Chapter 4 - Internal Analysis
Supply chain management Operations Distribution Marketing and sales After-sales service These are examples of what kind of activities?
Primary activities
what is the resource-based view model?
This model systematically aids in identifying core competencies The model sees resources as key to superior firm performance
A resource is valuable if...
it helps to exploit an opportunity or offset a threat
capabilities
more like organizational and managerial skillsets (structure, routines, and culture)
A resource is rare if ...
only one or a few firms possess it. If the resource is common, it will result in perfect competition where no firm is able to maintain a competitive advantage.
A resource is rare if...
only one or few firms possess it
activities that add value to a firm DIRECTLY. They transform inputs and outputs Focused on moving from raw materials, through production phases, to sales and marketing, and finally to customer service.
primary activities
T or F: Although VRIO resources can lay the foundation of a competitive advantage, no competitive advantage can be sustained indefinitely.
true
T or F: For a firm to sustain its advantage, any fit between its internal strengths and the external environment must be dynamic.
true
T or F: The firm itself must be organized to capture the value of the resource. It must have in place an effective organizational structure and coordinating systems
true
T or F: The firm's response must be dynamic. Rather than creating a onetime and thus a static fit, the firm's internal strengths need to change with its external environment in a dynamic fashion.
true
T or F: To formulate a strategy that leads to a competitive advantage, resources and capabilities must combine to form core competencies and firms should consistently work to identify these!
true
t or f: strategic activity systems are difficult to imitate in its entirety, and this difficulty enhances a firm's possibility of developing a sustainable competitive advantage based on a set of distinct but interconnect activities
true
For a resource to have a competitive advantage, it must be:
valuable, rare, costly to imitate
A resource is a strength and a core competency if it is...
valuable, rare, costly to imitate, and the firm is organized to capture at least part of the economic value created
A resource is a weakness if it is not...
valuable; a resource does not allow the firm to exploit an external opportunity or offset an external threat
Each activity a firm performs along the horizontal chain adds incremental value- raw materials and other inputs are transformed into components that are assembled into finished products or services for the end customer Each activity the firm performs along the value chain also adds incremental costs
value chain
resources that are invisible with no physical attributes: Culture Knowledge Brand equity Reputation Intellectual property
intangible resources
Having dynamic capabilities will allow a firm to:
Adapt resources over time and create, deploy, modify, reconfigure, upgrade and leverage
A firm can use isolating mechanisms to cause barriers to imitation of their product/service, which helps them sustain competitive advantage, which are:
Better expectations of future resource value Path dependence: past decisions limit current options Causal ambiguity: cause and effect are vague Social complexity: social and business systems interact Intellectual property gives a firm protection
What are some barriers to limitation?
Better expectations of future resource value. Path dependence Causal ambiguity Social complexity Intellectual property protection
What are capabilities?
Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically They are by nature INTANGIBLE They find their expression in a company's structure, routines, and culture
Inside the firm: Competitive advantage is based on what three things:
Core competencies Resources Capabilities
What are core competencies?
Core competencies are unique strengths embedded deep within a firm. They allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.
What is path dependence?
Describes a process in which the options one faces in a current situation are limited by decisions made in the past. Often, early events - sometimes even random ones - have a significant effect on final outcomes Path dependence also rests on the notion that time cannot be compressed at will.
What is causal ambiguity?
Describes a situation in which the cause and effect of a phenomenon are not readily permanent
What is social complexity?
Describes situations in which different social and business systems interact There is frequently no causal ambiguity as to how the individual systems such as supply chain management or new product development work in isolation Often measure through standardized business processes such as Six Sigma and ISO 9000 Emerges when two or more such systems are combined
What are some examples of resource stocks?
Dynamic capabilities New product development Engineering expertise Innovation capability Reputation for quality
Dynamic markets are created because of ...
Dynamic markets are created because of technological change, deregulation, globalization, and demographic shifts. Resources are then created, deployed, modified, reconfigured, or upgraded.
What are intangible resources?
Intangible resources have no physical attributes and thus are invisible. (firm culture, its knowledge, brand equity, reputation, and intellectual property)
The Dynamic Capabilities Perspective is a model that emphasizes a firm's ability to:
Modify and leverage its resource base Gain and sustain competitive advantage Respond to a constantly changing environment
What are the five forms of intellectual property protection?
Patents Designs Copyrights Trademarks Trade secrets
What is resource heterogeneity?
Resource heterogeneity - comes from the insight that bundles of resources, capabilities, and competencies differ across firms. Requires looking more critically at the resource bundles of firms competing in the same industry because each bundle is unique to some extent
Two Critical Assumptions of RBV are:
Resource heterogeneity and Resource immobility
What is resource immobility?
Resource immobility describes the insight that resources tend to be "sticky" and don't move easily from firm to firm. The resource differences that exist between firms are difficult to replicate and can last for a long time
What are resources?
Resources are any assets such as cash, buildings, machinery, or intellectual property that a firm can draw on when crafting and executing a strategy
allows a strategic leader to evaluable a firm's current situation and future prospects by simultaneously considering internal and external factors. The focus is on internal and external factors that can affect - in a positive or negative way - the firm's ability to gain and sustain a competitive advantage
SWOT analysis
What are strategic activity systems?
Strategic activity systems conceive of a firm as a network of interconnected activities that can be the foundation of its competitive advantage.
Research and development Information systems Human resources Accounting and finance Firm infrastructure including processes, policies, and procedures These are examples of what kind of activities?
Support activities; they add value indirectly?
What are tangible resources?
Tangible resources have physical attributes and are visible (labor, land, capital, buildings, plant, equipment, and supplies)
resource flows
The firm's level of investments to maintain or build a resource.
What is the VRIO framework?
This framework is implied in the resource-based model, identifying certain types of resources as key to superior firm performance
resource-based view
This model aids in identifying core competencies. Resources are key to superior film performance and they are assets, capabilities, and competencies.
What do we use the resource-based view for when it comes to internal analysis?
To gain a deeper understanding of how the interplay between resources and capabilities creates core competencies that drive firm activities leading to competitive advantage, we turn to the resource-based view of the firm.
What are time compression diseconomies?
Trying to achieve the same outcome in less time, even with higher investments, tends to lead to inferior results.
framework tool for evaluating a FIRM'S ENDOWMENTS (what resource attribute underpin competitive advantage?)
VRIO framework
To be the basis of a competitive advantage, a resource must be:
Valuable Rare Costly to imitate Organized to capture the value
What is intellectual property protection?
a critical intangible resource that can provide a strong isolating mechanism, and thus help to sustain a competitive advantage
what is a swot analysis?
a framework that allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses with those from an analysis of external opportunities and threats to derive strategic implications
To formulate and implement a strategy that enhances a firm's chances of gaining and sustaining a competitive advantage, managers need to have what?
a hypothesis or theory of how to compete
Although it is widely used, SWOT analysis can be a problem: why?
a strength can also be a weakness and an opportunity can also simultaneously be a threat
distinct and fine-grained business processes (order-taking, invoicing, etc.)
activities
What are primary activities known for doing?
add value directly as the firm transforms inputs into outputs - from raw materials through production phases to sales and marking and finally customer service
If the resource is question is valuable, rare, and costly to imitate, then it is ...
an internal strength and a core competency.
Several conditions, however, can potentially protect a successful firm by making it more difficult for competitors to imitate the resources, capabilities, and competencies that underlie its competitive advantage. Those conditions include...
barriers to limitation
What are intangible resource stocks?
built through investments over time
A resource it costly to imitate if...
competitors can't develop the resource for a reasonable price, and if imitation and substitution are risks.
As a business, we're constantly striving to turn our resources and capabilities into ...
core competencies
Products and services make up the visible side of competition. But residing deep within the firm lies a diverse set of invisible elements around which companies also compete; these are..
core competencies
unique strengths that are embedded deep within a firm. They allow the firm to differentiate from rivals: Results in creating higher value for the customer or Results in products and services offered at lower cost
core competencies
can happen when a former core competency turns into a liability. This can result from environmental changes No longer fits the external environment Causes loss of competitive advantage!!! The firm may even go out of business!! (Blockbuster busted from Netflix)
core rigidity
What is a value chain?
describes the internal activities a firm engages in when transforming inputs into outputs
This describes a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources over time in its quest for competitive advantage. They are essential to move beyond a short-lived advantage and create a sustained competitive advantage.
dynamic capabilities
The firm of a resource needs to capture a resource's value through...
effective internal organizational structure and coordinating systems.
A valuable resource is one that...
enables the firm to exploit an external opportunity or offset and external threat. This has a positive effect on a firm's competitive advantage. In particular, a valuable resource enables a firm to increase its economic value creation
T or F: The VRIO framework states that a firm can gain and sustain a competitive advantage only when it has resources that satisfies some of the VRIO criteria
false; all of the criteria
A resource is costly to imitate if..
firms that do not possess the resource are unable to develop or buy the resource at a reasonable price
What are barriers to limitation?
important examples of isolating mechanisms that prevent rivals from competing away the advantage a firm may enjoy.
What is a strategic fit?
increases the likelihood that a firm is able to gain a competitive advantage - If a firm achieves this, it's likely to be able to sustain its advantage over time
A firm is a unique bundle of resources, capabilities, and competencies These bundles differ across firms
resource heterogeneity
Two assumptions critical to the resource-based model are:
resource heterogeneity and resources immobility
Resources are "sticky" - they don't move easily from firm to firm Resources are difficult to replicate Resources can last for a long time
resource immobility
The firm's current level of intangible resources. New product development, engineering expertise, innovation capability.
resource stocks
any assets that a firm can drawn on (cash, buildings, machinery, intellectual property
resources
Socially complex and causally ambiguous Capabilities necessary to orchestrate and manage a network of distinct activities within the entire system cannot be so easily observed
strategic activity systems
network of interconnected activities that: - Can be the foundation of competitive advantage - Socially complex and causally ambiguous - Enhance the likelihood of sustained competitive advantage
strategic activity systems
activities that add value to a firm INDIRECTLY. They are necessary to sustain primary activities. Research and development, information systems, human resources, accounting and finance, policies, procedures, etc.
support activities
Resources fall into two categories:
tangible and intangible
resources that are visible with physical attributes: Labor Capital Land Buildings Plant Equipment and supplies
tangible resources
If the firm's competitors fail to duplicate the strategy based on the valuable, rare, and costly resource, then...
the firm can achieve a temporary competitive advantage
What are resource stocks?
the firm's current level of intangible resources
what are resource flows?
the firm's level of investments to maintain or build a resource
T or F: A resource that is valuable but not rare can lead to competitive parity at best. A firm is on the path to competitive advantage only if it possess a valuable resource that is also rare
true