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Chapter 3

Assessing the Internal Environment of the Firm

The Value Chain


General administration Human resource management Technology development Procurement

Inbound logistics

Operations

Outbound logistics

Marketing and sales

Service

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Primary Activities
Inbound Logistics Associated with receiving, storing and distributing inputs to the product Location of distribution facilities Material and inventory control systems Systems to reduce time to send returns to suppliers Warehouse layout and designs

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Primary Activities
Inbound Logistics Operations Associated with transforming inputs into the final product form Efficient plant operations Appropriate level of automation in manufacturing Quality systems production layout control and

Efficient plant workflow design

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Primary Activities
Inbound Logistics Operations Outbound Logistics Associated with collecting, storing, and distributing the product or service to buyers Effective shipping processes Efficient finished warehousing processes goods

Shipping of goods in large lot sizes Quality material equipment handling

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Primary Activities
Inbound Logistics Operations Outbound Logistics Marketing and Sales Associated with purchases of products and services by end users and the inducements used to get them to make purchases Highly motivated and competent sales force Innovative approaches promotion and advertising Selection of most distribution channels to

appropriate

Proper identification of customer segments and needs Effective pricing strategies


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Primary Activities
Inbound Logistics Operations Outbound Logistics Marketing and Sales Service Associated with providing service to enhance or maintain the value of the product
Effective use of procedures to solicit customer feedback and to act on information Quick response to customer needs and emergencies Ability to furnish replacement parts Effective management of parts and equipment inventory Quality of service personnel and ongoing training Warranty and guarantee policies
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Support Activities
General Administration Typically supports the entire value chain and not individual activities
Effective planning systems Ability of top management to anticipate and act on key environmental trends and events Ability to obtain low-cost funds for capital expenditures and working capital Excellent relationships stakeholder groups with diverse

Ability to coordinate and integrate activities across the value chain Highly visible to inculcate organizational culture, reputation, and values
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Support Activities
General Administration Human Resource Management Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel
Effective recruiting, development, and retention mechanisms for employees Quality relations with trade unions Quality work environment to maximize overall employee performance and minimize absenteeism Reward and incentive programs to motivate all employees

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Support Activities
General Administration Human Resource Management Technology Development Related to a wide range of activities and those embodied in processes and equipment and the product itself
Effective R&D activities for process and product initiatives Positive collaborative relationships between R&D and other departments State-of-the art facilities and equipment Culture to innovation enhance creativity and

Excellent professional qualifications of personnel Ability to meet critical deadlines


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Support Activities
General Administration Human Resource Management Technology Development Procurement

Function of purchasing inputs used in the firms value chain


Procurement of raw material inputs Development of collaborative win-win relationships with suppliers Effective procedures to purchase advertising and media services Analysis and selection of alternate sources of inputs to minimize dependence on one supplier Ability to make proper lease versus buy decisions
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The Value Chain


General administration Human resource management Technology development Procurement

Inbound logistics

Operations

Outbound logistics

Marketing and sales

Service

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Interrelationships among Value-Chain Activities within and across Organizations Importance of relationships among value activities
Interrelationships among activities within the firm Relationships among activities within the firm and with other organizations (e.g., customers and suppliers)

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Resource-Based View of the Firm


Two perspectives
The internal analysis of phenomena within a company An external analysis of the industry and its competitive environment

Three key types of resources


Tangible resources Intangible resources Organizational capabilities

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Types of Resources
Tangible Resources Relatively easy to identify, and include physical and financial assets used to create value for customers Financial resources
  

Firms cash accounts Firms capacity to raise equity Firms borrowing capacity

Physical resources
  

Modern plant and facilities Favorable manufacturing locations State-of-the-art machinery and equipment
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Types of Resources
Tangible Resources Relatively easy to identify, and include physical and financial assets used to create value for customers Technological resources
  

Trade secrets Innovative production processes Patents, copyrights, trademarks Effective strategic planning processes Excellent evaluation and control systems
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Organizational resources


Types of Resources
Tangible Resources Intangible Resources Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time Human


  

Experience and capabilities of employees Trust Managerial skills Firm-specific practices and procedures

Adapted from Exhibit 3.4 The Resource-Based View of the Firm: Resources and Capabilities 3-17

Types of Resources
Tangible Resources Intangible Resources Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time Innovation and creativity
 

Technical and scientific skills Innovation capacities Effective strategic planning processes Excellent evaluation and control systems

Reputation
 

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Types of Resources
Tangible Resources Intangible Resources Organizational Capabilities Competencies or skills that a firm employs to transform inputs to outputs, and capacity to combine tangible and intangible resources to attain desired end
Outstanding customer service Excellent product development capabilities Innovativeness of products and services Ability to hire, motivate, and retain human capital

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How Resources and Capabilities Lead to Advantages

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