The Internal Organization

1. The Internal Organization Resources, Capabilities, Core Competencies, and Competitive Advantages Pages 68 - 94

2. 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

3. Analyzing the Internal Organization • Context of Internal Analysis • ‘Global mind-set’ • Ability to study an internal environment in ways that do not depend on the assumptions of a single country, culture, or context • Analyze firm’s portfolio of resources and bundle heterogeneous resources and capabilities • Understand how to leverage these bundles • An organization's core competencies creates and sustains its competitive advantage • Creating Value

4. Resource Based View Model of Competitive Advantage and Strategic Competitiveness

5. Resources and Capabilities • Tangible • Financial, Organizational, Physical, and Technological • Assets that can be seen, touched and quantified • Examples include equipment, facilities, distribution centers, formal reporting structures • Intangible • Human, Innovation and Reputational Resources • Assets rooted deeply in the firm’s history, accumulated over time • Usually can’t be seen or touched • Examples include knowledge, trusts, organizational routines, capabilities, innovation, brand name, reputation

6. Resources & Capabilities • Resources are what you have; Capabilities are what you can do

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

8. 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

9. 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 - • Transferable - • Replicable -

10. Factors that Limit Imitation • Physical Uniqueness • Path Dependency • Causal Ambiguity • Social Complexity • Absorptive Capacity

11. Sustainable Competitive Advantage? • Competitive consequences include • Disadvantage, parity, temporary advantage and sustainable advantage • Performance implications include returns • Above, below or average

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

13. 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

14. Value Creation per Unit

15. Comparing Toyota and General Motors

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

17. 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

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

19. The Basic Value Chain

20. 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…..

21. 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

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

23. 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...

24. 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

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

26. Your Firm Buyers Suppliers Your Rivals

27. Outsourcing • Definition: Purchase of a value-creating activity from an external supplier • Effective execution includes an increase in flexibility, risk mitigation and capital investment reduction • Trend continues at a rapid pace • Firms must outsource activities where they cannot create value or are at a substantial disadvantage compared to competitors • Can cause concerns • Usually revolves around innovative ability and loss of jobs