INTERNAL ANALYSISProfessor William Wan

OBJECTIVES

Introduce Core Competence Analysis:

1st Component Value Chain

2nd Component: RBV 4 Criteria

Finally: Combination of the Two

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.

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.

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.

The Value Chain

Industry Value Chain

FIRM INFRASTRUCTURE

HR MANAGEMENT

TECHNOLOGY DEVELOPMENTPROCUREMENT

INBOUNDLOGISTICS

OPERATIONS OUTBOUNDLOGISTICS

MARKETING& SALES

SERVICE

Supplier Value Chains

FirmValue Chain

BuyerValue Chains

Firm Value Chain

Support Activities

PrimaryActivities

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

Retail: Primary Value-Chain Activities

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

Core Competencies

Businesses

Products

Roots = Resources & Capabilities

“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.

HOW DOES A TREE GROW WITH A LARGE TRUNK, GREEN LEAVES, AND SWEET FRUITS, ETC. ?

Types of Resources: Tangible Resources

Financial resources (e.g., cash accounts)

Physical resources (e.g., favorable locations)

Technological resources (e.g., patents)

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)

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

RBV 4 Criteria

Is the activity…

Valuable?

Rare?

Inimitable?

Nonsubstitutable?

STRATEGIC IMPLICATIONS

Valuable? Rare? Inimitable? Nonsubstitu-table?

Implications for Competitiveness

No No No No Competitive Disadvantage

Yes No No No Competitive Parity

Yes Yes No No Temporary Competitive Advantage

Yes Yes Yes Yes Sustainable Competitive Advantage

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.

WHAT IS THE BASIS OF AN ACTIVITY?

Resources & Capabilities

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)?

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.

Mickey

Dirty

Mickey is the embodiment of core competence; if one doesn’t agree, then is Dirtymore valuable and rarer? And can Dirty imitate or substitute Mickey?