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11.4.

2019

Strategic Groups Within Industries Strategic Groups Within Industries Strategic Groups Within Industries
2-1 2-2 2-3

▪ Two unassailable assumptions in industry ▪ Companies in the same Strategic groups can
analysis: resemble one another in several ways:
▪ No two firms are totally different ▪ have comparable product-line breadth,
▪ No two firms are exactly the same ▪ sell in the same price/quality range,
▪ Strategic groups – clusters of firms that share ▪ emphasize the same distribution channels,
similar strategies: ▪ use essentially the same product attributes to
▪ Breadth of product & geographic scope appeal to similar types of buyers,
▪ Price/quality ▪ depend on identical technological approaches,
▪ Degree of vertical integration ▪ or offer buyers similar services and technical
assistance
▪ Type of distribution

Exhibit 2.7 The World Automobile Industry: Strategic Groups


Note: Members of each strategic group are not exhaustive, only illustrative.
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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Questions Learning Objectives


#-4 Assessing the 3-6

▪Based on the strategic group map in, briefly Internal After reading this chapter, you should have a good
explain which automaker is/are Ferrari's closest understanding of:
competitor(s) and why. Environment of
LO3.1 The benefits and limitations of SWOT analysis in
▪Briefly explain between which two groups the Firm conducting an internal analysis of the firm.
competition is strongest.
LO3.2 The primary and support activities of a firm’s
▪Briefly explain which companies/strategic groups value chain.
seem destined to struggle. chapter 3
LO3.3 How value-chain analysis can help managers
▪Which companies/strategic groups face the create value by investigating relationships among
weakest competition from members of other activities within the firm and between the firm and its
strategic groups? Copyright © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
customers and suppliers.
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The Importance of the Internal


Learning Objectives SWOT analysis
Environment
3-7 3-8 #-9

LO3.4 The resource-based view of the firm and the Consider. . . ▪a tried-and-true tool of strategic analysis.
different types of tangible and intangible resources, as
well as organizational capabilities. ▪used regularly in business to evaluate SWOT
Which activities must a firm effectively manage
LO3.5 The four criteria that a firm’s resources must and integrate in order to attain competitive ▪top managers rely on SWOT to stimulate self-
possess to maintain a sustainable advantage and how advantages in the marketplace? reflection and group discussions about how to
value created can be appropriated by employees and improve their firm and position it for
managers. Which resources and capabilities must a firm create success.
LO3.6 The usefulness of financial ratio analysis, and how and nurture in order to sustain a competitive
to make meaningful comparisons of performance across advantage?
firms.
LO3.7 The value of the “balanced scorecard” in
recognizing how the interests of a variety of stakeholders
can be interrelated.
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11.4.2019

The role of SWOT Analysis in


The Limitations of SWOT Analysis Value-Chain Analysis
strategic action creation
#-10 3-11 3-12

▪ Value-chain analysis looks at the sequential


But SWOT has its limitations. process of value-creating activities:
▪ SWOT cannot show managers how to achieve a ▪ Value is the amount buyers are willing to pay for
This video demonstrates the set up of a SWOT competitive advantage. what a firm provides
Analysis and applies it to a strategic situation ▪ SWOT Gives a One-Shot View of a Moving ▪ How is value created within the organization?
that was faced by McDonalds. Target ▪ How is value created for other organizations in the
overall supply chain or distribution channel?
▪ The value received must exceed the costs of
production

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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Value-Chain Analysis Value-Chain Analysis The Value Chain


3-13 3-14 3-15

▪ Primary activities contribute to the physical ▪ Support activities either add value by
creation of the product or service; the sale & themselves or add value through important
transfer to the buyer; and service after the sale: relationships with both primary activities & other
▪ Inbound logistics support activities:
▪ Operations ▪ Procurement
▪ Outbound logistics ▪ Technology development
▪ Marketing & sales ▪ Human resource management
▪ Service ▪ General administration

Exhibit 3.1 The Value Chain: Primary and Support Activities


Source: Reprinted with permission of The Free Press, a division of Simon & Schuster Inc., from Competitive Advantage: Creating and
Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by The Free Press. All rights reserved.

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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Primary Activity:
Inbound Logistics
Example Primary Activity: Operations
3-16 #-17 3-18

▪ Inbound logistics is primarily associated with Toyota’s just-in-time (JIT) inventory systems ▪ Operations include all activities associated with
receiving, storing & distributing inputs to the where parts deliveries arrive at the assembly transforming inputs in to the final product form:
product: plants only hours before they are needed. ▪ Machining
▪ Material handling This allows Toyota to fill a buyer’s new car order ▪ Packaging
▪ Warehousing (warehouse layout and design) in just 5 days. ▪ Assembly
▪ Inventory control (design of material and inventory ▪ Testing or quality control
control systems) ▪ Printing
▪ Vehicle scheduling ▪ Facility operations
▪ Returns to suppliers (efficient systems to return
products to suppliers)

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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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Primary Activity:
Example Outbound Logistics Example
#-19 3-20 #-21

Creating environmentally friendly manufacturing is ▪ Outbound logistics includes collecting, storing, Campbell Soup uses an electronic network to
one way to use operations to achieve competitive & distributing the product or service to buyers: facilitate its continuous-replenishment program
advantage.
▪ Finished goods with its most progressive retailers.
Shaw Industries (now part of Berkshire Hathaway), a
world-class competitor in the floor-covering industry, is well
▪ Warehousing Each morning, retailers electronically inform
known for its concern for the environment. ▪ Material handling Campbell of their product needs and of the level
It has been successful in reducing the expenses associated ▪ Delivery vehicle operation of inventories in their distribution centers.
with the disposal of dangerous chemicals and other waste ▪ Order processing Campbell uses that information to forecast
products from its manufacturing operations.
▪ Scheduling & distribution future demand and to determine which
Its environmental endeavors have multiple payoffs. Shaw
products require replenishment (based on the
has received many awards for its recycling efforts—awards
that enhance its reputation. inventory limits previously established with each
retailer)…

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Primary Activity:
… Marketing & Sales Primary Activity: Service
#-22 3-23 3-24

Trucks leave Campbell’s shipping plant that ▪ Marketing & sales activities involve purchases ▪ Service includes all actions associated with
afternoon and arrive at the retailers’ distribution of products & services by end users and includes providing service to enhance or maintain the
centers the same day. how to induce buyers to make those purchases: value of the product:
▪ Advertising ▪ Installation
▪ Promotion ▪ Repair
Campbell Soup achieved this improvement
because it slashed delivery time and because it ▪ Sales force management ▪ Training
knows the inventories of key retailers and can ▪ Pricing & price quoting ▪ Parts supply
deploy supplies when they are most needed. ▪ Channel selection ▪ Product adjustment
▪ Channel relations

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Example Support Activity: Procurement Example


#-25 3-26 #-27

At Sephora.com, a customer service ▪ Procurement involves how the firm purchases


representative taking a phone call from a repeat inputs used in its value chain: Microsoft does formal reviews of its outside
customer has instant access to what shade of ▪ Procurement of raw material inputs suppliers, including a feedback system that helps
lipstick she likes best. ▪ Optimizing quality & speed clarify expectations.
This will help the rep cross-sell by suggesting a ▪ Minimizing associated costs
matching shade of lip gloss. ▪ Development of collaborative win-win relationships
with suppliers
▪ Analysis & selection of alternative sources of inputs
CEO Jim Wiggett expects such personalization to
to minimize dependence on one supplier
build loyalty and boost sales per customer.

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11.4.2019

Support Activity: Technology Support Activity: Human Resource


Example
Development Management
3-28 #-29 3-30

▪ Technology development is related to a wide The French firm Techniq is a global leader in the ▪ Human resource management consists of
range of activities: energy industry, focusing on pipelines. activities involved in recruitment, hiring, training
▪ Effective R&D activities for process & product In collaboration with Schlumberger, Techniq has & development, & compensation of all types of
initiatives developed “intelligent” pipes that add personnel:
▪ Collaborative relationships between R&D and other significant value for customers, while increasing ▪ Effective employee recruiting, development, &
departments Techniq’s margins. retention mechanisms
▪ Excellent professional qualifications of personnel ▪ Quality relations with trade unions
▪ Reward & incentive programs to motivate all
Technology development includes activities
employees
related to the process as well as the product,
such as enhancing the ability to meet critical
deadlines.

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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Insights from Executives: Insights from Executives:


Example
Human Resource Management Human Resource Management
#-31 3-32 3-33

JetBlue recruited flight attendants with a one- ▪ In order to add value through Human Resource ▪ Research in HRM is always necessary in order to
year contract so they could travel, meet lots of Management, HRM initiatives must be figure out what makes people satisfied in their
people, then decide what else they might like to integrated with other value-creating activities. work, motivates them to perform, and makes
do. HR must: them stay or leave an organization.
▪ Understand business realities ▪ What do YOU think are the most important
▪ Ensure HR practices support company goals employee & workplace topics that contribute to
Human resource management includes creating a
quality work environment to maximize overall ▪ Be willing to speak up when a proposed strategy organizational performance?
may create issues for the people side of the
employee performance. ▪ How many of you think PAY is the most important?
business
▪ HR initiatives should be well designed &
rigorously tested before implementation
▪ High-level endorsement will increase acceptance
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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Support Activity: Interrelationships Among


Example
General Administration Value-Chain Activities
3-34 #-35 3-36

▪ General administration involves: General administration can be a powerful Managers must not ignore the importance of
▪ Effective planning systems to attain overall goals & source of competitive advantage. interrelationships among value-chain activities
Managers must not ignore the importance of
objectives interrelationships among value-chain activities

▪ Excellent relations with diverse stakeholder groups ▪ Interrelationships ▪ Relationships among


In a telephone operating company, for example,
▪ Effective information technology to coordinate & among activities activities within the
negotiating and maintaining ongoing relations
integrate value-creating activities across the value within the firm firm and with other
with regulatory bodies can be among the most
chain stakeholders such as
important activities for competitive advantage. Expand the value
▪ Ability of top management to anticipate & act on customers & suppliers
key environmental trends & events, create strong chain by exchanging
values, culture & reputation Also, in some industries top management plays resources
a vital role in dealing with important buyers.

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Examples Resource-Based View of the Firm Types of Firm Resources


#-37 3-38 3-39

▪Example = within the firm, ▪ The resource-based view of the firm (RBV) ▪ Tangible resources are assets that are
How effective human resource practices can integrates two activities: relatively easy to identify:
support the entire value chain. ▪ An internal analysis of phenomena within a company ▪ Physical assets: plant & facilities, location,
▪ An external analysis of the industry & its competitive machinery & equipment
environment ▪ Financial assets: cash & cash equivalents,
▪Example = between the firm and stakeholders, borrowing capacity, capacity to raise equity
▪ Resources can lead to a competitive advantage
How teaming up with customers through a ▪ If they are valuable, rare, hard to duplicate ▪ Technological resources: trade secrets, patents,
“prosumer” or crowdsourcing relationship can copyrights, trademarks, innovative production
▪ If tangible resources, intangible resources, &
help the firm gain insight into customer needs organizational capabilities are combined processes
and leverage the wisdom of the customer to ▪ Organizational resources: effective planning
create value for all. processes & control systems

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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Types of Firm Resources Types of Firm Resources Question?


3-40 3-41 3-42

▪ Intangible resources are difficult for ▪ Organizational capabilities are competencies


competitors to account for or imitate – are or skills that a firm employs to transform inputs ▪ Gillette combines several technologies to attain
embedded in unique routines & practices: into outputs; the capacity to combine tangible & unparalleled success in the wet shaving industry.
intangible resources to attain desired ends: This is an example of their
▪ Human resources: trust, experience &
capabilities of employees; managerial skills & ▪ Outstanding customer service A. tangible resources.
effectiveness of work teams ▪ Excellent product development capabilities B. intangible resources.
▪ Innovation resources: technical & scientific ▪ Superb innovation processes & flexibility in C. organizational capabilities.
expertise & ideas; innovation capabilities manufacturing processes D. strong primary activities.
▪ Reputation resources: brand names, ▪ Ability to hire, motivate, & retain human capital
reputation for fairness with suppliers;
reputation for reliability & product quality with
customers
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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Firm Resources and Sustainable Criteria for Sustainable


Sources of Inimitability
Competitive Advantages Competitive Advantage
3-43 3-44 3-45

▪ Firm Resources and Sustainable Competitive ▪ Physical uniqueness: resources that are
Advantages physically unique, therefore impossible to duplicate
▪ Strategic resources have four attributes: ▪ Path dependency: hard to duplicate because of
▪ Valuable in formulating & implementing all that has happened along the path followed in
strategies to improve efficiency or effectiveness the development and/or accumulation of resources
▪ Rare or uncommon; difficult to exploit ▪ Causal ambiguity: impossible to explain what
▪ Difficult to imitate or copy due to physical caused a resource to exist or how to re-create it
uniqueness, path dependency, causal ▪ Social complexity: resources that result from
ambiguity, or social complexity social engineering such as interpersonal relations,
▪ Difficult to substitute with strategically culture Exhibit 3.7 Criteria for Sustainable Competitive Advantage and Strategic Implications
Source: Adapted from Barney, J.B. 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17:99 – 120.
equivalent resources or capabilities
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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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11.4.2019

Evaluating Firm Performance Financial Ratio Analysis Five Types of Financial Ratios
3-46 3-47 3-48

Balanced Scorecard ▪ Five types of financial ratios:


Financial Ratio Analysis Short-term solvency or liquidity
Financial Ratio Analysis
Stakeholder Perspective
Balanced Scorecard Stakeholder

▪ Long-term solvency measures
▪ Balance sheet ▪ Employees
▪ Asset management or turnover
▪ Income statement ▪ Owners
▪ Profitability Exhibit 3.8 A
▪ Market valuation ▪ Customer satisfaction ▪ Market value Summary of
Five Types of
▪ Historical comparison ▪ Internal processes ▪ Meaningful ratio analysis must include: Financial
▪ Comparison with ▪ Innovation, learning ▪ Analysis of how ratios change over time Ratios
industry norms & improvement ▪ How ratios are interrelated
▪ Comparison with key activities
competitors ▪ Financial
perspectives
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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

The Balanced Scorecard Customer Perspective Internal Business Perspective


3-49 3-50 3-51

▪ A meaningful integration of many issues that ▪ Managers must focus on those critical internal
come into evaluating performance ▪ Managers must articulate goals for four key operations that enable them to satisfy
▪ Four key perspectives: categories of customer concerns: customer needs:
▪ Time ▪ Business processes
▪ How do customers see us? (customer perspective)
▪ Quality ▪ Cycle time, quality, employee skills, productivity
▪ What must we excel at? (internal perspective)
▪ Performance and service ▪ Decisions
▪ Can we continue to improve and create value?
(innovation & learning perspective) ▪ Cost ▪ Coordinated actions
▪ How do we look to shareholders? (financial ▪ Key resources and capabilities
perspective)

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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Innovation and Learning


Financial Perspective
Perspective
3-52 3-53

▪ Managers must make frequent changes to ▪ Managers must measure how the firm’s strategy,
existing products & services as well as implementation, and execution are indeed
introduce entirely new products with extended contributing to bottom line improvement.
capabilities. This requires: Financial goals include:
▪ Human capital (skills, talent, knowledge) ▪ Profitability, growth, shareholder value
▪ Information capital (information systems, ▪ Improved sales
networks) ▪ Increased market share
▪ Organization capital (culture, leadership) ▪ Reduced operating expenses
▪ Higher asset turnover

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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.