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Business Strategy

Summary Chapter 3

Mattheus Biondi Mulyadi

Young Professional 49 B

The Context of Internal Analysis
In the global economy, traditional factors such as labor costs, access to financial
resources and raw materials, and protected or regulated markets remain sources of
competitive advantage, but to a lesser degree. One important reason is that
competitors can apply their resources to successfully use an international strategy as
a means of overcoming the advantages created by these more traditional sources.
Increasingly, those who analyze their firm’s internal organization should use a global
mind-set to do so. A global mindset is the ability to analyze, understand and manage
an internal organization in ways that are not dependent on the assumptions of a single
country, culture, or context.

Creating Value
By exploiting their core competencies to meet if not exceed the demanding standards
of global competition, firms create value for customers. Value is measured by a
product’s performance characteristics and by its attributes for which customers are
willing to pay. Customers of Luby Cafeterias, for example, pay for meals that are
value-priced, generally healthy, and served quickly in a casual setting.

Components of Internal Analysis Leading to Competitive Advantage and Strategy

Resources, capabilities and core competencies are the foundation of competitive
advantage. Resources are bundled to create organizational capabilities. In turn,
capabilities are the sources of a firm’s core competencies, which are the basis of
competitive advantages.

A. Resources, Capabilities and Core Competencies

1. Resources
Skills of employee are a firm’s assets, including people and the value of its
brand name

Type of resources :
 Intangible are assets that can be observed and quantified ( financial
resources, organizational resources, physical resources, technology
 Tangible include assets that are rooted deeply in the firms history,
accumulate over time, and are relative difficult for competitors to analyze
and imitate (human resources, innovation resources, reputational resources)

2. Capabilities
 Represent the capacity to deploy resources that have been purposely
integrated to achieve a desired end state
 Emerge over time through complex interactions among tangible and
intangible resources
 Four criteria for determining strategic capabilities :
1. Value
2. Rarity
3. Costly-to-imitate
4. Non substitutability

3. Core Competencies
 Activities that a firm performs especially well compared to competitors
 Activities through which the firm adds unique value to its goods or services
over a long period of time

B. Building Sustainable Competitive Advantage

1. Valuable
• Allow the firm to exploit opportunities or neutralize threats in its external
2. Rare capabilit
• Are capabilities that few, if any competitors possess.
3. Costly-to-Imitate Capabilities
• Capabilities are capabilities that other firms cannot easily develop.
4. Non substitutable Capabilities
• Are capabilities that do not have strategic equivalents.

C. Value Chain Analysis
1. Value Chain
 Primary activities are involved with a product’s physical creation, it’s sale
and distribution to buyers and its service after the sale.
 Support activities provide the assistance necessary for the primary activities
to take place.

The Basic Value Chain

D. Outsourcing
Outsourching is the purchase of a value creating activity from an external
supplier. Outsourcing can be effective because few, if any, organizations possess the
resources and capabilities required to achieve competitive superiority in all primary
and support activities. Firms must outsource only activities where they cannot create
value or where they are at a substantial disadvantage compared to competitors.

E. Competencies, Strength, Weaknesses, and Strategic Decisions
At the conclusion of the internal analysis, firms must identify their strengths
and weaknesses in resources, capabilities, and core competencies. For example, if the
company have weak capabilities or do not have core competencies in areas required to
achieve a competitive advantage, they must acquire those resources and build
capabilities and competencies needed. Alternatively, they could decide to outsource a
function or activity where they are weak in order to improve value for customer.


The purpose of this case is to discuss the resources, including operations and
information technology that have contributed to the competitive position of the Port
of Singapore. The combination of resources including supportive government
policies, ample investment, and well thought out operations and information
technology along with location and a natural deep harbor to help create a sustainable
advantage for the Port. Singapore compensated for some of its natural disadvantages
like small land area by successfully applying information technology in critical areas
to increase the island’s capacity to handle shipping.

Analyzing PSA’s strategy
1. The resource based view
The RBV theory defines firm resources as “all assets, capabilities, organizational
processes, firm attributes, information, knowledge, etc. controlled by a firm.”(Barney,
1991, p. 101), and proposes that a firm has a competitive advantage when it creates a
successful strategy based on firm resources that cannot be duplicated by a current or
potential competitor. The theory goes on to state that a resource must be rare,
valuable, inimitable and nonsubstitutable to confer an advantage in the first place.
Over time, a competitor may be able to duplicate an organization’s strategic
resources, or develop a set of different resources that allow it to attain an advantage.
The richness of the RBV of the firm provides a framework for our analysis of the
development of Singapore’s Port.
2. The analysis
To develop and exploit these natural resources, Singapore has developed man-made
resources of capital, information and operations technologies, and has developed IT
management skills, as evidenced by the successful completion of the IT projects
described earlier. The government built an infrastructure of housing, roads and quasi-
governmental organizations to promote trade. It has encouraged foreign investment
in order to provide jobs and capital. A policy that encourages trade as a way to build
the economy means that the country has to provide a world-class Port. Through its
emphasis on education and encouragement of the IT profession, public and private
organizations have developed significant IT management skills. However, capital, IT
and operations capabilities and IT management skills are all imitable. A smaller Port
can steal business from Singapore without needing, for example, the same investment
in IT because its operations will be simpler. While difficult, it is not impossible for
another Port to find capital, and to develop or outsource IT management.
The resources described thus far, in and of themselves, are incapable of
creating a competitive advantage. While these individual resources alone cannot
sustain a competitive advantage, the unique combination of resources interacting
with each other has proven to be a key to PSA’s long-standing competitive edge.
Because of its location, harbor, capital for infrastructure and foreign investment, PSA
has been in the desirable position of continually upgrading Port operations.
Singapore built an infrastructure to attract foreign capital, and this capital in turn
generated economic activity that paid for further infrastructure development.
Moreover, a strong norm against corruption has given Singapore a reputation as one
of the least corrupt places in the world to do business, making it more attractive for
Operations and information technology, in turn, contributed to highly efficient
Port operations, which attracted shipping lines. The technology also helped expand
the capacity of the Port to handle cargo without a concomitant increase in scarce
physical space.
3. The impact of operations and information technology
The Singapore experience shows how IT can reduce the consequences of
disadvantages; Singapore cannot dramatically increase its land area, but it can and
has used IT to increase the capacity of its constrained physical resources to run a
large Port. Singapore’s strategy of supplementing its location and harbor with
manmade resources has overcome the limitations of the natural resources to create a
Port whose location, harbor, infrastructure, and operations and information
technology combined are rare, valuable, inimitable and nonsubstitutable.
For Singapore, given limitations on land, technology was a natural choice for
maximizing the throughput of the Port. The combination of space restraints and OIT
innovations increased productivity as well. Because the Port’s land area is small,
yard cranes and prime movers have shorter distances to travel than in physically
larger Ports, while OIT applications help make efficient use of stacked containers.

Singapore consciously developed all of its resources, the country has a clear industrial
policy, and it encouraged the development of specific industries and built a
transportation infrastructure to support trade. Its entire set of dynamic resources
provides a competitive advantage, but PSA must continue to add to its resources to
sustain this advantage. We believe that other organizations can learn from PSA’s
experiences, especially their effort to develop a relatively large number of resources
simultaneously that complement each other. Managers should recognize that they are
unlikely to be able to gain a competitive advantage from one resource, or a random
set of resources. Success is much more likely to come from a group of resources that
interact with each other. In summary, the Port of Singapore developed a series of
man-made resources to supplement and enhance its natural resources of a protected
Port and location. We believe that such a group of dynamic resources can help sustain
an organization’s competitive advantage.