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Internal Analysis

Internal Analysis. Professor William Wan. Objectives. Introduce Core Competence Analysis: 1 st Component Value Chain 2 nd Component: RBV 4 Criteria Finally: Combination of the Two. Why conducting a Firm (Internal) Analysis?.

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Internal Analysis

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  1. Internal Analysis Professor William Wan

  2. Objectives Introduce Core Competence Analysis: • 1st Component Value Chain • 2nd Component: RBV 4 Criteria • Finally: Combination of the Two

  3. Why conducting a Firm (Internal) Analysis? • Analysis helps understand what is strategically possible and choose the best strategy. • A firm cannot successfully implement any strategy without the appropriate set of resources and capabilities. • Weaknesses—the firm’s resource and capability deficiencies that make it difficult for the firm to complete important tasks • Strengths—resources and capabilities that allow the firm to complete important tasks.

  4. 1st Component: Value Chain • The Value Chain • Consists of the structure of activities that firms use to implement their strategy. • Firms analyze their value chain to understand how activities contribute to creating value for customers.

  5. Value-Chain • Sequential process of value-creating activities • Firm is profitable to the extent the value it receives exceeds the total costs involved in creating its product or service. • All activities are intended to create value.

  6. The Value Chain Firm Value Chain Primary Activities Support Activities FIRM INFRASTRUCTURE HR MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT MARKETING & SALES SERVICE INBOUND LOGISTICS OUTBOUND LOGISTICS OPERATIONS Industry Value Chain Supplier Value Chains Firm Value Chain Buyer Value Chains

  7. Adapting Value Chain Framework • Sometimes, conducting value chain analysis may require adapting the value chain activities to suit the particular type of business the company pursues. • For example, Best Buy

  8. Retail: Primary Value-Chain Activities

  9. 2nd Component : Resource Based View (RBV) • Draw a sharp distinction between a portfolio of businesses & a portfolio of resources/capabilities. • Conventional conceptualization of a firm is defined by its business(es); but this recent line of thought proposes that a firm should be defined by what resources & capabilities it possess. • If just focusing on end products, miss the real strengths of a company

  10. Products Businesses Core Competencies Roots = Resources & Capabilities

  11. “Tree” Analogy • The products we see made by a company is the outcomes of the “roots” of the company. • We don’t normally see the roots (resources & capabilities) of a company, but they are the most important. The roots grow the trunk of a tree.

  12. How does a tree grow with a large trunk, green leaves, and sweet fruits, etc. ?

  13. Types of Resources: Tangible Resources • Financial resources (e.g., cash accounts) • Physical resources (e.g., favorable locations) • Technological resources (e.g., patents)

  14. Types of Resources: Intangible Resources • Human capital (e.g., experience, trust, firm-specific practices and procedures) • Reputation (e.g., brand name; relationship with suppliers/buyers)

  15. Capabilities • Combinations of tangible and intangible resources • Outstanding customer service • Excellent product development capabilities • Innovativeness of products and services • Ability to hire, motivate, and retain human capital

  16. RBV 4 Criteria Is the activity… Valuable? Rare? Inimitable? Nonsubstitutable?

  17. Strategic Implications

  18. Finally: Combination • Core Competencies • Activities that the firm emphasizes and performs especially well. • Activities provide products/services to customers that are superior to those provided by competitors. • Help leads to sustainable competitive advantage.

  19. What is the Basis of an activity? • Resources & Capabilities

  20. Searching for Core Competence Step 1:Use a Value Chain to organize where value adding activities reside in a company. ***What are the resources/capabilities leading to those activities? Step 2: Use the RBV 4 criteria to assess if the company has any core competence(s) by assessing each value chain activity and the corresponding resources/capabilities ***Are the core competences broad or narrow (if there is any at all)?

  21. In essence, • A firm’s internal environment (strengths and weaknesses) informs us what opportunities it can capture and what threats it can deal with. • Similar to Five Forces for industry analysis, value chain analysis can assist us to conduct a firm analysis. • Use the RBV 4 criteria to assess which activities (through a firm’s resources & capabilities) of the value chain are a firm’s core competences.

  22. Mickey Dirty Mickey is the embodiment of core competence; if one doesn’t agree, then is Dirty more valuableand rarer? And can Dirty imitate or substitute Mickey? 

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