- managers understand the kinds of

coordination needed to enhance

workflow efficiency, quality, and speed
By analyzing value-chain activities... - they understand their firms overall
internal cost structure
- they identify activities in which the firm
has a cost or differentiation advantage

- superiority a firm enjoys over its rivals

- firms earning above-average profits enjoy competitive

advantage
- Five Forces model argues that market position
Competitive advantage provides a firm with a competitive advantage that leads
to high profits-- industry position allows the firm to
control industry forces
- alternative approach explains competitive advantage
as the result of a firms internal strengths

- how can a firm determine the competitive potential of a resource or capability?

- is the resource valuable? (does it provide competitive advantage)

- organizational resources can be a source of competitive advantage only when they are

Firm resources and sustainable valuable

- enable a firm to formulate and implement strategies that improve its efficiency or

competitive advantage
effectiveness

- competitive disadvantage: not valuable, not rare, not difficult to imitate, has substitutes
- competitive parity: valuable, not rare, not difficult to imitate, has substitutes
- temporary competeitive advantage: valuable, rare, not difficult to imitate, has substitutes
- sustainable competitive advantage: valuable, rare, difficult to imitate, no substitutes

- substitutability may take atleast two forms:

Firm resources and sustainable - competitor may be able to substitute a

similar resource that enables it to develop
competitive advantage: Are
and implement the same strategy
substitutes readily available? - very different firm resources can become
strategic substitutes (such as e-business as a
substitute for physical retail facility)

- is it costly for others to imitate?

- difficulty in imitating resources is key to value creation because it
contrains competition
- profits generated from imititable resouces are more likely to be
Firm resources and sustainable susainable

competitive advantage: Can the - physical uniqueness ( geographic location, access to raw materials)

resources be imitated easily? - path dependency (built over time)

- causal ambiguity (difficult to understand relationship betwenn
resouces and capabilities)
- social complexity (interposonal relations, culture, reputation with
suppliers)
 - do other competitors possess it?
- organizational resources also possessed by
competitors are not sources of competitive
Firm resources and sustainable advantage
competitive advantage: Is the - common strategies based on similar resouces give
no one firm an advantage
resource rare? - competitive advantages are gained only from
uncommon resources, resources that are rare to
other competitors

- companies differ in fundamental ways because each

company has a unique bundle of resources
- each company develops competenicies from these
resources
- performance differences in firms can be better
Resource based view of the firm explained on the basis on their internal strengths

- where do internal strengths come from?

- three key types of resources: tangible resources,
intangible resources, organizational capabilities

- assessment of a firms overall

strength in relation to competitive
environment
SWOT analysis
- Strengths Weaknesses
Opportunities Threats

- it helps managers create a quick overview

of the company's strategic situation
- helps managers draw conclusions about
company's overall situation and translate
SWOT analysis can help because...
these conclusions into strategic actions
- fit between a company's internal resources
(S/W) and its external situation (O/T)
- maximize S and O, minimize W and T

- major favorable situations in a company's

environment (ex: improving economic conditions,
developing market, new international market,
online sales, new technology)
SWOT analysis: Opportunities - must match with the company's financial and
organizational resources
- must offer growth and profitability and present
potential for competitive advantage
 - resources or capabilities that give a company competitive
advantage
- allows company to prove its competitive position and financial
performance

SWOT analysis: Strengths - a skill, specialized expertise or competitively important

capability
- valuable physical assets (state of the art plants and equipment,
world wide distribution facility)
- valuable human assets and intellectual capital (talented
employees)

- major unfavorable situation in a

company's environment (ex: price wars,
new competition)
SWOT analysis: Threats
- companies must identify the threats
and evaluate what strategic actions can
be taken to neutralize their impact

- limitation or deficiency in company's

resources or capabilities that create a
disadvantage
- make the company vulnerable
SWOT analysis: Weaknesses
(deficiencies)

- inferior/unproven skills, expertise of

intellectual capital in some areas

- difficult for competitors (and the firm itslef) to imitate,

typically embedded in unique routines and practices that
have evolved overtime

Types of resources: Intangible - human: experience and capabilites of employees, trust,

managerial skills, firm specific practices and procedures
resources - innovation and creativity: technical and scientific skills,
innovation capacities
- reputation: brand name, reputation with customers,
reputation with suppliers

- competencis or skills that a firm employes to

transform inputs to outputs, and capacity to combine
tangible and intangible resources to attain desired
end
Types of resources: Organizational - a subset of resources that enable a firm to take full
capabilities advantage of other resources:
-- marketing skills
-- excellent products development capabilites
-- ability to hire, motivate, and retain human capital
 - 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,

Types of resources: Tangible firms borrowing capacity
- physical resources: modern plant and facilties, favorable
resources manufacturing locations, state-of-the-art machinery and equipment
- technologcial resources: trade secrets, innovative production proces,
patents, and copyrights
- organizational resources: effective strategic planning processes,
excellent evaluation and control systems

- sequential process of value-creating activities- chain of

activities for transforming inputs into outputs

- each activity in the value-chain defines the company's internal

cost structure
Value-Chain analysis - the value-chain analysis tells us which internal activities are a
source of cost advantage or disadvantage

- value-chain activities help a firm in the process of...

-- lowering costs and increasing the perception of value through
differentiation

- are involved with:

-- a products physical creation
-- a products sale and distribution to buyers
-- the products service after the sale
Value-Chain analysis: Primary
- inbound logistics
activites - operations
- outbound logistics
- marketing and sales
- service

- associated with receiving, storing and distributing inputs to the

product
- these activities provide opportunities to lower inventory
ordering and storage costs and minimize overall operational
Value-Chain analysis: Primary costs

activities: Inbound logistics - obtaining fuel, energy, raw materials, part components
- location of distribution facilities to minimize shipping times
- material and inventory control systems
- warehouse layout and designs to increase efficiency of
operations for incoming materials

- associated with purchases of products and services by

end users and delivering the message to the consumer
- marketing adds value by creating a favorable image of
the company and its products
Value-Chain analysis: Primary
- highly motivated and competent sales force
activities: Marketing and sales - innovative approaches to promotion and advertising
- selection of most appropriate distribution channels
- proper identification of customer segments and needs
- effective pricing strategies
 - associated with transforming inputs into the final
product form
- help the firm reduce total cost and shorten the
processing time to facilitate fast delivery of products
Value-Chain analysis: Primary
- production, assembly, packaging, operations
activities: Operations - efficient plant operations to minimize costs
- appropriate level of automation in manufacturing
- quality production control systems to enhance quality
- efficient plant layout and workflow design

- associated with collecting, storing, and

distributing the product or service to buyers

Value-Chain analysis: Primary - effective shipping processes

activities: Outbound logistics - efficient finished goods warehousing
processes
- shipping of goods in large sizes
- quality material handling equipment

- associated with providing services to enhance or maintain the

value of the product

- effective use of procedures to solicit customer feedback and to

Value-Chain analysis: Primary act on information
- quick response to customer needs and emergencies
activities: Service - ability to furnish replacement parts
- effective management of parts and equipment inventory
- quality of service personnel and ongoing training
- warranty and guarantee policies

- typically supports the entire value-chain and not individual activities

- effective planning systems

- ability of top management to anticipate and act on key
Value-Chain analysis: Secondary environmental trends and events
- ability to obtain low-cost funds for capital expenditures and working
activities: General administration capital
- excellent relationships with diverse stakeholder groups
- ability to coordinate and integrate activities across the value chain
- organization culture, reputation, and values

- activities involved in the recruiting, hiring, training,

development, and compensation of all types of
personnel
Value-Chain analysis: Secondary
- effective recruiting, development and retention
activities: Human resource mechanisms for employees
management - quality work environment to maximize overall
employee performance and minimize absenteeism
- reward and incentive programs to motivate all
employees
 - function of purchasing inputs used in the firms
value chain

Value-Chain analysis: Secondary - procurement of raw material inputs

activities: Procurement - development of collaborative "win-win"
relationships with suppliers
- analysis and selection of alternate sources of
inputs to minimize dependence on one supplier

- 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

Value-Chain analysis: Secondary - positive collaborative relationships between R&D and other
departments
activities: Technology development - state-of-the-art facilities and equipment
- culture to enhance creativity and innovation
- excellent professional qualifications of personnel
- ability to meet critical deadlines

- are involved with...

-- providing assistance necessary for the
primary activities to take place
Value-Chain analysis: Support
activites - general administration
- human resource management
- technology development
- procurement

- the amount that buyers are willing to

pay for what a firm provides them

Value-Chain analysis: Value - firm is profitable to the extent the

value it receives exceeds the total costs
involved in creating its product or
service

- it provides a comparative look at a

firms capabilities (what are a firms
strengths? weaknesses? compared to
What does internal analysis tell us? competitors?)
- helps a firm determine if its resources
and capabilities are likely sources of
competitive advantage