The case analysis process of strategic management (2)

The Internal Environment The Strengths and Weakness of the Firm A Firm’s Tangible & Intangible Resources combine with Firm’s Capabilities to create Distinctive Competencies  Distinct

The Internal Environment The Strengths and Weakness of the Firm

 A Firm’s Tangible & Intangible Resources

combine with Firm’s Capabilities to create

Distinctive Competencies

 Distinctive Competencies – those activities that

a firm performs better than any competing firm

The Internal Environment

The Strengths and Weakness of the Firm

 Sustained Competitive Advantage – firms that possess and exploit costly to imitate, rare, and valuable resources & capabilities

in choosing and implementing their

strategies may enjoy a period of sustained competitive advantage and above normal economic profit.

The Internal Environment The Strengths and Weakness of the Firm

Tangible Resources:

facilities

The Internal Environment

The Strengths and Weakness of the Firm

Intangible Resources:

 Toyota’s well-known and trusted brand names,

 New Season’s good reputation,

 Intel’s knowledgeable and creative workforce,

 Sun Microsystems’ unifying corporate culture,

 Subway’s international experience with different country’s regulations on franchising,

 Norm Thompson Outfitters’ visionary leader with strong

The Internal Environment The Strengths and Weakness of the Firm

 Skills and knowledge of firm’s employees, including

functional expertise (human capital)

The Internal Environment

The Strengths and Weakness of the Firm

Capabilities

Examples:

• Toyota’s efficient distribution systems - Just-in-time (JIT) delivery, strong supplier relationships, and well-trained inventory specialists

• L.L Bean’s customer segmentation procedures and systems -

database management systems, effective market research efforts and strong supplier relationships

• Nike’s new product development procedures – creative workforce and innovation-driven culture, strong leadership, and effective market research

The Internal Environment

The Strengths and Weakness of the Firm

Distinctive Competencies: The VRIO

Framework

 Question of Value: Do a firm’s resources and

capabilities enable the firm to respond to

neutralize external threats and/or capitalize on external opportunities?

 Example: Are InFocus’ engineers and marketing staff able to develop and sell home-based projector systems before its competitors?

The Internal Environment

The Strengths and Weakness of the Firm

Distinctive Competencies: The VRIO Framework

 Question of Rarity: Is a resource or capability currently

controlled by only a small number of competing firms?

 Example: Does InFocus have the technical expertise and

market access that other firms do not have to innovate and sell home-based projector systems?

The Internal Environment

The Strengths and Weakness of the Firm

Distinctive Competencies: The VRIO Framework

 Question of Inimitability: Do firms without the resource

or capability face a cost disadvantage in obtaining or

developing it?

 Example: Is it quite expensive for Toshiba to internally develop the expertise to manufacture home-based projector systems?

The Internal Environment

The Strengths and Weakness of the Firm

Distinctive Competencies: The VRIO Framework

 Question of Organization: Are a firm’s other policies

and procedures organized to support the use of its

valuable, rare, and costly to imitate resources and/or capabilities?

 Example: Are InFocus’ organizational structure and

compensation policies appropriate to support its efforts to develop, manufacture and distribute home-based projector systems?

The Internal Environment

The Strengths and Weakness of the Firm

Value Chain Analysis

 Examines contributions of individual activities to overall

level of customer value and ultimately financial

performance.

 Customer value: product differentiation, low cost, and/or responsiveness

The Internal Environment

 Technology Development

 Procurement

Value Chain Analysis

The Strengths and Weakness of the Firm

Logistics Operations

OutboundLogistics

Marketing & Sales Customer

 Appropriate automation of production processes

 Effectiveness

of production control systems

to improve quality and reduce costs

 Efficiency of plant layout and work-flow design

 Timeliness and efficiency of delivery of finished goods and services

 Efficiency of finished goods warehousing activities

 Effectiveness of market research to identify customer segments & needs

 Innovation in sales

& promotion

 Evaluation of alternate distribution channels

 Motivation and competence of sales force

 Development of image of quality and

a favorable reputation

 Extent of brand loyalty among customers

 Extent of market dominance within

 Means to solicit customer input for product improvements

 Promptness of attention to customer complaints

 Appropriateness

of warranty and guarantee

policies

 Quality of customer education and training

 Ability to provide replacement parts and repair service

Primary Activities and Factors for Assessment

Firm Infrastructure

Human Resource

Technology Development

relatively low cost

funds for capital

 Appropriateness

of reward systems

 Relations with trade unions

 Levels of employee motivation and job satisfaction

 Success of R&D activities in leading

to product and process innovations

 Quality of working relationship between R&D personnel and other departments

 Timeliness of technology development activities in meeting critical deadlines

 Qualifications &

experience of laboratory technicians and scientists

 Ability of work environment to encourage creativity and innovation

 Development of alternate sources for inputs to minimize dependence on a single supplier

 Procurement of raw materials on timely basis at lowest possible cost and at acceptable levels of quality

 Development for criteria for lease-vs.- buy decisions

 Good, long-term relationships with suppliers

Secondary Activities and Factors for Assessment

The Internal Environment

 So strengths and weaknesses are based on how well

value chain activities are performed

 Resources and capabilities determine the performance

of value chain activities Look at…

 Corporate culture and Leadership

 Marketing management issues

 Financial management issues

 R&D management issues

 HR management issues

 Operations management issues

 Information systems management issues

 Stakeholder management issues

The Internal Environment

The Strengths and Weakness of the Firm

Is a resource or capability…

Costly to Exploited Competitive

Adv.

The Internal Environment

Life Expectancy of Sustained Competitive

Example: An I-beam is an I-beam, but an automobile comes in

The Internal Environment

Life Expectancy of Sustained Competitive

Advantage

Switching Costs Between Rivals: the easier it is to switch, the

easier it is to take away competitive advantage

Example: Difficulty in switching between office systems

management service providers versus ease of switching between office supplies provider

Internal Factor Analysis Summary

Internal Factors Weight Rating Weighted

Score

Comments Strengths

Weaknesses

Internal Factor Analysis Summary

 Same basic procedure as the External Factor

Analysis Summary.

 See page 101 and 102 of the text for more discussion of the IFAS.

Internal Scanning

Example: Proctor & Gamble (circa 1992)

Resources

Research and Development

P&G invests 4% of worldwide sales in research and development ahead of most

of its global competitors In 1997-98 this amounted to $1.5 billion

P&G has a world class, global research and development organization, with over 7,500 scientists working in 22 research centers in 12 countries around the

world

Innovative Workforce

P&G holds more than 24,000 active patents worldwide, and on average, receives about 3,800 more patents per year This makes P&G among the world's largest holders of U.S and global patents, putting it on a par with Intel, Lucent and

Proctor & Gamble

Capability

Directed growth and maximized chances of success by leveraging considerable technical competencies across product categories and national boundaries

Competencies

A deep understanding of consumers, their habits and product needs

The ability to acquire, develop and apply technology across P&G's broad array of product categories

The ability to make "connections" between consumers' wants and what technology can deliver

Strategic Issue

Market research revealed brand loyal consumers were paying $725/year more than families buying private-label or store brands

Factors for Assessment:

 Technology Development (R&D): was the initiator of product development,

produced technologically superior productS

 Firm Infrastructure: Relationship between R&D and Marketing & Sales Marketing released new products under new brand names

 Marketing & Sales: complex with 17 pricing brackets for 34 product

categories

 Manufacturing: Capacity utilization averaged about 55%, with excess needed

to handle bubble demand brought on by occasional price wars

 Outbound Logistics: heavily paper-laden

Methods for Assessment:

Organizational Perspective:

 Superior products no longer matched needs of marketplace, particularly in

 developing markets

 Devolve products – less technology, lower price

 Put marketing research in charge of setting initial new product development

 guidelines

Methods for Assessment:

Customer value:

 Brand equity for existing brands is high (e.g Ivory) Release new

developments under existing brand names rather than creating new ones

Improve customer value by strengthening brand relationship to new products.

Financial Perspective:

 Outbound logistics unnecessarily expensive Work with industry stakeholders,including competitors, to simplify delivery system through standardization and

computerization Improves industry’s profitability.

 Reduce number of brands and product lines Simplifies manufacturing

process and eliminate slack in capacity utilization Better ROA, and hopefully

better P/E ratio.