Announcements

1. Announcements Thursday - Randy Conrads Monday - Midterm

2. Internal Analysis

3. Profitability in the U.S. Retailing Industry, 1996-2001

4. Why Internal Analysis? • Early strategy theory rooted in industry structural analysis - external focus • This approach has lost its appeal because: • internationalization & deregulation has all but removed safe havens • technology and changes in demand have blurred industry lines

5. Internal Analysis • Tools and Concepts • Sustainable Competitive Advantage • Value Chain • SWOT Analysis

6. The Role of Resources and Capabilities in the Creation of Profit and Sustainable Competitive Advantage Resources Build Shape Competitive Advantages Distinctive Competencies Core Competencies Strategies Build Capabilities Competitiveness & Profit

7. Resources & Capabilities • Resources are what you have; Capabilities are what you can do • Physical asset • Human assets or intellectual capital • Organizational asset • Intangible assets • Competitive achievement • Alliance or cooperative venture

8. Tangible Resources Org. Capabilities Inputs into Outputs Intangible Resources • Examples….. • Customer Service • Product Development • Employee Productivity

9. Core Competencies • central to the firm’s competitiveness • rewarded in market place • combination of skills & knowledge, not products or functions • flexible, long term platforms • embedded in the organization’s systems • distinctive competencies are those the firm performs better than rivals • All core competencies have the potential to become core rigidities

12. Sony

14. Sustainable Competitive Advantage Must be valuable, rare, inimitable, and non-substitutable Sustainability is a function of • Durability - how long will it last? • Technology? Reputation? Fixed Assets? • Imitability - how quickly can it be copied? • Transparent - easy to see? • Transferable - can it be done elsewhere? • Replicable - can we do it here?

15. Factors that Limit Imitation • Physical Uniqueness • Path Dependency • Causal Ambiguity • Social Complexity • bsorptive Capacity

16. Another Tool to Consider • Porter’s Value Chain

17. Relative costs and prices Where do cost/price differences come from? • raw materials and components • differences in technology, plant, equipment • efficiencies, learning, experience, wages, productivity • marketing, sales, promotion, warehousing, distribution, administration costs • distribution • inflation, exchange and tax rates

18. Value Creation per Unit

19. Comparing Toyota and General Motors

20. What are some of Detroit’s Problem? • America’s largest purchaser of Viagra – GM • 524,000 – the number of hourly retirees for GM, Chrysler, and Ford • Over $1,500 per car wrapped up in healthcare

21. Passengers per Employee • United – 938 • Delta – 1,493 • Alaska Air – 1,518 • Southwest Air – 2,424

22. Porter’s Value Chain Views the organization as a series (chain) of activities, which may or may not create value

23. Porter’s Value Chain (cont.) • Primary Activities • Inbound logistics – Supply Chain Management • Operations • Outbound logistics - Distribution • Marketing and sales • Customer service • Contribute to the physical creation of the product/service, its sale and transfer to the buyer, and its service after the sale

24. Porter’s Value Chain (cont) • Support Activities • Company infrastructure – General Admin • Human resource management • R&D, Technology and Systems Development • Procurement

25. The Value Chain S u p p o r t Company Infrastructure HRM R&D, Technology & Systems Development Margin Procurement Service Primary Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin

26. A low cost strategy….. Company Infrastructure HRM R&D, Technology & Systems Development Margin Procurement Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin …tries to pull the arrow back…..

27. Think back to the Southwest example… • Single aircraft • Short hauls • No meals, transfers, seat assignments • Secondary airports • No use to travel agents…..

28. Low Cost - Support Activity examples…... Fewer layers of management Policies to reduce turnover WalMart’s inventory system Margin Monitor supplier performance Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin

29. Low cost - Primary Activity examples…. • Inbound - Toyota • Operations - Subway • Outbound - Campbell Soup’ Continuous Replenishment • Marketing/Sales - WalMart • Customer Service - Federal Express

30. A differentiation strategy….. Company Infrastructure HRM R&D, Technology & Systems Development Margin Procurement Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin ….tries to pull the arrow forward...

31. Differentiation - Support Activity examples…... Commitment to quality Compensation rewarding innovation Amazon recommendations Margin Purchasing high-quality components Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin

32. Differentiation - Primary Activity examples…... • Inbound - Dell • Operations - Marriott • Outbound - WebVan • Market/Sales - Nordstrom’s • Customer Service - Pirtek

33. Your Firm Buyers Suppliers Your Rivals

34. Your Firm Opportunities for Advantage Buyers Suppliers Your Rivals

35. Your Firm Opportunities for Adding Value Opportunities for Adding Value Buyers Suppliers Your Rivals

37. SWOT Analysis • Strengths • Weaknesses • Opportunities • Threats • Maximize Strengths and Opportunities • Minimize Weaknesses and Threats

38. Evaluation of Resources Strength or Weakness • relative to competitors • basic business requirements • key vulnerabilities