INTERNAL ANALYSIS
Professor 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.
Support
Activities
The
ValueChain
Chain
Firm Value
Primary
Activities
FIRM INFRASTRUCTURE
HR MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARKETIN
G
& SALES
SERVICE
Industry Value Chain
Supplier
Value Chains
Firm
Value Chain
Buyer
Value Chains
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
Products
Core
Competencies
Roots
= Resources &
Capabilities
Businesses
“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?
Inimitatable?
Nonsubstitutable?
STRATEGIC IMPLICATIONS
Valuable?
Rare?
Inimitable?
Nonsubstitutable?
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.