Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability in U.S. Retailing Industry (1996-2

1. Chapter 4 Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability

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

3. 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

4. The Role of Resources and Capabilities in the Creation of Profit A product of the Resource Based View Resources Build Shape Competitive Advantages Distinctive Competencies Core Competencies Strategies Build Capabilities Competitiveness & Profit

5. Strength • Skill, specialized expertise, or important capability • Physical asset • Human assets or intellectual capital • Organizational asset • Intangible assets • Competitive achievement • Alliance or cooperative venture

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

9. Other Threats • Emergence of cheaper/better technologies • Introduction of better products by rivals • Entry of lower-cost foreign competitors • Onerous regulations • Rise in interest rates • Potential of a hostile takeover • Unfavorable demographic shifts • Adverse shifts in foreign exchange rates • Political upheaval in a country

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

12. The Role of Resources and Capabilities in the Creation of Profit A product of the Resource Based View Resources Build Shape Competitive Advantages Distinctive Competencies Core Competencies Strategies Build Capabilities Competitiveness & Profit

13. 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

16. Sony

18. 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?

19. Factors that Limit Imitation • Physical Uniqueness – location, patents • Path Dependency – accumulation effect • Causal Ambiguity – unable to disentangle • Social Complexity – social interactions are not readily understood nor duplicated • Absorptive Capacity – ability to identify, value, assimilate and use knowledge

20. 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

21. Value Creation per Unit

22. Comparing Toyota and General Motors

23. 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 • 49 – the number of hourly retirees for Toyota

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

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

26. 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

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

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

29. 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…..

30. Low Cost - Support Activity examples…... Fewer layers of management Policies to reduce turnover IBM Printer - 150 to 62 parts, 3.5 minutes Margin Monitor supplier performance Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin

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

32. 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...

33. 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

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

35. Your Firm Buyers Suppliers Your Rivals

36. Your Firm Opportunities for Advantage Buyers Suppliers Your Rivals

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