1. Competing For Advantage Chapter 4 – The Internal Organization: Resources, Capabilities, and Core Competencies

2. Profitability in the U.S. Retailing Industry, 1996-2001

3. Why Internal Analysis?  Early strategy theory rooted in industry structural analysis - external focus  This approach has lost its appeal because: internationalization & deregulation has all but removed safe havens technology and changes in demand have blurred industry lines

4. Outcomes from Organizational Analyses Strategic Decisions

5. Components of Internal Analysis Leading to Competitive Advantage and Value Creation

6. Tangible Resources

7. Intangible Resources

8. Value of Intangible Resources Less visible Less imitable More sustainable

9. Evaluation of Resources Strength or Weakness relative to competitors basic business requirements key vulnerabilities

12. Tangible Resources Intangible Resources Org. Capabilities Examples….. Customer Service Product Development Employee Productivity Inputs into Outputs

13. Examples of Firm’s Capabilities

14. Core Competencies central to the firm’s competitiveness rewarded in market place combination of skills & knowledge, not products or functions flexible, long term platforms embedded in the organization’s systems distinctive competencies are those the firm performs better than rivals All core competencies have the potential to become core rigidities

17. Sony

19. Supporting and nurturing more than four core competencies may prevent a firm from developing the focus needed to fully exploit its competencies in the marketplace

20. Tools for Building Core Competencies Four Criteria of Sustainable Competitive Advantage Value Chain Analysis

21. Sustainable Competitive Advantage Must be valuable, rare, costly to imitable, and non-substitutable Sustainability is a function of Durability - how long will it last? Technology? Reputation? Fixed Assets? Imitability - how quickly can it be copied? Transparent - easy to see? Transferable - can it be done elsewhere? Replicable - can we do it here?

22. Four Criteria for Determining Core Competencies

23. Factors that Limit Imitation  Physical Uniqueness – location, patents  Path Dependency – accumulation effect  Causal Ambiguity – unable to disentangle  Social Complexity – social interactions are not readily understood nor duplicated  Absorptive Capacity – ability to identify, value, assimilate and use knowledge

24. Core Competencies as a Strategic Capability

25. Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage

26. Creating Value Key Terms Value – measured by a product's performance characteristics and by its attributes for which customers are willing to pay

27. Value Creation per Unit

28. Comparing Toyota and General Motors

29. What are some of Detroit’s Problem?  America’s largest purchaser of Viagra – GM GM Pension Plans Salaried Pension Plan 116,000 Salaried Retirees and Survivors receiving payments in the plan – $2.5B in 08 Hourly Pension Plan 377,000 Retirees and Survivors receiving payments in the plan – $6.5B in 08

30. Passengers per Employee  United – 938  Delta – 1,493  Alaska Air – 1,518  Southwest Air – 2,424

31. Relative costs and prices Where do cost/price differences come from? raw materials and components differences in technology, plant, equipment efficiencies, learning, experience, wages, productivity marketing, sales, promotion, warehousing, distribution, administration costs distribution inflation, exchange and tax rates

32. Porter’s Value Chain Views the organization as a series (chain) of activities, which may or may not create value

33. Porter’s Value Chain (cont.)  Primary Activities – Inbound logistics – Supply Chain Management – Operations – Outbound logistics - Distribution – Marketing and sales – Customer service – Contribute to the physical creation of the product/service, its sale and transfer to the buyer, and its service after the sale

35. Porter’s Value Chain (cont)  Support Activities Procurement Technological development Human resource management Firm infrastructure

36. The Value-Creating Potential of Support Activities

37. Firm Infrastructure HRM Technological Development Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Margin The Value Chain SupportSupport Primary

38. A low cost strategy….. Firm Infrastructure HRM Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Margin …tries to pull the arrow back….. Technological Development

39. A differentiation strategy….. Firm Infrastructure HRM Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Margin ….tries to pull the arrow forward... Technological Development

40. Suppliers Buyers Your Firm Your Rivals

41. Suppliers Buyers Your Firm Your Rivals Opportunities for Advantage

42. Suppliers Buyers Your Firm Your Rivals Opportunities for Adding Value Opportunities for Adding Value

43. Outsourcing Key Terms Outsourcing – purchase of a value- creating activity from an external supplier

44. Outsourcing Viability When a firm does not have the capabilities in the areas needed to succeed When a firm lacks a resource or possesses inadequate skills needed to implement a strategy When few organizations possess the resources and capabilities needed for competitive superiority in all primary and support activities necessary to compete When extensive internal capabilities exist for effectively coordinating external sourcing and internal core competencies

45. Benefits of Outsourcing Increased flexibility Mitigation of risks Reduced capital investments

46. Essential Skills for Outsourcing Strategic thinking Deal making Partnership governance Managing change