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Resources are an organization’s assets and are thus the basic building blocks of the organization. They
include tangible assets, such as its plant, equipment, finances, and location, human assets, in terms of
the number of employees, their skills, and motivation, and intangible assets, such as its technology
(patents and copyrights), culture, and reputation.

Capabilities refer to a corporation’s ability to exploit its resources. They consist of business processes
and routines that manage the interaction among resources to turn inputs into outputs.

competency is a cross-functional integration and coordination of capabilities.

A core competency is a collection of competencies that crosses divisional boundaries, is widespread

within the corporation, and is something that the corporation can do exceedingly well.

When core competencies are superior to those of the competition, they are called

distinctive competencies. For example, General Electric is well known for its distinctive competency in
management development. Its executives are sought out by other companies hiring top managers.6

VRIO framework of analysis, proposes four questions to evaluate a firm’s competencies:

1. Value: Does it provide customer value and competitive advantage?

2. Rareness: Do no other competitors possess it?

3. Imitability: Is it costly for others to imitate?

4. Organization: Is the firm organized to exploit the resource?

It is important to evaluate the importance of a company’s resources, capabilities, and competencies to

ascertain whether they are internal strategic factors—that is, particular strengths and weaknesses that
will help determine the future of the company. This can be done by comparing measures of these
factors with measures of (1) the company’s past performance, (2) the company’s key competitors, and
(3) the industry as a whole.

five-step, resource-based approach to strategy analysis

1. Identify and classify the firm’s resources in terms of strengths and weaknesses
2. . 2. Combine the firm’s strengths into specific capabilities and core competencies.
3. 3. Appraise the profit potential of these capabilities and competencies in terms of their potential
for sustainable competitive advantage and the ability to harvest the profits resulting from their
use. Are there any distinctive competencies?
4. 4. Select the strategy that best exploits the firm’s capabilities and competencies relative to
external opportunities.
5. 5. Identify resource gaps and invest in upgrading weaknesses.
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 Where do these competencies come from? A corporation can gain access to a

distinctive competency in four ways:
 It may be an asset endowment, such as a key patent, coming from the founding of the
company. For example, Xerox grew on the basis of its original copying patent.
 It may be acquired from someone else. For example, Whirlpool bought a worldwide
distribution system when it purchased Philips’s appliance division.
 It may be shared with another business unit or alliance partner. For example, Apple
Computer worked with a design firm to create the special appeal of its personal
computers and iPods.
 It may be carefully built and accumulated over time within the company. For example,
Honda carefully extended its expertise in small motor manufacturing from motorcycles
to autos and lawnmowers.

DETERMINING THE SUSTAINABILITY OF AN ADVANTAGE?

Durability is the rate at which a firm’s underlying resources, capabilities, or core

competencies depreciate or become obsolete. New technology can make a company’s
core competency obsolete or irrelevant.
Imitability is the rate at which a firm’s underlying resources, capabilities, or core
competencies can be duplicated by others. To the extent that a firm’s distinctive
competency gives it competitive advantage in the market.
Transparency is the speed with which other firms can understand the relationship of
resources and capabilities supporting a successful firm’s strategy. For example, Gillette
has always supported its dominance in the marketing of razors with excellent R&D. A
competitor could never understand how the Sensor or Mach 3 razor was produced
simply by taking one apart. Gillette’s razor design was very difficult to copy, partially
because the manufacturing equipment needed to produce it was so expensive and
complicated.
Transferability is the ability of competitors to gather the resources and capabilities
necessary to support a competitive challenge.

 It is relatively easy to learn and imitate another company’s core competency or

capability if it comes from explicit knowledge.
Tacit knowledge, in contrast, is knowledge that is not easily communicated because it is
deeply rooted in employee experience or in a corporation’s culture.15 Tacit knowledge
is more valuable and more likely to lead to a sustainable competitive advantage than is
explicit knowledge because it is much harder for competitors to imitate.16
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A business model is a company’s method for making money in the current business environment. It
includes the key structural and operational characteristics of a firm—how it earns revenue and makes a
profit. A business model is usually composed of five elements: Who it serves What it provides How it
makes money How it differentiates and sustains competitive advantage How it provides its
product/service21

Customer solutions model: IBM uses this model to make money not by selling IBM products, but by
selling its expertise to improve its customers’ operations. This is a consulting model.
Profit pyramid model: General Motors offers a full line of automobiles in order to close out any niches
where a competitor might find a position. The key is to get customers to buy in at the low-priced, low-
margin entry point (Saturn’s basic sedans) and move them up to high-priced, high-margin products
(SUVs and pickup trucks) where the company makes its money.
Multi-component system/installed base model: Gillette invented this classic model to sell razors at
break-even pricing in order to make money on higher-margin razor blades. HP does the same with
printers and printer cartridges. The product is thus a system, not just one product, with one component
providing most of the profits.
Advertising model: Similar to the multi-component system/installed base model, this model offers its
basic product free in order to make money on advertising.
Switchboard model: In this model a firm act as an intermediary to connect multiple sellers to multiple
buyers. Financial planners juggle a wide range of products for sale to multiple customers with different
needs. This model has been successfully used by eBay and Amazon.com.
Time model: Product R&D and speed are the keys to success in the time model. Being the first to market
with a new innovation allows a pioneer like Sony to earn high margins. Once others enter the market
with process R&D and lower margins, it’s time to move on
efficiency model: In this model a company waits until a product becomes standardized and then enters
the market with a low-priced, low-margin product that appeals to the mass market. This model is used
by Wal-Mart, Dell, and Southwest Airlines.
Blockbuster model: In some industries, such as pharmaceuticals and motion picture studios, profitability
is driven by a few key products. The focus is on high investment in a few products with high potential
payoffs—especially if they can be protected by patents.
Profit multiplier model: The idea of this model is to develop a concept that may or may not make
money on its own but, through synergy, can spin off many profitable products. Walt Disney invented this
concept by using cartoon characters to develop high-margin theme parks, merchandise, and licensing
opportunities.
Entrepreneurial model: In this model, a company offers specialized products/services to market niches
that are too small to be worthwhile to large competitors but have the potential to grow quickly. Small,
local brew pubs have been very successful in a mature industry dominated by Anheuser-Busch. This
model has often been used by small high-tech firms that develop innovative prototypes in order to sell
off the companies (without ever selling a product) to Microsoft or DuPont.
De Facto industry standard model: In this model, a company offers products free or at a very low price
in order to saturate the market and become the industry standard. Once users are locked in, the
company offers higher-margin products using this standard. For example, Microsoft packaged Internet
Explorer free with its Windows software in order to take market share from Netscape’s Web browser
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A value chain is a linked set of value-creating activities beginning with basic raw
materials coming from suppliers, moving on to a series of value-added activities
involved in producing and marketing a product or service, and ending with
distributors getting the final goods into the hands of the ultimate consumer.
Elements in Porter's Value Chain
Primary Activities
Primary activities relate directly to the physical creation, sale, maintenance and
support of a product or service. They consist of the following:
 Inbound logistics – These are all the processes related to receiving, storing,
and distributing inputs internally. Your supplier relationships are a key factor in
creating value here.

 Operations – These are the transformation activities that change inputs into
outputs that are sold to customers. Here, your operational systems create value.

 Outbound logistics – These activities deliver your product or service to your

customer. These are things like collection, storage, and distribution systems,
and they may be internal or external to your organization.

 Marketing and sales – These are the processes you use to persuade clients to
purchase from you instead of your competitors. The benefits you offer, and
how well you communicate them, are sources of value here.

 Service – These are the activities related to maintaining the value of your
product or service to your customers, once it's been purchased.

Support Activities
These activities support the primary functions above. In our diagram, the dotted
lines show that each support, or secondary, activity can play a role in each primary
activity. For example, procurement supports operations with certain activities, but it
also supports marketing and sales with other activities.
 Procurement (purchasing) – This is what the organization does to get the
resources it needs to operate. This includes finding vendors and negotiating
best prices.
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 Human resource management – This is how well a company recruits, hires,

trains, motivates, rewards, and retains its workers. People are a significant
source of value, so businesses can create a clear advantage with good HR
practices.

 Technological development – These activities relate to managing and

processing information, as well as protecting a company's knowledge base.
Minimizing information technology costs, staying current with technological
advances, and maintaining technical excellence are sources of value creation.

 Infrastructure – These are a company's support systems, and the functions

that allow it to maintain daily operations. Accounting, legal, administrative, and
general management are examples of necessary infrastructure that businesses
can use to their advantage.

Companies use these primary and support activities as "building blocks" to create a
valuable product or service.
Corporate value chain analysis involves the following steps:
1. Examine each product line’s value chain in terms of the various activities
involved in producing that product or service.
2. Examine the “linkages” within each product line’s product value chain.
3. Examine the potential synergies among the value chains of different product
lines or business units.

Basic Organizational Structure

• Simple structure has no functional or product categories and is appropriate for
a small entrepreneur-dominated company with one or two product lines that
operates in a reasonably small, easily identifiable market niche.

• Functional structure is appropriate for a medium-sized firm with several

related product lines in one industry.

• Divisional structure is appropriate for a large corporation with many product

lines in several related industries.
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 Strategic business units (SBUs) are a recent modification to the divisional

structure. SBUs are divisions or group of divisions composed of independent
product-market segments that are given primary responsibility and authority for
the management of their own functional areas.

 Conglomerate structure is appropriate for a large corporation with many

product lines in several unrelated industries.

Corporate Culture
Is the collection of beliefs, expectations, and values learned and shared by a
corporation’s members and transmitted from one generation of employees to another.
There are three ways to do any job –
1. The right way
2. The wrong way; and
3. The company way

Corporate culture has two attributes, intensity and integration.

 Cultural intensity is the degree to which members of a unit accept the norms,
values, or other culture content associated with the unit.
 Cultural integration is the extent to which units throughout an organization
share a common culture.

Corporate culture fulfills several important functions in an organization:

 Conveys a sense of identity for employees.
 Helps generate employee commitment to something greater than them.
 Adds to the sustainability of the organization as a social system.
 Serves as a frame of reference for employee

 Strategic Marketing Issues

 Market Position and Segmentation
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 Market position deals with the question, “Who are our customers” It
refers to the selection of specific areas for marketing concentration and can be
expressed in terms of market, product, and geographical location. Through
market research, corporations are able to practice market segmentation with
the various products or services so that managers can discover what niches to
seek, which new types of products to develop, and how to ensure that a
company’s many products do not directly compete with one another
 The marketing mix refers to the particular combination of key variables under
the corporation’s control that can be used to affect demand and to gain
competitive advantage. These variables are product, place, promotions, and
price. Also known as the 4Ps.
Stages of Product Life Cycle
 Introduction Stage – This stage of the cycle could be the most expensive for a
company launching a new product. The size of the market for the product is
small, which means sales are low, although they will be increasing. On the
other hand, the cost of things like research and development, consumer testing,
and the marketing needed to launch the product can be very high, especially if
it’s a competitive sector.
 Growth Stage – The growth stage is typically characterized by a strong growth
in sales and profits, and because the company can start to benefit from
economies of scale in production, the profit margins, as well as the overall
amount of profit, will increase. This makes it possible for businesses to invest
more money in the promotional activity to maximize the potential of this
growth stage.
 Maturity Stage – During the maturity stage, the product is established and the
aim for the manufacturer is now to maintain the market share they have built
up. This is probably the most competitive time for most products and
businesses need to invest wisely in any marketing they undertake. They also
need to consider any product modifications or improvements to the production
process which might give them a competitive advantage.
 Decline Stage – Eventually, the market for a product will start to shrink, and
this is what’s known as the decline stage. This shrinkage could be due to the
market becoming saturated (i.e. all the customers who will buy the product
have already purchased it), or because the consumers are switching to a
different type of product. While this decline may be inevitable, it may still be
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possible for companies to make some profit by switching to less-expensive

production methods and cheaper markets.
 Strategic Financial Issues
 Financial Leverage
 The concept of financial leverage (the ratio of total debt to total assets)
is helpful in describing how debt is used to increase the earnings available to
common shareholders.
Capital Budgeting
Is the analyzing and ranking of possible investments in fixed assets such as
land, buildings, and equipment in terms of the additional outlays and additional
receipts that will result from each investments.
Strategic R&D Issues
R&D Intensity
A company’s R&D intensity (its spending on R&D as a percentage of sales
revenue) is principal means of gaining market share in global competition.
Technological Competence
A company’s R&D unit should be evaluated for technological competence in
both the development and the use of technology. Not only should the corporation
make a consistent research effort, it should also be proficient in managing research
personnel and integrating their innovations into its day-to-day operations.
Technology Transfer
The process of taking a new technology from the laboratory to the marketplace,
it will not gain much advantage from new technological advances.
R&D Mix
 Basic R&D is conducted by scientists in well-equipped laboratories
where the focus is on theoretical problem areas. The best indicators of a
company’s capability in this area are its patents and research
publications.
 Product R&D concentrates on marketing and is concerned with product or
product-packaging improvements.
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• Engineering R&D is concerned with engineering, concentrating on quality

control and the development of design specifications and improved

information technology offers 4 main Impact on Performance explain?

First, (beginning in the 1970s with mainframe computers) it is used to automate existing back-office
processes, such as payroll, human resource records, accounts payable and receivable, and to establish
huge databases.
Second, (beginning in the 1980s) it is used to automate individual tasks, such as keeping track of clients
and expenses, through the use of personal computers with word processing and spreadsheet software.
Corporate databases are accessed to provide sufficient data to analyze the data and create what-if
scenarios
Third, (beginning in the 1990s) it is used to enhance key business functions, such as marketing and
operations. This third contribution focuses on productivity improvements
Fourth, (beginning in 2000) it is used to develop competitive advantage