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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: Dow Chemical’s research laboratory and
facilities Intel’s semiconductor fabrication facilities AT&T’s network of wire, cable, and satellites…
The Internal EnvironmentThe 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
motivation and communications skills,…
The Internal EnvironmentThe Strengths and Weakness of the Firm
CapabilitiesEmerge over time through complex interaction between and among tangible and intangible resources.Become stronger and more valuable strategically through repetition and practice.Skills and knowledge of firm’s employees, including functional expertise (human capital)
The Internal Environment
The Strengths and Weakness of the Firm
CapabilitiesExamples:• 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 EnvironmentThe 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
Primary ActivitiesInbound LogisticsOperationsOutbound LogisticsMarketing and SalesCustomer Service
Secondary Activities Firm Infrastructure Human Resource
Management Technology Development Procurement
Value Chain AnalysisThe Strengths and Weakness of the Firm
InboundLogistics Operations
OutboundLogistics
Marketing & Sales CustomerService
Soundness ofmaterial andinventorycontrolsystems
Efficiency ofraw materialwarehousingactivities
Productivity ofequipmentcompared tothat of keycompetitors
Appropriateautomation ofproductionprocesses
Effectivenessof productioncontrol systemsto improvequality andreduce costs
Efficiency ofplant layoutand work-flowdesign
Timeliness andefficiency ofdelivery offinished goodsand services
Efficiency offinished goodswarehousingactivities
Effectiveness ofmarket research toidentify customersegments & needs
Innovation in sales& promotion
Evaluation ofalternatedistributionchannels
Motivation andcompetence of salesforce
Development ofimage of quality anda favorablereputation
Extent of brandloyalty amongcustomers
Extent of marketdominance withinthe market segmentor overall market
Means to solicitcustomer inputfor productimprovements
Promptness ofattention tocustomercomplaints
Appropriatenessof warranty andguaranteepolicies
Quality ofcustomereducation andtraining
Ability toprovidereplacement partsand repair service
Primary Activities and Factors for Assessment
FirmInfrastructure
HumanResource
TechnologyDevelopment
Procurement
Capability toidentify newproduct marketopportunities andpotentialenvironmentalthreats
Quality of thestrategic planningsystem to achievecorporate objectives
Coordination andintegration of allvalue chainactivities
Ability to obtainrelatively low costfunds for capitalexpenditures andworking capital
Timely & accurateinformation ongeneral andcompetitiveenvironments
Effectiveness ofprocedures forrecruiting,training, andpromoting alllevels ofemployees
Appropriatenessof reward systems
Relations withtrade unions
Levels ofemployeemotivation andjob satisfaction
Success of R&Dactivities in leadingto product andprocess innovations
Quality of workingrelationship betweenR&D personnel andother departments
Timeliness oftechnologydevelopmentactivities in meetingcritical deadlines
Qualifications &experience oflaboratorytechnicians andscientists
Ability of workenvironment toencourage creativityand innovation
Development ofalternate sources forinputs to minimizedependence on asingle supplier
Procurement of rawmaterials on timelybasis at lowestpossible cost and atacceptable levels ofquality
Development forcriteria for lease-vs.-buy decisions
Good, long-termrelationships withsuppliers
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
Valuable? Rare? Imitate? By Firm? ImplicationsNo -- -- No Comp. Disadv.
Yes No -- Comp. Parity
Yes Yes No Temp Comp. Adv.
Yes Yes Yes Yes Sustained Comp. Adv.
The Internal EnvironmentLife Expectancy of Sustained Competitive
Advantage
Length of Innovation Cycle the faster the cycle, the easier it is to take away competitive advantage
Example: New generation of cameras born about every 10 months
Number of Dimensions of Customer Value the more dimensions, the easier it is for competitors to find ways of eroding competitive advantage
Example: An I-beam is an I-beam, but an automobile comes in many shapes, sizes, etc.
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 SummaryInternal Factors Weight Rating
Weighted
Score
Comments
Strengths
Weaknesses
Total 1.00 ????
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 ScanningExample: 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 Microsoft.
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.
Need new strategy to reduce costs and better meet consumer demand
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. Improve internal processes for product development.
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.