Norman, BUS 4385 Key Points: Chapter 3: Internal Analysis Understand the following key concepts: Resources, Capabilities, Core Competencies, Sustainable Competitive Advantage, Strategic Competitiveness Understand how to determine if a capability is a core competency Four criteria of sustainable advantage rare, valuable, costly to imitate, nonsubstitutable Value chain analysis SWOT Analysis Financial Analysis

Norman, BUS 4385 Internal Analysis Resource-Based Model: a firm possesses heterogeneous resources, capabilities, and core competencies that allow it to create a unique market position Internal analysis should be used in concert with an analysis of a firm’s external environment to develop a firm’s strategic intent and strategic mission Internal analysis, external analysis, strategic intent, and strategic mission are combined to formulate and implement strategy

Norman, BUS 4385 Figure 3.2 Components of Internal Analysis Four Criteria of Sustainable Advantages Value Chain Analysis Resources * Tangible * Intangible Capabilities Teams of resources Core Competencies Discovering Core Competencies Competitive Advantage Strategic Competitiveness Above-average returns Rare Valuable Costly to Imitate Nonsubstitutable What to do in-house What to outsource

Norman, BUS 4385 Core Competencies What a firm does that distinguishes it from its competitors and is, therefore, strategically valuable An integration of capabilities Examples: customer service, engine technology Not a product or a single skill Emerge over time–may take 5-10 years to develop Become more valuable with use Often learning and knowledge based Firms should focus on 3-4 core competencies Can become core rigidities if they are no longer competitively relevant

Norman, BUS 4385 Key Questions for Managers How do we assemble bundles of resources, capabilities, and competencies to create value for customers? Will environmental changes make our core competencies obsolete? Are substitutes available for our core competencies? Are our core competencies easily imitated?

Norman, BUS 4385 Rare Valuable: help a firm exploit opportunities or neutralize threats Costly to Imitate Unique historical conditions Casual ambiguity Social complexity Nonsubstitutable: no strategic equivalent (cannot achieve same outcome or strategy using different capabilities) Four Criteria of Sustainable Advantages

Norman, BUS 4385 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage ValuableRare Costly to Imitate Nonsub- stitutable Competitive Consequences Performance Implications Above Average Returns NO YESNO YES/NO YESNOYES/NOYES Competitive Disadvantage Below Average Returns Competitive Parity Average Returns Temporary Competitive Advantage Aver./Above Average Returns Sustainable Competitive Advantage

Norman, BUS 4385 Value Chain Analysis: Figure 3.6 Support Activities Primary Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN

Norman, BUS 4385 Identify which resources and capabilities add value Goal: add as much value as cheaply as possible To be a source of competitive advantage, a firm must either perform an activity: In a manner that is superior to other firms That other firms cannot perform Value Chain Analysis

Norman, BUS 4385 STRENGTH: something a firm is good at doing or a characteristic that gives it an important capability (skills, expertise, resource, capability, or achievement) Determine which strengths are most important in determining performance, in competing successfully, and in forming a powerful strategy. Form the basis for competitive advantage and the cornerstone of strategy SWOT Analysis

Norman, BUS 4385 WEAKNESS: something a company lacks or does poorly (in comparison to others) or a condition that puts it at a disadvantage Determine which weaknesses may be fatal, which are inconsequential, and which can be easily remedied Strategy must take into account weaknesses SWOT Analysis

Norman, BUS 4385 OPPORTUNITY: something in the environment that may be exploited to the firm’s advantage Range from very attractive to marginally attractive Most relevant ones are those that offer: avenues for profitable growth most potential for competitive advantage firm has the financial resources to pursue SWOT Analysis

Norman, BUS 4385 THREAT: something in the environment that has the potential to reduce a firm’s performance or destroy its competitive advantage SWOT Analysis

Norman, BUS 4385 SWOT Analysis Strategy must match firm’s situation More than just making lists; must evaluate and draw conclusions

Norman, BUS 4385 Is the industry attractive? Where do the most important threats and opportunities exist? How attractive is the firm’s situation? What strategic actions need to be taken? SWOT Questions

Norman, BUS 4385 What opportunities does the company have the skills and resources to pursue with a real chance of success? Which opportunities are “best” from the company’s standpoint? What external threats should management be worried most about and what strategic moves should be considered to counter these threats? SWOT Questions