Chap004 - Dr. Gehan Dhameeth

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CHAPTER
4
Internal Analysis:
Resources,
Capabilities, and
Activities
Instructor:
Dr.Gehan Shanmuganathan
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
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.
4-2
ChapterCase 4
From Good to Great to Gone:
• Circuit City
 A GREAT performer from 1982 – 2000

World-class logistics & customer responsiveness

4S: service, selection, savings, & satisfaction

6 times better investment than GE under Jack Welch!
• Bankruptcy in fall of 2008!
 Outflanked by firms like Best Buy and Amazon
4-3
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 external environment
4-4
EXHIBIT 4.1
Creating Strategic Fit to Leverage Internal Strengths
4-5
Internal Analysis: Link to Superior Performance
• Combination of Resources & Capabilities
 Builds core competencies
 Competencies drive activities

To transform inputs into goods & services
 Activities can produce competitive advantage &
performance
 Reinvest profits from superior performance

Hone and upgrade core competencies
4-6
EXHIBIT 4.2 Linking Resources & Capabilities to Firm Performance
4-7
THE RESOURCE-BASED VIEW
• Tangible Resources
 Visible, physical attributes
• Intangible Resources
 No physical attributes
• 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
4-8
Two Critical Assumptions in RBV
• Resource heterogeneity
 Bundles of resources and capabilities differ across firms
 Southwest Airlines & Alaska Airlines have different
resources

SWA
– Higher employee productivity
– Informal organization, pilots help load luggage
• Resource immobility
 Resources tend to be “sticky” & don’t move easily
 Southwest Airlines sustained advantage
Several decades superior performance
 Competitors have unsuccessfully imitated SWA model

4-9
EXHIBIT 4.5 Applying RBV: Decision Tree Competitive Implications
4-10
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
4-11
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

4-12
EXHIBIT 4.8 Vanguard Group’s Activity System 2011
Legend
Core
Support
4-13
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

4-14
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
4-15
THE SWOT ANALYSIS
• Conduct a SWOT after external and internal
analysis completed
• SWOT combines external and internal analysis
 Internal Strengths and Weaknesses

From VRIO framework
 External Opportunities and Threats

From PESTEL or competitive forces analysis (Ch. 3)
 Leverage internal strengths to exploit external
opportunities

Achieving such a dynamic fit yields sustained competitive
advantage
4-16
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