CHAPTER Internal Analysis: Resources, Capabilities, and Activities McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc.
Download
Report
Transcript CHAPTER Internal Analysis: Resources, Capabilities, and Activities McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc.
CHAPTER
4
Internal Analysis:
Resources,
Capabilities, and
Activities
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Part 1 Strategy Analysis
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
From 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
Chapter Case 4
Circuit City
• What are the key issues in Circuit City’s demise?
Management distracted by other businesses
Insufficient
Laid-off
investments in core competencies
3,000 very experienced sales staff
Response to online retailers inadequate
Best
Buy also having problems with this recently
Internal Analysis: Inside the Firm
• Comparing two firms in same industry:
Internal focus
Core Competencies
Unique
Can
strengths deep inside that differentiate a firm
drive competitive advantage
Strategic Fit
Internal
strengths change with the
external environment
EXHIBIT 4.1
Creating Strategic Fit to Leverage Internal Strengths
The Role of Strategy in Business is to Generate and
Sustain Value via the Linkages Between Position,
Organization, and Resources
Positioning
Organization
Resources &
Capabilities
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
9
Organization
• Structure
Formal definition of authority
Conflict resolution
• Systems
Rules, routines, evaluation and rewards
• Processes
Informal communication, networks, and recruitment
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”
11
EXHIBIT 4.2 Linking Resources and Capabilities to Firm Performance
EXHIBIT 4.3 Company Examples of Core Competencies & Applications
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.
EXHIBIT 4.4
Tangible and Intangible Resources
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.
EXHIBIT 4.5
Applying RBV: Decision Tree Competitive Implications
STRATEGY HIGHLIGHT 4.1
How Nintendo Focused on
the 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
Wii
•
DS in 2004
consoles in 2007
49% of game console market in 2010
Microsoft Kinect introduced in November of 2010
Competition
continues…
1–24
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
EXHIBIT 4.6
Value Chain: Primary & Support Activities
Hostess’s Cost Components
80
Profit
70
Marketing: Promotions
Cents per unit
60
Marketing: Advertising
50
Outbound logistics
40
Operations: Manufacturing
30
Operations: Packaging
20
Operations: Ingredients
10
0
© 1999 Pankaj Ghemawat
Relative Cost Analysis
90
80
Profit
70
Marketing: Promotions
Cents per unit
60
Marketing: Advertising
50
Outbound logistics
40
Operations: Manufacturing
30
20
Operations: Packaging
10
Operations: Ingredients
0
Hostess
© 1999 Pankaj Ghemawat
Little Debbie Ontario Baking Savory Pastries
Boeing Suppliers (777)
Firm
Country
Parts
Alenia
AeroSpace
Technologies
CASA
Fuji
Italy
Australia
Wing flaps
Rudder
Spain
Japan
GEC Avionics
United Kingdom
Korean Air
Korea
MenascoAerospace Canada
Ailerons
Landing gear
doors, wing section
Flight computers
Flap supports
Landing gears
Short Brothers
Ireland
Landing gear doors
Singapore
Aerospace
Singapore
Landing gear doors
3-7
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.
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
32
Southwest Airline’s Activity System
No baggage
transfers
No meals
No seat
assignments
Frequent,
reliable
departures
High
compensation
of employees
Flexible
union
contracts
15-minute
gate
turnarounds
Lean, highly
productive
ground and
gate crews
High level
of employee
stock
ownership
Limited
passenger
amenities
Limited use
of travel
agents
No
connections
with other
airlines
Standardized
fleet of 737
aircraft
Short-haul,
point-to-point
routes between
midsize cities
and secondary
airports
Automatic
ticketing
machines
Very low
ticket prices
High
aircraft
utilization
“Southwest,
the low-fare
airline”
33
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
EXHIBIT 4.7
Vanguard Group’s Activity System 1997
Legend
Core
Support
EXHIBIT 4.8
Vanguard Group’s Activity System 2011
Legend
Core
Support
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
If
decrease in value
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
EXHIBIT 4.10 Role of Inflows & Outflows in Building Stocks
STRATEGY 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
1–39
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
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
EXHIBIT 4.11
Strategic Questions in the SWOT Analysis
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
The
The Basic
Basic Framework
Framework
Strategy:
Strategy: the
the Link
Link between
between the
the
Firm
Firm and
and its
its Environment
Environment
THE FIRM
Goals &
Values
Resources &
Capabilities
Structure &
Systems
STRATEGY
STRATEGY
THE
INDUSTRY
ENVIRONMENT
Competitors
Customers
Suppliers
47
Take-Away Concepts
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.