Foundations of Strategy PSU MGMT #511 Week # 3 –Internal Analysis Dave Garten daveoutside@alum.mit.edu 4/17/2017

Internal Analysis – Key Points Internal analysis is never really just internal Relative performance Economic performance ~ competitive advantage Internal analysis – “S” and “W” in SWOT Accurate view of oneself is hard… Underestimate vs. overestimate Short term bias 4/17/2017 Dave Garten- Business Strategy

VRIO “Internal” Analysis Critical analysis of the value chain Competitive advantage from where? Valuable? Rare? Costly to imitate? Exploited by Organization? Advantage? Research Development Manufacturing Marketing Sales/Channel Service Sustainable advantage Temporary advantage Parity Disadvantage Source: derived from Gaining & Sustaining Competitive Advantage, by Jay Barney 4/17/2017 Dave Garten- Business Strategy

VRIO – Barney 5.2/5.3 Valuable? Rare? Costly to Imitate? Strength/   Valuable? Rare? Costly to Imitate? Strength/ Weakness Competitive Implication Economic Performance 1 N Dis-advantage Below normal 2 Y Strength Parity Normal 3 Strength & distinctive competence Temporary advantage Above 4 Strength & sustainable distinctive competence Sustained advantage 4/17/2017 Dave Garten- Business Strategy

Dave Garten- Business Strategy Core Competence collective learning that coalesce around individuals who coordinate a comprehensive set of diverse skills & integrate multiple streams of know-how Defined: What can a company do w/its core competence? Examples: Canon, HDTV, 3M, Honda Source: derived from The Core Competence of the Corporation, by C.K. Prahalad and Gary Hammel, HBS, 1990. c X 4/17/2017 Dave Garten- Business Strategy

Dave Garten- Business Strategy Core Competence Distinguish between core capability, core components, core products To gain competitive advantage, must be distinctive competencies as well… Outsourcing a core only works for a while – ultimately position/profitability will erode. Core competency -> a few, perhaps 2-5 Mgmt: SBU vs. core competence “Benefits of competency, like the benefits of money supply, depend upon their velocity of their circulation.” -The Core Competence of the Corporation by C.K. Prahald and Gary Hammel, 1990 4/17/2017 Dave Garten- Business Strategy

Dave Garten- Business Strategy 3 measures of CC “provides potential access to a variety of markets” “makes a significant contribution to the perceived customer benefits of the end product” “should be difficult for competitors to imitate” Source: The Core Competence of the Corporation, by C.K. Prahalad and Gary Hammel, HBS, 1990. c 4/17/2017 Dave Garten- Business Strategy

Dave Garten- Business Strategy Core Competence Low High Relative Strength Strategic Importance Core Competency Superfluous Strengths Transform Up Away Zone of Irrelevance Key Weakness 4/17/2017 Dave Garten- Business Strategy

Core Competency and Growth Step 1 (38%) Step 2 (26%) Step 3 (7%) Diversification (<1%) Source: Bain, October 2003 4/17/2017 Dave Garten- Business Strategy

Ambidextrous qualities Ambidexterity “Contextual” Part of the job Incremental Distributed Less defined More generalists “Structural” Separate units/teams More specialists Exploratory Radical/disruptive Clearly defined VS Ambidextrous qualities Initiative: alert to opportunities beyond 4 walls Cooperative: seek to combine effort w/others Brokers: looking to build linkages Multi-taskers: comfortable wearing multiple hats 4/17/2017 Dave Garten- Business Strategy

Dave Garten- Business Strategy Ambidexterity . 4/17/2017 Dave Garten- Business Strategy

Internal Evaluation Tools Internal Alignment Low High Importance to Strategy Cultural Compatibility Risk 4/17/2017 Dave Garten- Business Strategy

Internal Evaluation Tools Internal Alignment Highest Over- investment Allocation Plans Resource Under- investment Lowest Lowest Highest Investment Priorities 4/17/2017 Dave Garten- Business Strategy

Dave Garten- Business Strategy Week #3 Case Write-up Objective: analyze a company’s strengths and weaknesses and how they relate to core competency Learnings: The game changes as the industry structure changes. Successful companies must adapt to take advantage of opportunities and mitigate the threats. Apple’s competencies provide a point of strength for Apple to pursue a consumer brand business. The changes to the PC industry have a huge affect on the winners and losers. 4/17/2017 Dave Garten- Business Strategy

Dave Garten- Business Strategy Apple 4/17/2017 Dave Garten- Business Strategy

Strategy Evaluation Tools SWOT & Strategy Development Opportunities (O) Threats (T) Strengths (S) Weaknesses (W) SO Strategies ST Strategies WO Strategies WT Strategies Use strengths to take advantage of opportunities Use strengths to avoid threats Overcome weaknesses by taking advantage of opportunities Minimize weaknesses and avoid threats 1. 2. . Source: Strategic management by Fred R. David 4/17/2017 Dave Garten- Business Strategy