Activities for Today

1. Activities for Today • Attendance • Simulation Trial Decision # 2 Due Today • Simulation Reset 20th • Questions from Previous Class • Chapter 3 • Industry Structure • 5 Forces Model • Strategic Groups • Chapter 4 • Resources Vs. Capabilities • RBV of Firm • Value Chain • Break (7.30 to 7.40 pm) • Review Case (7.40 – 7.45 pm) • Case Analysis

2. Part 1 Strategy Analysis

3. INTERNAL ANALYSIS: Inside the Firm • Comparing two firms in same industry: Internal focus • Core Competencies • Unique strengths deep inside that differentiate a firm • Can drive competitive advantage • Strategic Fit • Internal strengths change with external environment

4. Creating Strategic Fit to Leverage Internal Strengths EXHIBIT 4.1

5. Tangible & Intangible Resources EXHIBIT 4.4

6. The Resource-Based View Resources and Capabilities Resources: • tangible and intangible assets of a firm » tangible: factories, products intangible: reputation • used to conceive of and implement strategies Capabilities: • a subset of resources that enable a firm to take full advantage of other resources » marketing skill, cooperative relationships

7. The Resource-Based View Resources and Capabilities Are these resources or capabilities? Firm Assets: Machinery ? Collective Product Design Skill ? Recruiting Skill ? Engineering Skill of Individuals ? Mineral Deposits ?

8. Two Critical Assumptions in RBV • Resource heterogeneity • Bundles of resources and capabilities differ across firms • Southwest Airlines & Alaska Airlines have different resources • SWA – Higher employee productivity • Informal organization, pilots help load luggage • Resource immobility • Resources tend to be “sticky” & don’t move easily • Southwest Airlines sustained advantage • Several decades superior performance • Competitors have unsuccessfully imitated SWA model

9. The VRIO Framework • Valuable • Attractive features • Lower costs (& price) • Higher profits • Honda – design & build engines • Rare • Only a few firms possess • Toyota – lean manufacturing • Temporary competitive advantage • Costly to Imitate • Unable to develop or buy at a reasonable price • Apple – Yes • Crocs – No • Organized to Capture • Exploit competitive potential • Structure • Coordinating systems • Xerox PARC – No • Nintendo Wii – Yes

10. EXHIBIT 4.5 Applying RBV: Decision Tree Competitive Implications

11. THE VALUE CHAIN • Primary Activities • Add value directly in transforming inputs into outputs • Raw materials through production to customers • Support Activities • Indirectly add value • Provide support to the primary activities • Information systems, human resources, accounting, etc. • Managers can see how competitive advantage flows from a system of activities

12. Value Chain: Primary & Support Activities EXHIBIT 4.6

13. HOW TO PROTECT A COMPETITIVE ADVANTAGE • Better Expectations of Future Values • Buy Resources at a low cost • Real Estate Development - highway expansion • Path Dependence • Current alternatives are limited by past decisions • U.S. is the ONLY industrial nation not on the metric system • Honda’s core competency in gas engines took decades to build

14. HOW TO PROTECT A COMPETITIVE ADVANTAGE 3. Causal Ambiguity • Cause of success or failure are not apparent • Why has Apple had such a string of successful products? • Role of Steve Jobs’ vision? • Unique talents of the Apple design team? • Timing of product introductions? 4. Social Complexity • Two or more systems interact creating many possibilities • A group of 3 people has 3 relationships • A group of 5 people has 12 relationships

15. THE SWOT ANALYSIS • Conduct a SWOT after external and internal analysis completed • SWOT combines external and internal analysis • Internal Strengths and Weaknesses • From VRIO framework • External Opportunities and Threats • From PESTEL or competitive forces analysis (Ch. 3) • Leverage internal strengths to exploit external opportunities • Achieving such a dynamic fit yields sustained competitive advantage

16. EXHIBIT 4.11 Strategic Questions in the SWOT Analysis