors over long periods of
time.
V Four Building Blocks
× Efficiency
× Quality
× Innovation
× !ustomer uesponsiveness
V Lead to !ompetitive Advantage
through:
× Low !ost Strategy
× Differentiation Strategy
Efficiency
V @
V Productivity leads to greater efficiency
and lower costs:
× Employee productivity
× !apital productivity
× Productivity determined by factors such as:
a knowledge
a patents
a processes
a technology
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V Product innovation
× !reates products that
customers perceive as more
valuable
× Increases the company·s
pricing options
V Process innovation
× !reates value by lowering
production costs
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V Never take for granted that core
competencies will continue to provide a
source of competitive advantage
V All core competencies have the potential
to become
V !ore rigidities are former core
competencies that now generate inertia
and stifle innovation
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Management
Finance
Operations
V Grid for Internal Analysis
V uows- various functions
V !olumns- capabilities
V Strengths and Weaknesses of various
functions
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Marketing Warehousing uetail and Distribution Industrial
uetail outlets Wholesale chain marketing
Transportatio selling uetail chain Large
n Direct Inventory customer
Equipments industry distribution base
Data selling and control Decentralized
Processing Advertising control
and
Sales
Promotion
V !hecklist by Pearson and uobinson to
find out functional competence in
various functional areas
× Marketing
× Finance
× Operations
× xu
× Management
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Strategy
Structure
Systems
Shared
values
Skills
Style
staff
V Identify and classify firm·s resources in terms
of STuENGTxS and WEAKNESSES
V !ombine the firm·s STuENGTxS into specific
capabilities
V Appraise the profit potential of these
resources and capabilities
V Select the strategy that best exploits the
firm·s resources and capabilities relative to
external opportunities
V Identify resource gaps and invest in
overcoming weaknesses
A traditional approach to internal
analysis:
,a is an acronym for the internal
trengths and eaknesses of a firm
and the environmental ,pportunities
and ahreats facing that firm.
V ,a is a historically popular
technique through which managers
create a quick overview of a
company·s strategic situation.
V An
is a major favorable situation in
a firm·s environment
V A
is a major unfavorable situation in a
firm·s environment
V A
is a resource or capability
controlled by or available to a firm that gives it
an advantage relative to its competitors in
meeting the needs of the customers it serves
V A is a limitation or deficiency in one
or more of a firm·s resources or capabilities
relative to its competitors that create a
disadvantage in effectively meeting customer
needs
Strengths Weaknesses
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Opportunities Threats
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V A SWOT analysis can overemphasize
internal strengths and downplay
external threats
V A SWOT analysis can be static and
can risk ignoring changing
circumstances
V A SWOT analysis can overemphasize
a single strength or element of
strategy
V A strength is not necessarily a source
of competitive advantage
V SWOT analysis is a tool for helping assess
the current situation for the firm.
V xowever, we need to be able to
combine the information in the SWOT
analysis in a meaningful way to generate
alternative strategies that we might
pursue.
V The TOWS matrix is a tool designed to
match external opportunities and threats
with our internal strengths and
weaknesses
V Technique used in strategy formulation
for combining
× External analysis
a Opportunities
a Threats
× Internal analysis
a Strengths
a Weaknesses
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Opportunities: Threats:
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Strengths: SO Strategies
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Human Resources Management
General Administration (Firm Infrastructure)
Upstream Firm·s Own
Value !hain Value !hain Downstream Value !hains
Internally
Activities,
Performed Costs, &
Activities, Activities, Margins of
Costs, & Buyer/User
Costs, & Forward
Margins of Value
Margins Channel
Suppliers Chains
Allies &
Strategic
Partners
V A company·s
depends on how well it manages its
relative to competitors
V Three areas contribute to cost
differences
è activities
*The company·s own
activities
+ activities
V Assessing a company·s
involves comparing costs
along the industry·s value chain
V value chains are relevant
because
× !osts, quality, and performance of inputs provided
by suppliers influence a firm·s own costs and
product performance
V value chains are
relevant because
× Forward channel allies· costs and margins are part
of price paid by ultimate end-user
× Activities performed affect end-user satisfaction
V A company can create
by managing its value chain so
as to
×
the knowledge and skills of employees in
competitively valuable ways
× G economies of learning or experience
curve effects
× !
related activities in ways that build
valuable capabilities
× O
in a value chain
activity critical to customer satisfaction or market
success
V Inbound Logistics
× Materials handling, warehousing, inventory control used to
receive, store and disseminate inputs to a product
× Fertilizer and chemical storage, delivery of inputs, application of
inputs
V Operations
× Take inputs from inbound logistics and convert to final products
× Plowing, planting, spraying, harvesting, feeding, medicating,
weighing,etc.
V Outbound Logistics
× !ollecting, Storing, and physical distribution of the final
product.
× !rop storage, finished hog handling, Processing and
determining delivery dates, delivery to the packer or elevator
etc. !
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V Marketing and Sales
× Provide means through which customers can purchase
products and to induce them to do so
× Advertising, communicating with buyers, developing
customer relationships, pricing products (futures, hedging,
forward contracting, etc.), delivery scheduling
V Service
× Activities designed to enhance or maintain a product·s
value
× Timely delivery, identity preservation, ISO9000, certifying as
organic, etc. !
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V Firm Infrastructure
× General Management, planning, finance, accounting,
legal support, governmental relations, etc.
× Establishment of accounting practices, management
information systems, compliance with environmental
regulations, tracking and reporting for government
programs, etc.
× Where strategy development takes place identifying
opportunities and threats, resources and capabilities, and
support of core competencies
V Margins
×
the value from performing value-creating
activities as cheaply as possible
× The basic idea is that the consumer is willing to pay
a certain amount for the value you create. This is
depicted as the size of the overall pentagon.
× The size of the individual activity boxes represents
the cost of performing those particular activities.
× Thus, the smaller the size of the individual activity
boxes relative to the value the consumer is willing
to pay, the greater the MAuGIN will be for the firm.
V Optimization and coordination of activities
in the value chain
V Linkages exist between support activities
and primary activities and between
separate primary activities
V Generic causes for linkages
× Same function can be performed in different
ways
× Efforts in indirect activities
× Activities performed inside the firm reduce the
need for activities in the field
× Quality Assurance can be performed in different
ways
V Linkages between suppliers· value chains
and a firms chain provide opportunities
for the firm to enhance competitive
advantage.
V Division of benefits between firm and its
suppliers is a function of supplier·s
bargaining power and reflecting in
supplier·s margins.
V Both coordination with suppliers and hard
bargaining are important to competitive
advantage.
V A firm·s differentiation stems from how its
value chain relates to its buyer·s chain.
V Differentiation derives fundamentally from
creating value for the buyer through a
firm·s impact on the buyer·s value chain.
V Value is created when a firm creates a
competitive advantage for its buyer.
V The buyer must perceive the value to pay
a premium price.
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V Traditional
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V Wal-Mart
J
J
Walmart Value !hain
The World of Walmart Map
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V Liquidity ratios
V Leverage ratios
V Activity ratios
V Profitability ratios
V Key factors affecting organizational
functioning
V From functional areas
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