Strategy Arc

STRATEGY

Environment Firm

Search for resources and capabilities that provide the firm with sustainable competitive advantage

Internal Environment Analysis STRATEGY Environment

Firm

Internal analysis search for resources and capabilities that provide the firm with sustainable competitive advantage

Assumptions

   All firms are alike and all firms are different Firms develop unique qualities based on their history, experiences and strategies Success depends on how well firms develop and utilize their skills, resources, and capabilities to create competencies – • create competitive advantage (provide value, control costs) • • satisfy their stakeholders create barriers to competitors

Internal Analysis

STRATEGY

Environment Firm

Internal Analysis has two parts

1.

Evaluation of the firms strategy to determine how well the strategy integrates the firm with the external environment. 2.

Systematic analysis of the skills, resources, capabilities, and competencies the firm utilizes to support its strategy

STRATEGY

Strategy

Environment Firm

Show how firm is addressing conditions in the external environment  Identify the strategy approach   Rational v. Emergent Low Cost v. Differentiated v. Integrated  Broad v. Focused  Evaluate the effectiveness of the strategy  Financial   Balanced Scorecard Stakeholder

Strategy Models

STRATEGY

Environment Firm

 Traditional or IO Model  Stakeholder Model  Value Chain Model  Resource-Based View (RBV) External Internal

IO Model

    Views the firm as an economic actor responding to market forces Conditions in the external environment are the primary determinant of success Strategic decisions involve choosing best markets and products Primary Tools:  Industry Analysis (Five-Forces, Strategic Group)  Financial Ratios

Stakeholder Model

    Views firm as an extended network of relationships and dependencies Stakeholder support determine sustainability Strategic decisions involve identifying and satisfying key stakeholders Primary Tools  Stakeholder Analysis  Financial Ratios

Value Chain Model

    Views firm as a set of linked value creating activities that transform inputs into outputs Market distinction (doing different things; doing things differently) determine success Strategic decisions involve creating superior value at lowest cost Primary Tools:  External Analysis   Value Chain Analysis Financial Ratios

The Value Chain

General administration Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service Value

Value-Chain Analysis

  Firm is profitable to the extent the revenue it receives exceeds the total costs involved in creating its products or services Value chain analysis involves  identifying key activities strategy that support the firm’s  Evaluating the effectiveness   of key activities Compare the costs and value added of key activities in the value chain Benchmarking to compare key activities to competitors  VRIN

Value-Chain Analysis

Value chain analysis involves  List major activities the firm engages in for each of the value chain cells   From these, identifying key activities support the firm’s strategy Evaluating the effectiveness that of key activities   Compare the costs and value added of key activities in the value chain Benchmarking to compare key activities to competitors  VRIN

Resource Based View

    Views firm as a unique collection of resources and capabilities Core competencies of the firm determine success Strategic decisions involve creating and sustaining competitive advantage through core competencies Primary Tools:  VRIN Analysis  Financial Ratios

Resource Based Model

Firm converts inputs into outputs using  Resources : the assets available to a firm to develop and implement value creating strategies  Tangible : assets the firm uses to create value    financial, physical, technological, organizational Intangible : unique routines and practices that are developed over time  human, creative, reputation, culture Organizational Capabilities : the procedures and processes the firm has developed to use its resources effectively to achieve desired ends; the ability to put resources to productive use

Core Competencies

Firms create sustainable competitive advantage by developing

Core Competencies

 The

specific

resources and capabilities of a firm that allow it to differentiate its products or services from competitors Core competencies are the basis for strategy and competitive advantage Core competencies are most effective when they are based on intangible resources and organizational capabilities

VRIN

Analysis

To be a source of sustainable competitive advantage, a specific resource or capability must be: •

V

aluable: Allows the firm to differentiate products/services and create unique value •

R

are: Competitors do not have access to the resource •

I

nimitable: Competitors cannot easily copy or reproduce the resource •

N

onsubsitutable: Equivalent resources that may allow similar strategy are not readily available

VRIN

Analysis

• V aluable: Allows the firm to differentiate products/services and create unique value • • Satisfies customers needs better than competitors Generates superior profits • R are: Competitors do not have access to the resource or an equivalent Resources that are valuable and rare allow temporary competitive advantage

VRIN

Analysis

• I nimitable: Competitors cannot easily copy or reproduce the resource • • Path dependent Causal ambiguity; social complexity • N onsubsitutable: Equivalent resources that may allow similar strategy are not readily available Resources that are inimitable and nonsubstitutable allow sustainable competitive advantage

VRIN

Analysis

  Identify specific resources and capabilities Construct a VRIN Table Competency Valuable Superior Engineering Yes Automated Production Yes Integrated Design Yes Rare No Yes Yes Inimitable No No Yes Non- Sub Conclusion Yes Comp. Parity No Yes Temp. comp. adv.

Sustainable comp. adv.

• Look for bundles of resources and capabilities • Assess strategic implications for success