Assessing the Internal Environment of the Firm 3 Assessing the Internal Environment of the Firm McGraw-Hill/Irwin Strategic Management: Text and Cases, 4e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
The Limitations of SWOT Analysis Strengths may not lead to an advantage SWOT’s focus on the external environment is too narrow SWOT gives a one-shot view of a moving target SWOT overemphasizes a single dimension of strategy
The Value Chain Sequential process of value-creating activities 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 The benefits of streamlining a business with value chain management include: Lower infrastructure costs associated with collaboration. Create commonality in parts and suppliers. Control inventory by getting the supply chain talking to the demand chain. Cut transaction costs by integrating with public and private exchanges. Deliver products to market faster while minimizing risk and capital investment. Adapted from Exhibit 3.1 The Value Chain: Primary and Support Activities Source: Adapted with permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter.
Resource-Based View of the Firm Basic Assumption Types of resources Tangible resources Intangible resources Organizational capabilities Organizational competencies Dynamic Capabilities Firms consist of a heterogeneous resource base
Innovation and creativity Intangible Resources Human Innovation and creativity Reputation Intangible Resources are 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 Innovation and creativity Technical and scientific skills Innovation capacities Reputation Brand name Reputation with customers Reputation with suppliers
Criteria for Sustainable Competitive Advantage and Strategic Implications Exhibit 3.8 Criteria for Sustainable Competitive Advantage and Strategic Implications Source; Adapted from J. Barney, “Firm Resources a Sustained Competitive Advantage, ‘ Journal of Management 17 (1991), pp. 99-120.
Evaluating Firm Performance Balanced Score Card Provides a meaningful integration of many issues that come into evaluating a firm’s performance Four key perspectives How do customers see us? (customer perspective) What must we excel at? (internal perspective) Can we continue to improve and create value? (innovation and learning perspective) How do we look to shareholders? (financial perspective) How do customers see us? (customer perspective) Time Quality Performance and service Cost What must we excel at? (internal perspective) Processes Cycle time Employee Skills Productivity Decisions Actions Coordination Resources and capabilities Can we continue to improve and create value? (innovation and learning perspective) Introduction of new products and services Greater value for customers Increased operating efficiencies\ How do we look to shareholders? (financial perspective) Profitability Growth Shareholder value Increased market share Reduced operating expenses Higher asset turnover Problems with the Balanced Score Card Lack of a clear strategy Limited or ineffective executive sponsorship Too much emphasis on financial measures rather than nonfinancial measures Poor data on actual performance Inappropriate links to scorecard measures to compensation Inconsistent or inappropriate Terminology
Management preferences Diamond – E Model Management preferences Organization Resources Strategy External Environment