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Ch. 5
Ch. 5

Internal

Environment:

Resources & Capabilities

Ch. 5 Internal Environment: Resources & Capabilities
Ch. 5 Internal Environment: Resources & Capabilities

From External to Internal

THE FIRM •Goals and Values THE INDUSTRY ENVIRONME NT •Resources and Capabilities STRATEGY • Competitor s
THE FIRM
•Goals and
Values
THE
INDUSTRY
ENVIRONME
NT
•Resources and
Capabilities
STRATEGY
• Competitor
s
•Structure and
Systems
• Customers
• Suppliers
The
The
Firm-Strategy Environment-Strategy
Interface
Interface

Internal Elements

Functional Analysis (HIFORMS) Keys to Core Competency (VRIN) Aspects of Inimitability (CUTTS)

Internal Elements • Functional Analysis (HIFORMS) • Keys to Core Competency (VRIN) • Aspects of Inimitability

Internal Analysis

Divide firm up into different elements Assess aspects of each Determine level of strength or weakness Search for elements of core competencies

Internal Analysis • Divide firm up into different elements • Assess aspects of each • Determine

Porter’s Value Chain

FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT SUPPORT ACTIVITIES INBOUND OPERATIONS OUTBOUND MARKETING SERVICE LOGISTICS
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
SUPPORT
ACTIVITIES
INBOUND
OPERATIONS
OUTBOUND
MARKETING
SERVICE
LOGISTICS
LOGISTICS
& SALES
PRIMARY
ACTIVITIES

Functional Analysis (HIFORMS)

Human Resources

Training, motivation and compensation of the workforce Both systems and personnel General Electric, Pepsico

Functional Analysis (HIFORMS) • Human Resources – Training, motivation and compensation of the workforce – Both

Functional Analysis (HIFORMS)

Infrastructure & Information Systems

Company context in which other activities occur

Structure, control systems, culture, leadership

Electronic systems for tracking firm activities

Walmart, Cisco

Finance

Functional Analysis (HIFORMS) • Infrastructure & Information Systems – Company context in which other activities occur
Functional Analysis (HIFORMS) • Infrastructure & Information Systems – Company context in which other activities occur
Functional Analysis (HIFORMS) • Infrastructure & Information Systems – Company context in which other activities occur
Functional Analysis (HIFORMS) • Infrastructure & Information Systems – Company context in which other activities occur
Functional Analysis (HIFORMS) • Infrastructure & Information Systems – Company context in which other activities occur
Functional Analysis (HIFORMS) • Infrastructure & Information Systems – Company context in which other activities occur
Functional Analysis (HIFORMS) • Infrastructure & Information Systems – Company context in which other activities occur
Functional Analysis (HIFORMS) • Infrastructure & Information Systems – Company context in which other activities occur

Monetary resources, debt levels, & profitability

Functional Analysis (HIFORMS) • Infrastructure & Information Systems – Company context in which other activities occur

Functional Analysis (HIFORMS)

Operations

Creation of core good or service generating value for the firm

Inbound, transformation, outbound

UPS, Four Seasons Hotels, Singapore Airlines

Functional Analysis (HIFORMS) • Operations – Creation of core good or service generating value for the

Functional Analysis (HIFORMS)

Research and Development

Design of products and processes

Resulting in either goods, service or delivery mechanisms

Merck, Apple, 3M, Canon

Functional Analysis (HIFORMS) • Research and Development – Design of products and processes – Resulting in

Functional Analysis (HIFORMS)

Marketing & Sales

Brand positioning, advertising, pricing tactics & sales force Proctor & Gamble, Pfizer

Service

After sales support, warranty & relationship maintenance

Caterpillar

Functional Analysis (HIFORMS) • Marketing & Sales – Brand positioning, advertising, pricing tactics & sales force

Core Competencies

Defined

Firm-specific strengths that allow a firm to gain competitive advantage

Through differentiation or lower costs Arise from resources and capabilities

May relate to value chain functions or to elements within them

Should specifically and precisely identify these

Core Competencies • Defined – Firm-specific strengths that allow a firm to gain competitive advantage •

Resources and Capabilities

Resources Resources
Resources Resources
Resources and Capabilities Resources Resources Core Competencies Capabilities • Tangible (land, equipment) or intangible (reputation, patents,

Core

Competencies

Capabilities
Capabilities

Tangible (land, equipment) or intangible (reputation, patents, know how) assets of the firm Unique strengths allowing firm to create superior value

Skills at coordinating resources and putting them to productive use

Resources and Capabilities Resources Resources Core Competencies Capabilities • Tangible (land, equipment) or intangible (reputation, patents,

VRIN: Key to Core Competency

Resources & Capabilities must be:

Valuable Rare Inimitable Nonsubstitutable

You can win with VRIN

VRIN: Key to Core Competency • Resources & Capabilities must be: – Valuable – Rare –

VRIN: Key to Core Competency

Valuable

Is a relevant Key Success Factor Lowers cost, increases differentiation

Rare

Scarcity: few other companies have them

Example: all firms have workers & brands – what is unique about yours?

VRIN: Key to Core Competency • Valuable – Is a relevant Key Success Factor – Lowers

VRIN: Key to Core Competency

Inimitable

Difficult to transfer from one firm to another

Not available on the open market If so, requires special skill or system

Difficult for firm itself to copy or replicate it

VRIN: Key to Core Competency • Inimitable – Difficult to transfer from one firm to another

CUTTS: Barriers to Imitation

Causal Ambiguity

Difficult to discern reasons for a firm’s success

Often the product of many little decisions

Unique History

Conditions happening to one firm but not another

Path dependency: advantage depends on

CUTTS: Barriers to Imitation • Causal Ambiguity – Difficult to discern reasons for a firm’s success
CUTTS: Barriers to Imitation • Causal Ambiguity – Difficult to discern reasons for a firm’s success
CUTTS: Barriers to Imitation • Causal Ambiguity – Difficult to discern reasons for a firm’s success
CUTTS: Barriers to Imitation • Causal Ambiguity – Difficult to discern reasons for a firm’s success

the sequence taken to achieve it

CUTTS: Barriers to Imitation • Causal Ambiguity – Difficult to discern reasons for a firm’s success

CUTTS: Barriers to Imitation

Tacitness

Source of advantage difficult to articulate Learning by doing a factor

Time Compression Diseconomies

Takes as long to imitate as it does to develop

Provides lead time: develop new strengths while others catch up

CUTTS: Barriers to Imitation • Tacitness – Source of advantage difficult to articulate – Learning by

CUTTS: Barriers to Imitation

Social Complexity

Based on the interactions of many people, units and technologies

Is integrated and irreducible

Parts work together to achieve an unified result

All parts are needed to attain that result

CUTTS: Barriers to Imitation • Social Complexity – Based on the interactions of many people, units

CUTTS: Barriers to Imitation

From easiest to most difficult to Imitate

Tangible Resources Few CUTTS barriers Intangible Resources May be have several CUTTS barriers Capabilities Easily can have all CUTTS barriers

CUTTS: Barriers to Imitation • From easiest to most difficult to Imitate – Tangible Resources •

VRIN: Key to Core Competency

Nonsubstitutable

Can’t be replaced by an entirely different type of resource or technology

What benefits does resource or capability provide?

What else can provide these same benefits?

Substitution more likely in dynamic industries

VRIN: Key to Core Competency • Nonsubstitutable – Can’t be replaced by an entirely different type

More difficult to sustain any advantage

VRIN: Key to Core Competency • Nonsubstitutable – Can’t be replaced by an entirely different type
VRIN: Key to Core Competency • Nonsubstitutable – Can’t be replaced by an entirely different type
VRIN: Key to Core Competency • Nonsubstitutable – Can’t be replaced by an entirely different type
VRIN: Key to Core Competency • Nonsubstitutable – Can’t be replaced by an entirely different type
VRIN: Key to Core Competency • Nonsubstitutable – Can’t be replaced by an entirely different type

VRIN: Key to Core Competency

V Only

Has paid price of admission but no real advantage

R Only

No one else has it, but who wants it?

V & R Only

Advantage real but only temporary

V & I Only

Unlikely: inimitability assumes rarity

VRIN: Key to Core Competency • V Only – Has paid price of admission but no
VRIN: Key to Core Competency • V Only – Has paid price of admission but no
VRIN: Key to Core Competency • V Only – Has paid price of admission but no
VRIN: Key to Core Competency • V Only – Has paid price of admission but no
VRIN: Key to Core Competency • V Only – Has paid price of admission but no
VRIN: Key to Core Competency • V Only – Has paid price of admission but no
VRIN: Key to Core Competency • V Only – Has paid price of admission but no

VRIN: Key to Core Competency

V, R & I Only

Advantage lasts pending some major technological, political and/or socio- cultural shift

V, R, I & N

Matchless and unassailable advantage likely to withstand considerable shocks Long Run Competitive Advantage

VRIN: Key to Core Competency • V, R & I Only – Advantage lasts pending some

VRIN: Generic Example

Assume Strengths in

. .

.

Marketing: strong brand name R&D: new product design capabilities Operations: use of advanced industrial robotics

Procedure

See how far each one goes down the VRIN/CUTTS list

VRIN: Generic Example • Assume Strengths in . . . – Marketing: strong brand name –

VRIN: Generic Example

Valuable?

Strong Brand lowers customer acquisition costs

Strong R&D permits high prices for innovative and cutting-edge products

Strong Operations provides high quality at lower costs

VRIN: Generic Example • Valuable? – Strong Brand lowers customer acquisition costs – Strong R&D permits

VRIN: Generic Example

Rare?

Strong Brand is not rare: other competitors have compelling brands with similar traits

Strong R&D uncommon in the industry; firm is an obvious leader

Advanced robotics still unusual in the industry; firm has purchased latest technology

VRIN: Generic Example • Rare? – Strong Brand is not rare: other competitors have compelling brands

VRIN: Generic Example

Inimitable?

Marketing: not considered since it wasn’t rare

Use CUTTS for the other two

R&D: social complexity and unique history relating to creative culture

Operations: imitable since other firms can purchase equipment & use it modularly

VRIN: Generic Example • Inimitable? – Marketing: not considered since it wasn’t rare • Use CUTTS

VRIN: Generic Example

Substitutable?

Operations: not considered since it was inimitable

R&D: provides unique and cutting edge technology, not to mention the “cool factor”

No substitutes for leading edge features

Cool factor could be substituted

VRIN: Generic Example • Substitutable? – Operations: not considered since it was inimitable – R&D: provides

through innovative marketing

VRIN: Generic Example • Substitutable? – Operations: not considered since it was inimitable – R&D: provides
VRIN: Generic Example • Substitutable? – Operations: not considered since it was inimitable – R&D: provides
VRIN: Generic Example • Substitutable? – Operations: not considered since it was inimitable – R&D: provides
VRIN: Generic Example • Substitutable? – Operations: not considered since it was inimitable – R&D: provides

VRIN: Generic Example

Core Competency?

R&D: mostly fits the bill Operations: more so than marketing, though advantage is temporary Marketing: valuable indeed, but not rare

Strategy should “throw the best punch”

Leverage unique strength in R&D

VRIN: Generic Example • Core Competency? – R&D: mostly fits the bill – Operations: more so