Know the other and know yourself: Triumph without peril. Know Nature and know the Situation: Triumph completely. Sun Tzu (~360 B.C.) University of Tehran - School of Management Strategic Management Hosseini F. Strategic Context Analysis Internal Environment: Resources and Capabilities

School of management- university of Tehran 2 Out lines Competitive Advantage Resource Based View to Organization Functional, Value Chain & Business Excellence Strategic Management Process0 Internal Analysis Approaches 4 Analytical Tools 6Appendix: Firm Performance Evaluation

Strategic management core processes Strategy Impliment ion and Control Organization Change Resources Context Analysis Stakeholders capabilities and Resources External Context Strateic Choice Corporate Levell Strategy Businss Level Strategy Mision and Vision 3 School of management- university of Tehran

Case Study Iran International Exhibition Co Mission Trade shows for export promotion International Trade shows in Iran Trade shows in overseas MarketingTrade Show Execution Procurment Human Resources Finance and Accounting Information Technology Technical Support Services Value Chain

School of management- university of Tehran 5 Internal analysis The process of Identifying and Analyzing the firm’s Strengths and Weaknesses

School of management- university of Tehran 6 Competitive Advantage  Firms achieve strategic competitiveness and earn above-average returns when their core competencies are effectively:  Acquired,  Bundled,  Leveraged.  Over time, the benefits of any value-creating strategy can be duplicated by competitors.

School of management- university of Tehran 7 Competitive Advantage (cont’d)  Sustainability of a competitive advantage is a function of:  The rate of core competence obsolescence due to environmental changes.  The availability of substitutes for the core competence.  The difficulty competitors have in duplicating or imitating the core competence.

School of management- university of Tehran 8 Creating Value  By exploiting their core competencies or competitive advantages, firms create value.  Value is measured by:  Product performance characteristics  Product attributes for which customers are willing to pay  Firms create value by innovatively bundling and leveraging their resources and capabilities.  Superior value  Above-average returns

School of management- university of Tehran 9 Creating Competitive Advantage  Core competencies, in combination with product- market positions, are the firm’s most important sources of competitive advantage.  Core competencies of a firm, in addition to analysis of its general, industry, and competitor environments should drive firm selection of strategies

School of management- university of Tehran 10 Resource Based View of the Organization  Two perspectives  The internal analysis of phenomena within a company  An external analysis of the industry and its competitive environment  Three key types of resources  Tangible resources  Intangible resources  Organizational capabilities

School of management- university of Tehran 11 Types of Resources Relatively easy to identify, and include physical and financial assets used to create value for customers  Financial resources  Firm’s cash accounts  Firm’s capacity to raise equity  Firm’s borrowing capacity  Physical resources  Modern plant and facilities  Favorable manufacturing locations  State-of-the-art machinery and equipment Tangible Resources

School of management- university of Tehran 12  Technological resources  Trade secrets  Innovative production processes  Patents, copyrights, trademarks  Organizational resources  Effective strategic planning processes  Excellent evaluation and control systems Types of Resources Intangible Resources Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time

School of management- university of Tehran 13 Types of Resources Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time  Human  Experience and capabilities of employees  Trust  Managerial skills  Firm-specific practices and procedures Tangible Resources Intangible Resources

School of management- university of Tehran 14 Types of Resources  Innovation and creativity  Technical and scientific skills  Innovation capacities  Reputation Tangible Resources Intangible Resources Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time

School of management- university of Tehran 15 Types of Resources Competencies or skills that a firm employs to transform inputs to outputs, and capacity to combine tangible and intangible resources to attain desired end  Outstanding customer service  Excellent product development capabilities  Innovativeness of products and services  Ability to hire, motivate, and retain human capital Tangible Resources Intangible Resources Organizational Capabilities

School of management- university of Tehran 16 Firm Resources and Sustainable Com advantages Is the resource or capability… Implications Neutralize threats and exploit opportunities Not many firms possess Physically unique Path dependency Causal ambiguity Social complexity No equivalent strategic resources or capabilities Valuable Rare Difficult to imitate Difficult to substitute

School of management- university of Tehran 17 Is the Resource Valuable? Organizational resources can be a source of competitive advantage only when they are valuable  Enable a firm to formulate and implement strategies that improve its efficiency or effectiveness

School of management- university of Tehran 18 Is the Resource Rare? Organizational resources also possessed by competitors are not sources of competitive advantage  Common strategies based on similar resources give no one firm an advantage  Competitive advantages are gained only from uncommon resources, resources that are rare to other competitors

School of management- university of Tehran 19 Can the Resource be Imitated? Difficulty in imitating resources is key to value creation because it constrains competition  Profits generated from inimitable resources are more likely to be sustainable  Physical uniqueness  Path dependency  Causal ambiguity  Social complexity

School of management- university of Tehran 20 Are Substitutes Readily Available? There must be no strategically equivalent valuable resources that are themselves not rare or inimitable  Substitutability may take at least two forms  Competitor may be able to substitute a similar resource that enables it to develop and implement the same strategy  Very different firm resources can become strategic substitutes (such as e-business as a substitute for physical retail facility)

School of management- university of Tehran 21 Criteria for Sustainable Competitive Advatage ValuableRareDifficult WithoutImplications to ImitateSubstancefor Competitiveness NoNoNoNoCompetitive disadvantage YesNoNoNoCompetitive parity YesYesNoNoTemporary competitive advantage YesYesYesYesSustainable competitive advantage Is a resource or capability… Source; Adapted from J. Barney, “Firm Resources a Sustained Competitive Advantage, ‘ Journal of Management 17 (1991), pp

Case Study ImplicationSubstitudableImitableRareResources ???Know How ???Soft wares ???Builldings ???Reputation ???Relationship with MAPNA

School of management- university of Tehran 23 Internal analysis Approaches  The Functional Analysis  The Value Chain Analysis  Porter’s Value Chain Model  The Business Excellence Analysis  Excellence Awards: EFQM Model  McKinsey 7S’s Model  BSC (Balanced Scorecard Model)

School of management- university of Tehran 24 Functional analysis  Management  Marketing and Sales  Financial  Operation / Production  R&D and Technology management  Human Resources Management

School of management- university of Tehran 25 Value-Chain Analysis  Value Chain:  Sequential process of value-creating activities  Value  The amount that buyers are willing to pay for what a firm provides them  Value is measured by total revenue  Firm is profitable to the extent the value it receives exceeds the total costs involved in creating its product or service

School of management- university of Tehran 26 Value Chain Analysis  Allows the firm to understand the parts of its operations that create value and those that do not.  A template that firms use to:  Understand their cost position.  Identify multiple means that might be used to facilitate implementation of a chosen business-level strategy.

School of management- university of Tehran 27 Value Chain Analysis  Value Chain  Shows how a product moves from the raw-material stage to the final customer.  To be a source of competitive advantage, a resource or capability must allow the firm:  To perform an activity in a manner that is superior to the way competitors perform it, or  To perform a value-creating activity that competitors cannot complete

School of management- university of Tehran 28 Value Chain Analysis  Primary activities involved with:  A product’s physical creation  A product’s sale and distribution to buyers  The product’s service after the sale  Support Activities  Provide the assistance necessary for the primary activities to take place.

School of management- university of Tehran 29 Porter’s Value Chain Model General administration Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service

School of management- university of Tehran 30 Primary Activities Associated with receiving, storing and distributing inputs to the product  Location of distribution facilities  Material and inventory control systems  Systems to reduce time to send “returns” to suppliers  Warehouse layout and designs Inbound Logistics

School of management- university of Tehran 31 Primary Activities Associated with transforming inputs into the final product form  Efficient plant operations  Appropriate level of automation in manufacturing  Quality control systems  Efficient plant layout and workflow design Inbound LogisticsOperations

School of management- university of Tehran 32 Primary Activities Associated with collecting, storing, and distributing the product or service to buyers  Effective shipping processes  Efficient finished goods warehousing processes  Shipping of goods in large lot sizes  Quality material handling equipment Inbound LogisticsOperations Outbound Logistics

School of management- university of Tehran 33 Primary Activities Associated with purchases of products and services by end users and the inducements used to get them to make purchases  Highly motivated and competent sales force  Innovative approaches to promotion and advertising  Selection of most appropriate distribution channels  Proper identification of customer segments and needs  Effective pricing strategies Inbound LogisticsOperationsOutbound Logistics Marketing and Sales

School of management- university of Tehran 34 Primary Activities Associated with providing service to enhance or maintain the value of the product  Effective use of procedures to solicit customer feedback and to act on information  Quick response to customer needs and emergencies  Ability to furnish replacement parts  Effective management of parts and equipment inventory  Quality of service personnel and ongoing training  Warranty and guarantee policies Inbound Logistics Operations Outbound Logistics Marketing and Sales Service

School of management- university of Tehran 35 Support Activities Typically supports the entire value chain and not individual activities  Effective planning systems  Ability of top management to anticipate and act on key environmental trends and events  Ability to obtain low-cost funds for capital expenditures and working capital  Excellent relationships with diverse stakeholder groups  Ability to coordinate and integrate activities across the value chain  Highly visible to inculcate organizational culture, reputation, and values General Administration

School of management- university of Tehran 36 Support Activities Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel  Effective recruiting, development, and retention mechanisms for employees  Quality relations with trade unions  Quality work environment to maximize overall employee performance and minimize absenteeism  Reward and incentive programs to motivate all employees General Administration Human Resource Management

School of management- university of Tehran 37 Support Activities Related to a wide range of activities and those embodied in processes and equipment and the product itself  Effective R&D activities for process and product initiatives  Positive collaborative relationships between R&D and other departments  State-of-the art facilities and equipment  Culture to enhance creativity and innovation  Excellent professional qualifications of personnel  Ability to meet critical deadlines General Administration Human Resource Management Technology Development

School of management- university of Tehran 38 Support Activities Function of purchasing inputs used in the firm’s value chain  Procurement of raw material inputs  Development of collaborative “win-win” relationships with suppliers  Effective procedures to purchase advertising and media services  Analysis and selection of alternate sources of inputs to minimize dependence on one supplier  Ability to make proper lease versus buy decisions General Administration Human Resource Management Technology Development Procurement

School of management- university of Tehran 39 Interrelationships among Value-Chain Activities within and across Organizations  Importance of relationships among value activities  Interrelationships among activities within the firm  Relationships among activities within the firm and with other organizations (e.g., customers and suppliers)

School of management- university of Tehran 40 Business Excellence approach  McKinsey 7Ss Model  EFQM Model  BSC Performance Results Performance Enablers

School of management- university of Tehran 41 7 S’s Model Strategy Systems Staffs Shared Value Structure Skills Styles

Definitions in Mckinsey Model School of management- university of Tehran 42 Seven-Ss" Formula - a Comprehensive Guide to Analyzing the Culture and Behavior of Corporations 1.Strategy - the route that the organization has chosen for its future growth; a plan an organization formulates to gain a sustainable competitive advantage 2.Structure - the framework in which the activities of the organization's members are coordinated. The four basic structural forms are the functional form, divisional structure, matrix structure, and network structure. 3.Systems - the formal and informal procedures, including innovation systems, compensation systems, management information systems, and capital allocation systems, that govern everyday activity. 4.Style - the leadership approach of top management and the organization's overall operating approach; also the way in which the organization's employees present themselves to the outside world, to suppliers and customers. 5.Skills - what the company does best; the distinctive capabilities and competencies that reside in the organization. 6.Staff - the organization's human resources; refers to how people are developed, trained, socialized, integrated, motivated, and how their carriers are managed. 7.Shared values - originally called super ordinate goals; the guiding concepts and principles of the organization - values and aspirations, often unwritten - that go beyond the conventional statements of corporate objectives; the fundamental ideas around which a business is built; the things that influence a group to work together for a common aim.

School of management- university of Tehran 43 EFQM Model

School of management- university of Tehran 44 Balance Score Card (BSC) Customer/ Market Financial Internal processes Learning & Growth Vision Mission strategy To succeed financially, how we should appear to our owners? To Achieve our vision how should we appear to our customers? To achieve our vision how will we sustain our ability to learn & Improve To satisfy our customers in witch business processes we must excel?

School of management- university of Tehran 45 Analytical Tools  Internal Analysis Process  Benchmarking

School of management- university of Tehran 46 Internal Analysis Process Select your approach Identify the main Internal Factors Collect and analysis Data Identify and Report the Strength and Weakness In real cases you have to invent your customized model. All introduced models prepare guidelines To do an effective and efficient analysis you must focus on the important internal factors. you don’t have unlimited time and Budget Use the information gathering tools and methods like: - questioners -- Interviews and - Observation Pay attention to secondary data Use proper analysis methods Statistics benchmarking Use analytical methods and tools to rank and evaluate the internal factors, such as - IFE matrix

School of management- university of Tehran 47 Benchmarking Assment of organizations’ capabilities and performance against competitor. Historical Benchmarking Industry/sector Benchmarking Best in Class Benchmarking Process Benchmarking Performance Benchmarking

Internal Factor Priority Analysis Middle PriorityHigh Priority Low PriorityMiddle PriorityHigh Priority Low Priority Middle Priority School of management- university of Tehran 48 Effects on Firm’s Competitive Advantages Strengths Low Middle High middleLow

School of management- university of Tehran 49 Sources  Dess, Lumpkin & Taylor (2005), “Strategic Management: creating competitive advantages”, McGraw Hill  David Fred R. (1999), “Strategic Management”, 7 th edition, Prentice Hall  Harrison and John, (2005) “Foundations in Strategic Management”, 3 rd edition, Thomson  Hitt Michael A. et al., (2007), “Strategic Management: Competitiveness and Globalization: Concepts and Cases, Thomson/South-Western.  M. Porter, (1996) “what is Strategy”, HBR