1. INTERNAL ANALYSIS: RESOURCES AND CAPABILITIES
Dr. Payne
(5)

2. The Links between Resources, Capabilities and Competitive Advantage
INDUSTRY KEY
SUCCESS FACTORS
COMPETITIVE
ADVANTAGE
STRATEGY
ORGANIZATIONAL
CAPABILITIES
RESOURCES
TANGIBLE INTANGIBLE HUMAN
Financial
Physical
Skills/know-how
Capacity for communication & collaboration
Motivation
Technology
Reputation
Culture

3. SWOT Analysis S W O T represents the first letter in Strengths
Weaknesses
Opportunities
Threats
Strategy-making must be well-matched to both:
A firm’s resource strengths and weaknesses
A firm’s best market opportunities and external threats to its well-being
Use Value Chain Analysis and Resource Analysis
Build from Industry and Competitive Analysis

4. resources and capabilities strengths or weaknesses?
Criteria to Judge Organizational
Strengths and Weaknesses
Past Performance Trends
Comparison Against Competitors
Are organizational
resources and capabilities
strengths or weaknesses?
Personal Opinions of Strategic Decision Makers or Consultants
Specific Goals or Targets

5. Identifying Resource Strengths and Competitive Capabilities
A strength is something a firm does well or a characteristic that enhances its competitiveness
Valuable competencies or know-how
Valuable physical assets
Valuable human assets
Valuable organizational assets
Valuable intangible assets
Important competitive capabilities
An attribute that places a company in a position of market advantage
Alliances or cooperative ventures

6. Tangible Resources Financial Firm’s cash account and cash equivalents
Firm’s capacity to raise equity
Firm’s borrowing capacity
Physical
Modern plant and facilities
Favorable manufacturing locations
State-of-the-art machinery and equipment
Technological
Trade secrets
Innovative production processes
Patents, copyrights, trademarks
Organizational
Effective strategic planning processes
Excellent evaluation and control systems

7. Intangible Resources Human Experience and capabilities of employees
Trust
Managerial skills
Firm-specific practices and procedures
Innovation and creativity
Technical and scientific skills
Innovation capacities
Brand name
Reputation with customers for quality and reliability
Reputation with suppliers for fairness, non-zero sum relationships
Reputation

8. Identifying Resource Weaknesses and Competitive Deficiencies
A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage
Resource weaknesses relate to:
Deficiencies in know-how or expertise or competencies
Lack of important physical, organizational, or intangible assets
Missing capabilities in key areas

9. Example Opportunities
SWOT Analysis -- What to Look For
Example Strengths
Example Weaknesses
Example Opportunities
Example Threats
Powerful strategy
Strong financial condition
Strong brand name image/reputation
Widely recognized market leader
Proprietary technology
Cost advantages
Strong advertising
Product innovation skills
Good customer service
Better product quality
Alliances or JVs
No clear strategic direction
Obsolete facilities
Weak balance sheet; excess debt
Higher overall costs than rivals
Missing some key skills/competencies
Subpar profits
Internal operating problems
Falling behind in R&D
Too narrow product line
Weak marketing skills
New customer groups emerging in market
New geographic areas emerging in market
Demand for new products in industry
Buyer or supplier firms are weak and potentially open to vertical integration options.
Openings to take MS from rivals
Some rival available and attractive sale targets
New technologies available for exploitation
Social media growth
Entry of potent new competitors
Emergence of strong substitutes
Slowing market growth
Adverse shifts in exchange rates & trade policies
Costly new regulations
Seasonal cycle of activties
Growing leverage of customers or suppliers
Shift in buyer needs for product
Demographic changes

10. Organization Capabilities
Firm competences or skills the firm employs to transfer inputs to outputs
Capacity to combine tangible and intangible resources, using organizational processes to attain desired end
Examples:
Outstanding customer service
Excellent product development capabilities
Innovativeness of products and services
Ability to hire, motivate, and retain human capital

11. Competencies vs. Core Competencies vs. Distinctive Competencies
A competence is an internal activity that a company performs better than other internal activities.
A core competence is a well-performed internal activity that is central, not peripheral, to a company’s strategy, competitiveness, and profitability.
A distinctive competence is a competitively valuable activity that a company performs better than its rivals.

12. Types of Core Competencies
Skills in manufacturing a high quality product
System to fill customer orders accurately and swiftly
Fast development of new products
Better after-sale service capability
Superior know-how in selecting good retail locations
Innovativeness in developing popular product features
Merchandising and product display skills
Expertise in an important technology
Expertise in integrating multiple technologies to create whole families of new products

13. A Distinctive Competence -- A Competitively Superior Resource
A distinctive competence is a competitively significant activity that a company performs better than its competitors
A distinctive competence represents a competitively superior resource strength
A distinctive competence
Represents a competitively valuable capability that rivals do not have
Has potential for being a cornerstone of strategy
Can provide a competitive edge in the marketplace

14. Assessing Sustainability of Resources and Capabilities: Four Criteria
No equivalent strategic resources or capabilities
Difficult to substitute
Physically unique
Path dependency (how accumulated over time)
Causal ambiguity (difficult to disentangle what it is or how it could be recreated)
Social complexity (trust, interpersonal relationships, culture, reputation)
Difficult to imitate
Not many firms possess
Rare
Neutralize threats and exploit opportunities
Valuable
Implications
Is the resource or capability . . .

15. Implications for Competitiveness
Criteria for Sustainable Competitive Advantage and Strategic Implications
Is a Resource…
Sustainable competitive advantage
Yes
Temporary competitive advantage No
Competitive parity
Competitive disadvantage
Implications for Competitiveness
Without Substitutes
Difficult to Imitate
Rare
Valuable

16. Why Rival Companies Have Different Costs
Companies do not have the same costs because of differences in
Prices paid for raw materials, component parts, energy, and other supplier resources
Basic technology and age of plant & equipment
Economies of scale and experience curve effects
Wage rates and productivity levels
Marketing, promotion, and administration costs
Inbound and outbound shipping costs
Forward channel distribution costs

17. The Value Chain Concept
Identifies the separate activities and business processes performed to design, produce, market, deliver, and support a product / service
Consists of two types of activities
Primary activities
Support activities

18. Value Chain The Value Chain General administration
Human resource management
Technology development
Procurement
Inbound
logistics
Operations
Outbound
Marketing and sales
Service
Margin
Support Activities
Primary Activities

19. Primary activities of the VALUE CHAIN
Inbound Logistics
Soundness of material and inventory handling
Efficiency of warehousing activities
Operations
Productivity of equipment
Production processes
Outbound Logistics
Efficiency of finished goods delivery
Marketing and Sales
Effective market research
Innovative sales promotion
Service
Customer feedback mechanisms
Customer education and training
Production control systems
Layout & work-flow design
Sales force
Image, brand loyalty
Warranty, guarantee, repair

20. Factors to Consider in Assessing a Firm’s Primary Activities
Location of distribution facilities to minimize shipping times
Excellent material and inventory control systems
Systems to reduce time to send “returns” to suppliers
Warehouse layout and designs to increase efficiency of operations for incoming materials
Efficient plant operations to minimize costs
Appropriate level of automation in manufacturing
Quality production control systems to reduce costs and enhance quality
Efficient plant layout and workflow design
Effective shipping processes to provide quick delivery and minimize damages
Efficient finished goods warehousing processes
Shipping of goods in large lot sizes to minimize transportation costs
Quality material handling equipment to increase order picking
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
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 as required
Effective management of parts and equipment inventory
Quality of service personnel and ongoing training
Appropriate warranty and guarantee policies
PROFIT MARGIN
Inbound Logistics
Operations
Outbound Logistics
Marketing and Sales
Service

21. Support activities of the VALUE CHAIN
Infrastructure
Physical: Size, location, age, flexibility of facilities and equipment
Financial: Risk, cost and use of funds, ability to raise capital
Technology Development
Research and development
Interaction with other departments
Technology transfer
Encourage innovation
Procurement
Obtain raw materials
acceptable quality
lowest cost
Supplier relationships
Human Resources
Knowledge: Types, levels of knowledge possessed by employees throughout the firm
Skills: Various categories of skills and abilities developed over time

22. Factors to Consider in Support Activities
Effective planning systems to attain overall goals and objectives
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 system”
Highly visible to inculcate organizational culture, reputation, and values
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
Effective research and development 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
Procurement of raw material inputs to optimize quality, speed and minimize the associated costs
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
PROFIT MARGIN
Human Resource Management
Technology Development
Procurement

23. What Determines Whether a Company Is Cost Competitive?
A company’s cost competitiveness depends on how well it manages its value chain relative to competitors
Three areas contribute to cost differences
1. Suppliers’ activities
2. The company’s own internal activities
3. Forward channel activities
Activities, Costs,
& Margins of
Forward Channel
Allies & Strategic
Partners
Internally
Performed
Activities,
Costs, &
Margins
Margins of
Suppliers
Buyer/User
Value
Chains

24. VC Activities in Related Integration
PULP & PAPER INDUSTRY
Timber Farming, Logging, Pulp Mills
Papermaking, Printing & Publishing
HOME APPLIANCE INDUSTRY
Parts & Components Manufacture, Assembly, Wholesale Distribution, Retail Sales
SOFT DRINK INDUSTRY
Processing of Basic Ingredients, Syrup Manufacture, Bottling and Can Filling, Wholesale Distribution, Retailing
Coke

25. Correcting Supplier-Related Cost Disadvantages: The Options
Negotiate more favorable prices with suppliers
Work with suppliers to help them achieve lower costs
Integrate backward
Use lower-priced substitute inputs
Do a better job of managing linkages between suppliers’ value chains and firm’s own chain
Make up difference by initiating cost savings in other areas of value chain

26. Correcting Forward Channel Cost Disadvantages: The Options
Push for more favorable terms with distributors and other forward channel allies
Work closely with forward channel allies and customers to identify win-win opportunities to reduce costs
Change to a more economical distribution strategy
Make up difference by initiating cost savings earlier in value chain

27. Correcting Internal Cost Disadvantages: The Options
Reengineer how the high-cost activities or business processes are performed
Eliminate some cost-producing activities altogether by revamping value chain system
Relocate high-cost activities to lower-cost geographic areas
See if high-cost activities can be performed cheaper by outside vendors/suppliers
Invest in cost-saving technology
Simplify product design
Make up difference by achieving savings in backward or forward portions of value chain system

28. Outsourcing
Margin
Primary Activities
Support Activities
Outsourcing is the purchase of some or all of a value-creating activity from an external supplier
Usually this is because the specialty supplier can provide these functions more efficiently
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Firm Infrastructure
Human Resource Mgmt.
Technological Development
Procurement
Outsourcing (pp )
Outsourcing is simply contracting out a portion of the firm’s process to another firm.
Firms outsource to varying degrees. BMW USA, for example, outsources virtually everything
and the plant here is primarily an assembly line plant. In contrast Apple computers
manufactures virtually every component in house, right down to the proprietary software
components that make up the operating system.
There are benefits to each approach. Building everything in house give the firm’s
managers greater control over the quality of the components while outsourcing pushes the
burden of raw materials and works-in-process inventories off on the component suppliers
and frees up capital for other uses.
Using the proceeding examples, if BMW were to keep all processes in house, the
plant would need to be exponentially larger. BMW would also then be required to tie up
billions of dollars in capital to store raw materials for the various components on site and
employ a vast labor force for the manufacture and processing of the components. This
would require a vast infrastructure to support the processes. Each year, when making
changes to the new car models, a very large outlay of capital and resources to retool the
entire operation would be required. By outsourcing the manufacture of these components,
this burden is spread across many firms.
(Continued on next slide.)

29. Strategic Rationales for Outsourcing
Improve Business Focus
Lets company focus on broader business issues by having outside experts handle various operational details
Provide Access to World-Class Capabilities
The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications
Share Risks
Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities
Free Resources for Other Purposes
Permits firm to redirect efforts from non-core activities toward those that serve customers more effectively
Strategic Rationales for Outsourcing
Outsourcing (pp ) (cont.)
This diversification leads to a more efficient utilization of resources. For instance, if the
new model required a new type of component that had never been previously incorporated
into BMW cars, say a turbocharger, this would require adding an entire turbocharger
manufacturing plant to the existing factory if everything were to be insourced.
There would also be an engineering and learning curve associated with the development
of this new component.
Using an outsourcing strategy allows BMW to shop for a contract with the manufacturer
of highest quality product at the best price currently on the market. In doing so, not
only will BMW be freeing up resources that can be better utilized elsewhere in the firm,
they are also capitalizing on the expertise of the supplier.
(Continued on next slide.)