STRATEGIC ANALYSIS Prof.univ.dr.dr.dr.h.c. Constantin Brătianu Faculty of Business Administration Academy of Economic Studies Bucharest

Strategic management process Intention Strategic Analysis Strategies Elaboration Strategies Implementation Strategic management process

Internal Environment Analysis External Environment Analysis Strategic Analysis Internal Environment Analysis SWOT Analysis External Environment Analysis

Internal Environment Analysis Finding Core Competencies Core Competencies Strategic Advantage Capabilities Unique Rare Valuable Costly to immitate Resources Tangible - Intangible Value Chain Analysis

Resources Tangible resources - Financial (money, borrowing capacity) - Physical objects (buildings, equipments) - Human resources (as physical bodies) Intangible resources: - Human resources (experience, talent, intelligence) - Explicit knowledge (documents) - Structural capital - Brands, symbols, company image

Market/Book values Company Market value ($ billions) Book value eBay 54.5 4.9 Intel 170.9 33.5 Microsoft 286.2 57.5 Nucor(Steel) 4.8 2.3 J.C.Penny 10.0 6.4 General Motors 27.3 25.3

Intellectual capital Human capital Structural capital Customer capital

Human capital Information and knowledge at individual level Thinking models, as cognitive approximations of the real world in which we are living Talent and creativity potential Rational intelligence Emotional intelligence

Socialization Externalization Internalization Combination Tacit knowledge Tacit knowledge Externalization Internalization Explicit knowledge Explicit knowledge Combination

Socialization It is a process of exchange of tacit knowledge between two or more individuals. The most difficult process since tacit knowledge is based on sharing feelings, emotions, and experiences. Individual face-to-face interaction is the only way to capture the full range of physical sensations and emotional reactions that are necessary for transferring tacit knowledge.

Combination This is the most used and practical mode for sharing explicit knowledge between two or several individuals It is based on rational arguments and verbal language Knowledge flows from the individual with a higher level of knowing toward the individual with a lower level of knowing Sharing knowledge is different than sharing tangible things, since there is no law of conservation

Externalization This is a process of transforming tacit knowledge into explicit knowledge It is a transformation of knowledge taken from direct experience and from the non-rational mind and put it into a rational way able of being explained using the verbal language For the Japanese companies this is a knowledge creation process, which contributes significatly to the innovation process

Internalization It is the reverse process by which explicit knowledge is transformed into tacit knowledge This is very helpful in developing different skills and in creating some control mechanisms It is a process which goes from the organizational knowledge to the individual knowledge, in order to increase individual’s understanding It is a very useful process in developing organizational culture and behavior

Capabilities Capability = Managerial capacity of using efficiently given resources Capabilities can be obtained by integrating in time human resources, organizational structure and organizational knowledge Examples: Microsoft – employees motivation capability Walt Disney, 3M – innovation capability Toyota – just in time process capability

Core Competencies Core competency = any of the strengths that represent unique skills or resources that can determine the organization’s competitive edge Core competency = an integration of resources and capabilities in a specific way in order to increase company’s competitiveness Any core competency is base on resources and capabilities, but not any of these can become core competency Finding core competencies: 4 criteria & chain value analysis

The 4 criteria Uniqueness = A resource or capability which is not to be found in the other companies Rarity = A resource or capability ob being rare (Walt Disney – talent and creativity) Valuable = A resource or capability of being in itself very valuable (Harvard University – professors) Imitation cost = the higher the imitation costs, the longer it takes to competitors to copy the core competency

VRINE Model Value - Rarity - Inimitability – Nonsubstitutability – Exploitability Value – A resource or capability is valuable if it enables a firm to take advantage of opportunities or to fend off threats in its environment. Does the resource or capability allow the firm to meet a market demand or protect the firm from market uncertainty? If it is true, it satisfies the value requirement. Valuable resources are needed in an industry, but value in itself does not convey an advantage. Union Pacific (UP) Railroad, for example, maintains an extensive network of rails and equipment on the US Golf Coast (S-E). It has a great value in any competition with others carriers.

VRINE Model Rarity – Rarity is defined as scarcity relative to demand. An otherwise valuable resource that isn’t rare won’t necessarily contribute to competitive advantage. Assuming that a resource or capability is valuable, is it scarce relative to demand or is it widely possessed by competitors? Valuable resources that are also rare contribute to a competitive advantage, but that advantage may be only temporary. When McDonald’s signs an agreement to build a restaurant inside a Wal-Mart store, it has an intangible location advantage over Burger King and Wendy’s that is not only valuable but also rare because it has an exclusive right to that geographic space.

VRINE Model Inimitability and Nonsubstitutability A valuable and rare resource or capability will grant an advantage only so long as competitors don’t gain possession of it or find a close substitute. The criterion of inimitability is satisfied if competitors cannot find a way to imitate or copy the product, or if there is a cost barrier to do it. The criterion of nonsubstitutability is satisfied if a competitor cannot achieve the same benefits using different combinations or resources and capabilities.

VRINE Model Exploitability The possession and control of a resource or capability is necessary but not sufficient to gain a competitive advantage. A firm must have the organizational capability to exploit it. Although the issue is quite broad, the point is for the firm to have the ability to get value out of any resource or capability that it may generate.

Chain value analysis Activities for support Basic Activities Information systems & technologies Energy systems General administration Human resources management Input logistics Production processes Output logistics Marketing Basic Activities

External environment analysis Company Competitional external environment Strategic Groups General external environment

General external environment Generic forces: - demography - politics - legislation - economics - culture - education These forces have a slow/very slow variation in time, but integrating any of them over a long period of time (i.e. 5-10 yrs) there could be significant effects

Competitive intelligence Anticipation Scanning Events anticipation Monitoring Competitive intelligence

Rivalry among existing firms Bargaining power of suppliers Porter’s 5 forces model New entrants Threat of new entrants Rivalry among existing firms Suppliers Buyers Bargaining power of suppliers Threat of substitutes Bargaining power of buyers Substitutes

Strategic groups Strategic group = a group of companies being on the same market with same types of products and services, and developing similar strategies A strategic group is a kind of reference system for strategy analysis since any change in any companies belonging to the same group induce changes in the other companies The competition pressure is highest within a strategic group

SWOT Analysis max min Weaknesses Strenghts Internal environment W S O External environment Opportunities Threats max min

Strategies matrix Internal environment S W O External environment T max - max max - min O External environment min - max min - min T