Post on 02-Jan-2016
transcript
4CHAPTER
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Internal Analysis: Resources, Capabilities, and Activities
LO 4-1 Distinguish among a firm’s resources, capabilities, core competencies, and firm activities.
LO 4-2 Differentiate between tangible and intangible resources.
LO 4-3 Describe the critical assumptions behind the resource-based view.
LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources.
LO 4-5 Identify competitive advantage as residing in a network of firm activities.
LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.
LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.
LO 4-8 Conduct a SWOT analysis.
Chapter Case 4 Chapter Case 4 Chapter Case 4 Chapter Case 4 From Good to Great to GoneFrom Good to Great to Gone: From Good to Great to GoneFrom Good to Great to Gone:
• Circuit City
A great performer from 1982 – 2000:
World-class logistics and customer responsiveness
4S: service, selection, savings, and satisfaction
6 times better investment than GE under Jack Welch
• Bankruptcy in fall of 2008
Outflanked by firms like Best Buy and Amazon
Circuit City
• What are the key issues in Circuit City’s demise?
Management distracted by other businesses
Insufficient investments in core competencies
Laid-off 3,000 very experienced sales staff
Response to online retailers inadequate
Best Buy also having problems with this recently
Chapter Case 4 Chapter Case 4
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 the
external environment
The Role of Strategy in Business is to Generate and Sustain Value via the Linkages Between
Position, Organization, and Resources
Positioning
Organization Resources & Capabilities
9
Positioning
• Scope of the Firm:
Geographic scope
Product-market scope: Choice of businesses (corporate portfolio analysis)
Product market positioning within a business
Vertical integration decisions
Organization
• Structure Formal definition of authority Conflict resolution
• Systems Rules, routines, evaluation and rewards
• Processes Informal communication, networks, and recruitment
11
Resources and Capabilities
• Tangible resources e.g., physical capital
• Organizational capabilities e.g., routines and standard operating procedures
• Intangible resources e.g., trademarks, “know-how”
IndividualIndividual OrganizationOrganization
ExplicitExplicit
TacitTacit
InformationFacts
Scientific kn.
DatabasesSystems & procedures
Intellectual property
Skills Organizationalcapabilities
CRAFTENTERPRISES
‘INDUSTRIAL’ ENTERPRISESTypes
ofKnowledge
Typesof
Knowledge
Levels of knowledgeLevels of knowledge
Knowledge Types and Knowledge ConversionKnowledge Types and Knowledge Conversion
Precision Mechanics
FineOptics
Micro-Electronics
35mm SLR cameraCompact fashion cameraEOS autofocus camera
Digital cameraVideo still camera
Plain-paper copierColor copier
Color laser copier Laser copierBasic fax
Laser faxMask aligners
Excimer laser alignersStepper aligners
Inkjet printerLaser printer
Color video printerCalculator
Notebook computer
Canon: Products and Core Technical CapabilitiesCanon: Products and Core Technical Capabilities
LO 4-1 Distinguish among a firm’s resources, capabilities, core competencies, and firm activities.
LO 4-2 Differentiate between tangible and intangible resources.
LO 4-3 Describe the critical assumptions behind the resource-based view.
LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources.
LO 4-5 Identify competitive advantage as residing in a network of firm activities.
LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.
LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.
LO 4-8 Conduct a SWOT analysis.
Appraising ResourcesAppraising Resources
RESOURCE CHARACTERISTICS INDICATORS
Financial Borrowing capacity Debt/ Equity ratio
Internal funds/ generation Credit rating
Tangible Net cash flow
Resources Physical Plant and equipment: Market value of
size, location, technology fixed assets.
flexibility. Scale of plants
Land and buildings. Alternatives for fixed
Raw materials. assets
Technology Patents, copyrights, know how No. of patents owned.
R&D facilities. Royalty income
Intangible Technical and scientific R&D expenditure.
Resources employees R&D staff
Reputation Brands. Customer loyalty. Company Brand equity. Product
reputation (with suppliers, customers, price premium.
government) Recognition.
Human Training, experience, adaptability, Employee qualifications,
Resources commitment and loyability of customers pay rates, turnover.
The Resource-based View
• Google Example Tangible resources valued at $5 billion
Intangible brand valued at over $100 billion
Googleplex has both tangible and intangible aspects
• Competitive Advantage More Likely….. From intangible resources
Two Critical Assumptions in RBV
• Resource heterogeneity Bundles of resources and capabilities differ across firms Southwest Airlines and Alaska Airlines have different
resources SWA
– Higher employee productivity
– Informal organization, pilots help load luggage
• Resource immobility Resources tend to be “sticky” and do not move easily Southwest Airlines sustained advantage
Several decades superior performance Competitors have unsuccessfully imitated SWA model
LO 4-1 Distinguish among a firm’s resources, capabilities, core competencies, and firm activities.
LO 4-2 Differentiate between tangible and intangible resources.
LO 4-3 Describe the critical assumptions behind the resource-based view.
LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources.
LO 4-5 Identify competitive advantage as residing in a network of firm activities.
LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.
LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.
LO 4-8 Conduct a SWOT analysis.
Scarcity
Relevance
Durability
Mobility
Replicability
Property rights
Relative bargainingpower
Embeddedness ofresources
THE EXTENT OF THE COMPETITIVE ADVANTAGE
ESTABLISHED
SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE
APPROPRIABILITY
THE PROFITEARNING POTENTIALOF A RESOURCE OR
CAPABILITY
The Rent-Earning Potential of Resources and Capabilities
The Rent-Earning Potential of Resources and Capabilities
1–24
STRATEGY HIGHLIGHT 4.1STRATEGY HIGHLIGHT 4.1 How Nintendo Focused onthe Casual Gamer
• Video Gaming Business
$22 billion in 2009, growing to $60 billion in 2013
Nintendo understands the casual gamer
Game Boy handheld devices in 1990
Nintendo DS in 2004
Wii consoles in 2007
• 49% of game console market in 2010
Microsoft Kinect introduced in November of 2010
Competition continues…
LO 4-1 Distinguish among a firm’s resources, capabilities, core competencies, and firm activities.
LO 4-2 Differentiate between tangible and intangible resources.
LO 4-3 Describe the critical assumptions behind the resource-based view.
LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources.
LO 4-5 Identify competitive advantage as residing in a network of firm activities.
LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.
LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.
LO 4-8 Conduct a SWOT analysis.
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
3-4Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
The Value Chain
Adapted from Exhibit 3.1 The Value Chain: Primary and Support Activities
Source: Adapted with permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter.
General administration
Human resource management
Technology development
Procurement
Inbound logistics
Operations Outbound logistics
Marketing and sales
Service
© 1999 Pankaj Ghemawat
Hostess’s Cost Components
0
10
20
30
40
50
60
70
80
Cen
ts p
er u
nit
Profit
Marketing: Promotions
Marketing: Advertising
Outbound logistics
Operations: Manufacturing
Operations: Packaging
Operations: Ingredients
© 1999 Pankaj Ghemawat
Relative Cost Analysis
0
10
20
30
40
50
60
70
80
90
Hostess Little Debbie Ontario Baking Savory Pastries
Cen
ts p
er u
nit
Profit
Marketing: Promotions
Operations: Manufacturing
Operations: Packaging
Operations: Ingredients
Marketing: Advertising
Outbound logistics
3-7
Boeing Suppliers (777)Boeing Suppliers (777)
Firm Country PartsAlenia Italy Wing flaps
AeroSpaceTechnologies
Australia Rudder
CASA Spain Ailerons
doors, wing sectionFuji Japan Landing gear
GEC Avionics United Kingdom Flight computers
Korean Air Korea Flap supports
MenascoAerospace Canada Landing gears
Short Brothers Ireland Landing gear doors
SingaporeAerospace
Singapore Landing gear doors
Value Chain Analysis
• Outsourcing activities can have the unintended consequence of damaging the firm’s potential to evaluate continuously its key assumptions, learn, and create new capabilities and core competencies. Therefore, managers should verify that the firm does not outsource activities that stimulate the development of new capabilities and competencies.
32
Strategic Coherence
The Logic of How The Business Fits Together:
•Southwest Airlines Low Price Short Routes
•No Frills•Point-to-Point•One Aircraft --
Boeing 737•High number of
Aircraft per Route•No Meals•Flexible/ Lower
Staffing
•American Airlines Premium Price Short, Long, & Int’l Variety
•Hub & Spoke System•Multiple Aircraft•Low number of
Aircraft per Route•Meals & Service•Higher Staffing
33
Southwest Airline’s Activity System
Limitedpassengeramenities
Short-haul,point-to-pointroutes betweenmidsize cities
and secondaryairports
Highaircraft
utilization
Frequent,reliable
departures
Lean, highlyproductiveground andgate crews
Very lowticket prices
No meals
No seatassignments
No baggagetransfers
No connectionswith other
airlines
15-minutegate
turnarounds
Limited useof travelagents
Automaticticketingmachines
Standardizedfleet of 737
aircraft
Flexibleunion
contracts
High levelof employee
stockownership
“Southwest,the low-fare
airline”
Highcompensationof employees
Dynamic Strategic Activity Systems
• A network of interconnected activities in the firm
• Evolve over time – external environment changes Add new activities & upgrade or remove obsolete
ones
• Vanguard Example A global investment firm - $1.4 trillion managed assets
Emphasis on low customer cost and quality service – Among the lowest expense ratios in the industry (0.20%)
Updated the activity system from 1997 to 2011 New customer segmentation core Two new support activities Permits customized offerings: long-term and more active traders
Dynamic Capabilities Perspective
• A firm can modify its resource base to gain & sustain a competitive advantage Advantage is gained from reconfiguring a firm’s
resource base
Honda core competency in gas-powered engine design Could decrease in value
If consumers move toward electric-powered cars
BYD competency in batteries would gain advantage
• Dynamic capabilities are an intangible resource
• Resource stocks and flows are a useful view
1–39
STRATEGY HIGHLIGHT 4.2STRATEGY HIGHLIGHT 4.2 IBM’s Dynamic Strategic Fit
• From mainframes to services transformation
In 1992, less than 8,000 people in global services
In 2010, nearly 150,000 employees there
• IBM started the PC revolution…then became a misfit in the industry
• Lou Gerstner joined as CEO of a nearly bankrupt IBM
• Moved IBM downstream toward services and thus higher value added
• Transformation of core competency:
• Today, IBM is a nimble IT-services firm
EXHIBIT 4.9 IBM Product Scope 1993 and 2010
In 1993, hardware accounted for 50% of IBM revenues
In 2010, software & services accounted for 80% of IBM revenues,
hardware was down to 18%
LO 4-1 Distinguish among a firm’s resources, capabilities, core competencies, and firm activities.
LO 4-2 Differentiate between tangible and intangible resources.
LO 4-3 Describe the critical assumptions behind the resource-based view.
LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources.
LO 4-5 Identify competitive advantage as residing in a network of firm activities.
LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.
LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.
LO 4-8 Conduct a SWOT analysis.
How to Protect a Competitive Advantage
1. Better Expectations of Future Values Buy Resources at a low cost
Real Estate Development - highway expansion
2. 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
1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995
Founding ofHonda motor
company
50cc 2-cycle engine
4 cycle engines
405ccmotorcycle
Related products:ground tillers, marineengines, generators,pumps, chainsaws
First product: clip-on engine
for bicycles
The 50ccsuper-cub
N360 minicar
1000ccGoldwingtouring
motor cycle
Acura Cardivision
The Evolution of Honda Motor CompanyThe Evolution of Honda Motor Company
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
SWOT Matrix: Four Categories of Alternatives
1. Strength-Opportunity: “Offensive” alternatives, utilize a strength to address an opportunity
2. Weaknesses-Threat: “Defensive” alternatives, eliminate or minimize a weakness in order to minimize the effect of a threat
3. Strength-Threat: Utilize a strength to minimize the effect of a threat
4. Weakness-Opportunity: Shore up a weakness to enable the organization to take advantage of an opportunity
47
The Basic FrameworkStrategy: the Link between the
Firm and its Environment
The Basic FrameworkStrategy: the Link between the
Firm and its Environment
THE FIRM
Goals & Values
Resources &Capabilities
Structure & Systems
THE INDUSTRYENVIRONMENT
CompetitorsCustomersSuppliers
STRATEGYSTRATEGY
The Basic FrameworkStrategy: the Link between the
Firm and its Environment
The Basic FrameworkStrategy: the Link between the
Firm and its Environment
THE FIRM
Goals & Values
Resources &Capabilities
Structure & Systems
THE INDUSTRYENVIRONMENT
CompetitorsCustomersSuppliers
STRATEGYSTRATEGY
LO 4-1 Distinguish among a firm’s resources, capabilities, core competencies, and firm activities.
Core competencies are unique, deeply embedded, firm-specific strengths that allow firms to differentiate their products and services to create more value for consumers than their rivals or to offer products and services of acceptable value at lower cost.
Resources are assets that a company can draw on when crafting and executing strategy. Capabilities are the organizational competencies necessary to orchestrate a diverse set of resources to deploy them strategically. Activities enable firms to add value by transforming inputs into goods and services.
LO 4-2 Differentiate between tangible and intangible resources.
Tangible resources have physical attributes and are visible.
Intangible resources have no physical attributes and are invisible.
Competitive advantage is more likely to be based on intangible resources.
LO 4-3 Describe the critical assumptions behind the resource-based view. The resource-based view makes two critical assumptions: resource heterogeneity
(resources differ across firms) and resource immobility (resources are sticky).
Take-Away Concepts
LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources.
For a firm’s resource to be the basis of a competitive advantage, it must have VRIO attributes: valuable (V), rare (R), and costly to imitate (I). The firm must also be able to organize (O) in order to capture the value of the resource.
LO 4-5 Identify competitive advantage as residing in a network of firm activities.
Each primary activity the firm performs should add incremental value directly by transforming inputs into outputs. Support activities sustain primary activities.
A network of primary and supporting firm activities can create a strategic fit that can lead to competitive advantage.
A strategic activity system conceives of a firm as a network of interconnected activities. Firms need to upgrade their value activities over time, in response to changes in the external environment and to moves of competitors..
Take-Away Concepts
LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.
To sustain a competitive advantage, any fit between a firm’s internal strengths and the external environment must be dynamic. This fit is accomplished through the ability to create, deploy, modify, reconfigure, or upgrade the resource base.
LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.
Several conditions make it costly for competitors to imitate another firm’s resource or capability that underlie its competitive advantage: (1) better expectations of future resource value (or simply luck), (2) path dependence, (3) causal ambiguity, and (4) social complexity
LO 4-8 Conduct a SWOT analysis.
Formulating a strategy that increases the chances of gaining & sustaining a competitive advantage is based on synthesizing insights obtained from an internal analysis of the company’s strengths (S) and weaknesses (W) with those from an analysis of external opportunities (O) and threats (T).
A SWOT analysis by itself is insufficient to guide strategy formulation.
Take-Away Concepts