Chapter 4: Internal Analysis

dynamic capabilities perspective

a model that emphasizes a firm's ability to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment

casual ambiguity

a situation in which the cause and effect of a phenomenon are not readily apparent --therefore--> formulate and implement a strategy that enhances a firm's chances of gaining and sustaining a competitive advantage, managers need to have a hypothesis or theory of how to compete. --This implies that managers need to have some kind of understanding about what causes superior or inferior performance.

Resources

any assets that a firm can draw on when formulating and implementing a strategy cash, buildings, machinery, or intellectual property that a firm can draw on when crafting and executing a strategy.

VRIO Framework

A theoretical framework that explains and predicts firm-level competitive advantage.

Tangible Resources

Resources that have physical attributes and thus are visible. examples: Labor, Capital, land, buildings, plants, equipment , supplies

Combining Imitation and Substitution

when attempting to mitigate the competitive advantage of a rival. With its Galaxy line of smartphones, Samsung has been able to imitate success- fully the look and feel of Apple's iPhones. Samsung's Galaxy smartphones use Google's Android operating system and apps from Google Play as an alternative to Apple's iOS and iTunes Store. Samsung achieved this through a combination of direct imitation (look and feel) and substitution (using Google's mobile operating system and app store).

support activities

firm activities that add value indirectly, but are necessary to sustain primary activities ■ Research and development ■ Information systems. ■ Human resources. ■ Accounting and finance. ■ Firm infrastructure including processes, policies, and procedures.

capabilities

Organizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically.

primary activities

Firm activities that add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain. --Supply chain management. --Operations. --Distribution. --Marketing and sales. --After-sales service.

intellectual property protection

A critical intangible resource that can provide a strong isolating mechanism, and thus help to sustain a competitive advantage. (5 major forms of IP protection: patents, designs, copyrights, trademarks, and trade secrets.)

dynamic capabilities

A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage. --essential to move beyond a short-lived advantage and create a sustained competitive advantage. --firm must be able to change its internal resource base as the external environment changes.

SWOT analysis

A framework that allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses (S and W) with those from an analysis of external opportunities and threats (O and T) to derive strategic implications.

Resource-based view

A model that sees certain types of resources as key to superior firm performance.

Path Dependence

A situation in which the options one faces in the current situation are limited by decisions made in the past. (Often, early events— sometimes even random ones—have a significant effect on final outcomes.)

social complexity

A situation in which different social and business systems interact with one another. (A group of three people has three relationships, connecting every person directly with one another. Adding a fourth person to this group doubles the number of direct relationships to six. Introducing a fifth person increases the number of relationships to 10 This gives you some idea of how complexity might increase when we com- bine different systems with many different parts.)

How to sustain a competitive advantage?

Although VRIO resources can lay the foundation of a sustainable competitive advantage, no competitive advantage can be sustained indefinitely. Several conditions, however, can offer some protection to a successful firm 1. Better Expectations of Future Values 2. Path Dependence 3. Causal Ambiguity 4. Social Complexity

resource heterogeneity

Assumption in the resource-based view that a firm is a bundle of resources and capabilities that differ across firms (this insight ensures that ana- lysts look more critically at the resource bundles of firms competing in the same industry (or even the same strategic group), because each bundle is unique to some extent.)

activities

Distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services.

Costly-to-Initiate resource (VRIO)

One of the four key criteria in the VRIO framework. A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost.

Rare resource (VRIO)

One of the four key criteria in the VRIO framework. A resource is rare if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition. (A resource that is valuable but not rare can lead to com- petitive parity at best. A firm is on the path to competitive advantage only if it possesses a valuable resource that is also rare.)

Valuable Resource (VRIO)

One of the four key criteria in the VRIO framework. A resource is valuable if it helps a firm exploit an external opportunity or offset an external threat. (has a positive effect on a firm's competitive advantage. In particular, a valuable resource enables a firm to increase its economic value)

Organized to capture value (VRIO)

One of the four key criteria in the VRIO framework. The characteristic of having in place an effective organizational structure, processes, and systems to fully exploit the competitive potential of the firm's resources, capabilities, and competencies.

Strength questions within SWOT example

Strengths: --1) Opportunities: "How can the firm use internal strengths to take advantage of external opportunities?" --2) Threats: "How can the firm use internal strengths to reduce the likelihood and impact of external threats?"

Amazon (core competencies)

Superior IT capabilities. • Superior customer service. Online retailing: Largest selection of items online. • Cloud computing: Largest provider through Amazon Web Services (AWS).

Value Chain

The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value. (A careful analysis of the value chain allows managers to obtain a more detailed and fine-grained understanding of how the firm's economic value creation (V − C) breaks down into a distinct set of activities that help determine perceived value (V) and the costs (C) to create it)

Weakness questions within SWOT example

Weaknesses --1)Opportunities: "How can the firm overcome internal weaknesses that prevent the firm from taking advantage of external opportunities?" --2)Threats: "How can the firm overcome internal weaknesses that will make external threats a reality?"

core rigidity

a former core competency that turned into a liability because the firm failed to hone, refine, and upgrade the competency as the environment changed (This is the reason reinvesting, honing, and upgrading resources and capabilities are so crucial to sustaining any competitive advantage)

Direct imitation

as a way to copy or imitate a valuable and rare resource, when firms have difficulty protecting their advantage. is swift if the firm is successful and intellectual property protection such as patents or trademarks, for example, can be easily circumvented.

resource immobility

assumption in the resource-based view that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm (Because of that stickiness, the resource differences that exist between firms are difficult to replicate and, therefore, can last for a long time.)

Isolating Mechanisms

barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy This link ties isolating mechanisms directly to one of the criteria in the resource- based view to assess the basis of competitive advantage: costly to imitate. If one, or any combination, of these isolating mechanisms is present, a firm may strengthen its basis for competitive advantage, increasing its chance to be sustainable over a longer period of time.

Intangible resources

resources that do not have physical attributes and thus are invisible Example: (firm's culture, its knowledge, brand equity, reputation, and intellectual property.)

Substitution

second avenue of imitation for a firm's valuable and rare resource is through substitution. This is often accomplished through strategic equivalence.

resource stocks

the firm's current level of intangible resources

resource flows

the firm's level of investments to maintain or build a resource

core competencies

unique strengths, embedded deep within a firm allow a firm to differentiate its products and services from its rivals i.e. (Through continuous learning over several decades, and often from lessons learned from failure, Honda built the core competency to design and manufacture small but powerful and highly reliable engines for which it now is famous. )