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

Traditional or IO Model

Stakeholder Model

Value Chain Model

Resource-Based View (RBV)
External
Internal
Firm
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
Value
Service
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 that support the firm’s
strategy
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 that
support the firm’s strategy
 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

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:
• Valuable: Allows the firm to differentiate
products/services and create unique value
• Rare: Competitors do not have access to the
resource
• Inimitable: Competitors cannot easily copy or
reproduce the resource
• Nonsubsitutable: Equivalent resources that may
allow similar strategy are not readily available
VRIN Analysis
• Valuable: Allows the firm to differentiate
products/services and create unique value
• Satisfies customers needs better than competitors
• Generates superior profits
• Rare: Competitors do not have access to the
resource or an equivalent
Resources that are valuable and rare allow
temporary competitive advantage
VRIN Analysis
• Inimitable: Competitors cannot easily copy
or reproduce the resource
• Path dependent
• Causal ambiguity; social complexity
• Nonsubsitutable: 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
Rare
Inimitable
Non- Sub
Conclusion
Superior
Engineering
Yes
No
No
Yes
Comp. Parity
Automated
Production
Yes
Yes
No
No
Temp. comp. adv.
Integrated
Design
Yes
Yes
Yes
Yes
Sustainable comp. adv.
• Look for bundles of resources and capabilities
• Assess strategic implications for success