4CHAPTER

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Internal Analysis: Internal Analysis: Resources, Resources, Capabilities, and Capabilities, and ActivitiesActivities

By Cecilia, Christine, and SavannaBy Cecilia, Christine, and Savanna

ChapterCase 4 From Good to Great to Gone:

• Circuit CityCircuit City A GREAT performer from 1982 – 2000A GREAT performer from 1982 – 2000

CC created world-class logistics & customer CC created world-class logistics & customer responsivenessresponsiveness

4S: service, selection, savings, & satisfaction4S: service, selection, savings, & satisfaction 6 times better investment than GE under Jack 6 times better investment than GE under Jack

Welch!Welch! In a book by Jim Collins in 2001, he reported that In a book by Jim Collins in 2001, he reported that

“CC outperformed the market 18.5 times during “CC outperformed the market 18.5 times during 1982-1997.”1982-1997.”

• Bankruptcy in fall of 2008! Bankruptcy in fall of 2008! Outflanked by firms like Best Buy and AmazonOutflanked by firms like Best Buy and Amazon

4-2Christine

ChapterCase 4 From Good to Great to Gone:

• 4 S’s4 S’s

Service – describe itService – describe it

Selection – define itSelection – define it

Savings – how does that work?Savings – how does that work?

Satisfaction – what makes them Satisfaction – what makes them come back?come back?

4-3Christine

Circuit City (cont’d)Circuit City (cont’d)• What are the key issues in Circuit City’s What are the key issues in Circuit City’s

demise?demise? Management distracted by other businessesManagement distracted by other businesses

Creation of CarMax, DivX DVD player, and the merger with Creation of CarMax, DivX DVD player, and the merger with Blockbuster (who also filed for bankruptcy in 2010)Blockbuster (who also filed for bankruptcy in 2010)

CC wanted to become more cost-competitive with Best Buy CC wanted to become more cost-competitive with Best Buy and on-line retailers such as Amazonand on-line retailers such as Amazon

Insufficient investments in core competenciesInsufficient investments in core competencies– Neglected to upgrade and protect themNeglected to upgrade and protect them

Laid-off 3,000 highly paid, dedicated, very experienced sales Laid-off 3,000 highly paid, dedicated, very experienced sales staffstaff– Loyal to company and better able to provide superior Loyal to company and better able to provide superior

customer servicecustomer service– Recruited by Best BuyRecruited by Best Buy

ChapterCase 4

4-4Christine

INTERNAL ANALYSIS: Inside the INTERNAL ANALYSIS: Inside the FirmFirm• Comparing two firms in same industry: Comparing two firms in same industry:

Internal focusInternal focus

Core CompetenciesCore Competencies Unique strengths deep inside that differentiate products and Unique strengths deep inside that differentiate products and

services unique to a firmservices unique to a firm Can drive competitive advantageCan drive competitive advantage Important note: Core Competencies that are not Important note: Core Competencies that are not

continuously nourished will eventually lose their ability to continuously nourished will eventually lose their ability to yield a competitive advantage (e.g. Circuit City)yield a competitive advantage (e.g. Circuit City)

Strategic FitStrategic Fit Internal strengths change with external environmentInternal strengths change with external environment

4-5Christine

EXHIBIT 4.1 Creating Strategic Fit to Leverage Internal StrengthsCreating Strategic Fit to Leverage Internal Strengths

4-6

Christine

Internal Analysis: Link to Superior Internal Analysis: Link to Superior Performance Performance • Combination of Resources & CapabilitiesCombination of Resources & Capabilities

Builds core competenciesBuilds core competencies

Competencies drive activitiesCompetencies drive activities To transform inputs into goods & servicesTo transform inputs into goods & services

Activities can produce competitive advantage & Activities can produce competitive advantage &

performanceperformance

Reinvest profits from superior performanceReinvest profits from superior performance Hone and upgrade core competenciesHone and upgrade core competencies

4-7

EXHIBIT 4.2 Linking Resources & Capabilities to Firm PerformanceLinking Resources & Capabilities to Firm Performance

4-8

Assets such as cash, buildings, intellectual property that a company can draw on

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

SFP in the marketplace generates profits that can be reinvested into the firm – helps to upgrade a firm’s resources and capabilities in its pursuit of competitive advantage and improved profitability

FA enable firms to add value by transforming inputs into goods and services

Christine

EXHIBIT 4.3 Company Examples of Core Competencies & ApplicationsCompany Examples of Core Competencies & Applications

4-9Christine

THE RESOURCE-BASED VIEWTHE RESOURCE-BASED VIEW

Is a model that aids to identifyIs a model that aids to identify

4-10

The core competences

• Resource-Base View

* This model include all assets that a firm can draw upon when formulating and implementing strategies

Cecilia

THE RESOURCE-BASED VIEWTHE RESOURCE-BASED VIEW

Two Categories of Resources:Two Categories of Resources:

• Tangible ResourcesTangible Resources Visible; physical attributesVisible; physical attributes

• Intangible ResourcesIntangible Resources Invisible; no physical attributesInvisible; no physical attributes

4-11Cecilia

EXHIBIT 4.4 Tangible & Intangible Resources

4-12Cecilia

THE RESOURCE-BASED VIEWTHE RESOURCE-BASED VIEW

• Example: Google Example: Google

Has its Has its Tangible resources: “Fixed Assets”Tangible resources: “Fixed Assets” valued at $5 valued at $5 billionbillion

Has its Has its Intangible resources: “The Google brand”Intangible resources: “The Google brand” valued at valued at over $100 billionover $100 billion

Googleplex has BOTH tangible and intangible aspectsGoogleplex has BOTH tangible and intangible aspects

4-13Cecilia

THE RESOURCE-BASED VIEWTHE RESOURCE-BASED VIEW

• According to Rothaermel (2013)According to Rothaermel (2013)““Competitive Advantage is more likely to spring from intangible Competitive Advantage is more likely to spring from intangible

rather than tangible resources”rather than tangible resources”

4-14Cecilia

Tangible resources: Fixed Assets

Buy them if you have money

Intangible resources: Brand name

Is built often over long periods of time

* Google brand name – Faster– than Microsoft, Coca-Cola, IBM, and McDonald —took much longer

Exercise: When Brands = CategoriesExercise: When Brands = Categories

CONDITIONS:CONDITIONS:• Brand valuation can be a major intangible resource for the Brand valuation can be a major intangible resource for the

firmfirm• Some product brands are so well established that the Some product brands are so well established that the

entire category of products (incl. competitors) may be entire category of products (incl. competitors) may be called by the brand name called by the brand name

Can you tell me an example of firm or company where Can you tell me an example of firm or company where this is happening in the marketplace?this is happening in the marketplace?

4-15Cecilia

Exercise: When Brands = CategoriesExercise: When Brands = Categories

““IPot”----- when referring to any type of IPot”----- when referring to any type of personal portable personal portable media playermedia player

““Jell-O”----- when people mean Jell-O”----- when people mean gelatin dessertgelatin dessert

““Hoover”----- when people mean Hoover”----- when people mean vacuum cleanervacuum cleaner

““Power Point”----- when people mean Power Point”----- when people mean electronics electronics presentationspresentations

““Post - its”----- when people mean Post - its”----- when people mean sticky notessticky notes

““Jell-O”----- when people mean Jell-O”----- when people mean gelatin dessertgelatin dessert4-16

Cecilia

Two Critical Assumptions in Two Critical Assumptions in Resource-Base View Resource-Base View

• Resource heterogeneityResource heterogeneity Bundles of resources and capabilities Bundles of resources and capabilities differ across firmsdiffer across firms

• Resource immobilityResource immobility Resources tend to be “Resources tend to be “sticky” and don’t move easily sticky” and don’t move easily

from firm to firmfrom firm to firm

4-17Cecilia

Two Critical Assumptions in RBV Two Critical Assumptions in RBV • Resource heterogeneity (differ across firm)Resource heterogeneity (differ across firm)

ExampleExample Southwest Airlines (SWA) & Alaska Airlines have Southwest Airlines (SWA) & Alaska Airlines have

different resourcesdifferent resources SWA SWA

– – Higher employee productivityHigher employee productivity– Job descriptions are informal; pilots help load luggageJob descriptions are informal; pilots help load luggage

• Resource immobility (difficult to replicate)Resource immobility (difficult to replicate) ExampleExample Southwest Airlines sustained advantage Southwest Airlines sustained advantage

Several decades superior performanceSeveral decades superior performance Competitors (Continental and Delta) have unsuccessfully Competitors (Continental and Delta) have unsuccessfully

imitated SWA modelimitated SWA model

4-18Cecilia

LO 4-1 Distinguish among a firm’s resources, capabilities, core competencies, and firm activities.

LO 4-2 Differentiate between tangible and intangible resources.

LO 4-3 Describe the critical assumptions behind the resource-based view.

LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources.

LO 4-5 Identify competitive advantage as residing in a network of firm activities.

LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.

LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.

LO 4-8 Conduct a SWOT analysis.

4-19Cecilia

The VRIO FrameworkThe VRIO Framework

• ValuableValuable

• RareRare

• Costly to ImitateCostly to Imitate

• Organized to CaptureOrganized to Capture

4-14

• Evaluation of firm’s competitive advantageEvaluation of firm’s competitive advantage• Must satisfy VRIO criteria to sustainMust satisfy VRIO criteria to sustain

Savannah

EXHIBIT 4.5 Applying RBV: Decision Tree Competitive ImplicationsApplying RBV: Decision Tree Competitive Implications

4-21Savannah

The VRIO FrameworkThe VRIO Framework• ValuableValuable

Increase perceived value in the eye of customerIncrease perceived value in the eye of customer Attractive features, lower priceAttractive features, lower price Increase revenuesIncrease revenues Increase profitabilityIncrease profitability

• HondaHonda Competency in designCompetency in design Efficient enginesEfficient engines Lean manufacturing, built-inLean manufacturing, built-in

Savannah

The VRIO Framework cont.The VRIO Framework cont.• RareRare

Few firms possessFew firms possess Commonality = perfect competitionCommonality = perfect competition

• ToyotaToyota Leading innovator of lean manufacturingLeading innovator of lean manufacturing Lower production costs + high quality ‘mass-Lower production costs + high quality ‘mass-

customized’ carscustomized’ cars Valuable + common = competitive parityValuable + common = competitive parity

Savannah

The VRIO Framework cont.The VRIO Framework cont.• Costly to ImitateCostly to Imitate

unable to buy or develop at reasonable priceunable to buy or develop at reasonable price

• AppleApple V+R+IV+R+I Sony has strength in inventingSony has strength in inventing Difficult to imitate design, integration, marketingDifficult to imitate design, integration, marketing

• CrocsCrocs Imitators pop upImitators pop up Share price $74.75 in 2007, $0.94 in 2008Share price $74.75 in 2007, $0.94 in 2008

Savannah

The VRIO Framework cont.The VRIO Framework cont.• Organized to CaptureOrganized to Capture

Firm’s ability to capture valueFirm’s ability to capture value Effective organizational structureEffective organizational structure Coordinating systemsCoordinating systems

• Xerox PARCXerox PARC First word processing applicationFirst word processing application Failure to exploit PARC breakthroughsFailure to exploit PARC breakthroughs

• Nintendo WiiNintendo Wii Casual GamerCasual Gamer 52 million world wide, 31 Xbox, 23 Playstation52 million world wide, 31 Xbox, 23 Playstation

Savannah

1–26

STRATEGY HIGHLIGHT 4.1 How Nintendo Focused onthe Casual Gamer

• Video Gaming BusinessVideo Gaming Business

$22 billion in 2009, growing to $60 billion in 2013$22 billion in 2009, growing to $60 billion in 2013

Nintendo understands the casual gamerNintendo understands the casual gamer Game Boy handheld devices in 1990Game Boy handheld devices in 1990

DS in 2004DS in 2004

Wii consoles in 2007Wii consoles in 2007

• 49% of game console market in 201049% of game console market in 2010

Microsoft Kinect introduced in November of 2010Microsoft Kinect introduced in November of 2010 Competition continues…Competition continues…

Nintendo Marketing Video4-26Savannah

Porter’s Value ChainPorter’s Value Chain

1–27

• Not focused on departments or accounting costsNot focused on departments or accounting costs• Focus on systemsFocus on systems

How inputs change into outputs purchased by the How inputs change into outputs purchased by the consumerconsumer

• Not focused on departments or accounting costsNot focused on departments or accounting costs Broken down into activitiesBroken down into activities

• Activities add incremental valueActivities add incremental value

Savannah

THE VALUE CHAINTHE VALUE CHAIN• Primary ActivitiesPrimary Activities

Add value directly in transforming inputs into outputsAdd value directly in transforming inputs into outputs Raw materials through production to customersRaw materials through production to customers

• Support ActivitiesSupport Activities Indirectly add valueIndirectly add value

Provide support to the primary activitiesProvide support to the primary activities Information systems, human resources, accounting, etc. Information systems, human resources, accounting, etc.

• System of ActivitiesSystem of Activities Firm = network of interconnected activitiesFirm = network of interconnected activities Managers use to gain and sustain competitive Managers use to gain and sustain competitive

advantageadvantage

4-28Savannah

PrimaryPrimary• Inbound logisticsInbound logistics

Receiving, storing, distributing inputs internallyReceiving, storing, distributing inputs internally• OperationsOperations

Transformational activities-change inputs to outputs Transformational activities-change inputs to outputs soldsold

• Outbound logisticsOutbound logistics Activities to deliver product or service to customerActivities to deliver product or service to customer

• Marketing and salesMarketing and sales Process to persuade clients to purchase from youProcess to persuade clients to purchase from you

• ServiceService Activities to maintain value of product or serviceActivities to maintain value of product or service

1–29Savannah

Support ActivitiesSupport Activities• ProcurementProcurement

Process of getting resources neededProcess of getting resources needed• Human resource managementHuman resource management

Recruit, hire, train, motivate, reward, & retain workersRecruit, hire, train, motivate, reward, & retain workers• Technological developmentTechnological development

Managing and processing information, protecting Managing and processing information, protecting company’s knowledge basecompany’s knowledge base

• InfrastructureInfrastructure Company’s support system, functions that allow day Company’s support system, functions that allow day

to day operationto day operation Accounting, legal, admin, general managementAccounting, legal, admin, general management

1–30Savannah

EXHIBIT 4.6 Value Chain: Primary & Support ActivitiesValue Chain: Primary & Support Activities

4-31Savannah

Value ChainValue Chain

1–32Savannah

Dynamic Strategic Activity SystemsDynamic Strategic Activity Systems• In order for a firm to sustain competitive In order for a firm to sustain competitive

advantage, strategic activity systems need to advantage, strategic activity systems need to evolve over time.evolve over time.

1–33Christine

Dynamic Strategic Activity SystemsDynamic Strategic Activity Systems• A network of interconnected activities in the firmA network of interconnected activities in the firm

• Evolve over time – external environment changesEvolve over time – external environment changes Add new activities & upgrade or remove obsolete onesAdd new activities & upgrade or remove obsolete ones

• Vanguard’s MissionVanguard’s Mission “ “ . . . to help clients reach their financial goals by being . . . to help clients reach their financial goals by being

the world’s highest-value provide of investment the world’s highest-value provide of investment products and services”products and services”

4-34Christine

Dynamic Strategic Activity Systems Dynamic Strategic Activity Systems (cont.)(cont.)• Vanguard ExampleVanguard Example

A global investment firm - $1.4 trillion managed A global investment firm - $1.4 trillion managed assetsassets Emphasis on low-cost investing and quality service Emphasis on low-cost investing and quality service

– Among the lowest expense ratios in the industry (0.20%) Among the lowest expense ratios in the industry (0.20%)

Updated the activity system from 1997 to 2011Updated the activity system from 1997 to 2011 New customer segmentation core – catering to the more New customer segmentation core – catering to the more

traditional as well as those who trade oftentraditional as well as those who trade often

1–35Christine

EXHIBIT 4.7 Vanguard Group’s Activity System 1997

Legend

Core

Support

4-36

Six large circles depict Vanguard’s strategic core activities – these six are supported by tightly linked activities reinforcing the strategic activity network

Christine

EXHIBIT 4.8 Vanguard Group’s Activity System 2011

Legend

Core

Support

4-37

Six large symbolize Vanguard’s strategic core activities that help it realize its strategic position as the low-cost leader in the industry. However, system evolved over time as mgmt added a new core activity – customer segmentation.

Christine

Dynamic Capabilities PerspectiveDynamic Capabilities Perspective

• Dynamic Capabilities Dynamic Capabilities Perspective describes a firm’s Perspective describes a firm’s ability to create, deploy, ability to create, deploy, modify, reconfigure, upgrade, modify, reconfigure, upgrade, or leverage its resources in its or leverage its resources in its quest for competitive quest for competitive advantageadvantage

• Essential in order to gain and Essential in order to gain and sustain competitive advantagesustain competitive advantage

4-38Christine

Dynamic Capabilities Perspective Dynamic Capabilities Perspective (cont.)(cont.)• A firm can modify its resource base to gain & A firm can modify its resource base to gain &

sustain a competitive advantagesustain a competitive advantage Advantage is gained from reconfiguring a firm’s Advantage is gained from reconfiguring a firm’s

resource baseresource base Honda core competency in gas-powered engine Honda core competency in gas-powered engine

designdesign Could decrease in value if consumers move toward electric-Could decrease in value if consumers move toward electric-

powered cars powered cars BYD (Chinese automaker) competency in batteries would BYD (Chinese automaker) competency in batteries would

gain advantage over Hondagain advantage over Honda

1–39Christine

Dynamic Capabilities Perspective Dynamic Capabilities Perspective (cont.)(cont.)• Dynamic capabilities are an Dynamic capabilities are an intangibleintangible resource resource

Intangible is something that cannot be touched or Intangible is something that cannot be touched or grasped – basically it doesn’t have a physical grasped – basically it doesn’t have a physical presencepresence

• Resource stocks (firm’s current level of intangible Resource stocks (firm’s current level of intangible resources) and flows (firm’s level of investments resources) and flows (firm’s level of investments to maintain or build a resource) are a useful viewto maintain or build a resource) are a useful view Exhibit 4.10 uses the bathtub exampleExhibit 4.10 uses the bathtub example

Outflows are a reduction in the firm’s intangible-resource Outflows are a reduction in the firm’s intangible-resource stocks, employee turnover (e.g key employees), or if they stocks, employee turnover (e.g key employees), or if they don’t engage in an activity for a period of time, and then forget don’t engage in an activity for a period of time, and then forget how to do that activity.how to do that activity.

1–40Christine

EXHIBIT 4.10 Role of Inflows & Outflows in Building Stocks

4-41Christine

LO 4-1 Distinguish among a firm’s resources, capabilities, core competencies, and firm activities.

LO 4-2 Differentiate between tangible and intangible resources.

LO 4-3 Describe the critical assumptions behind the resource-based view.

LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm’s resources.

LO 4-5 Identify competitive advantage as residing in a network of firm activities.

LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.

LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.

LO 4-8 Conduct a SWOT analysis.4-42Cecilia

HOW TO PROTECT A COMPETITIVE HOW TO PROTECT A COMPETITIVE ADVANTAGEADVANTAGE

1.1. Better Expectations of Future ValuesBetter Expectations of Future Values Buy Resources at a low costBuy Resources at a low cost

Real Estate Development - highway expansionReal Estate Development - highway expansion

2.2. Path DependencePath Dependence Current alternatives are limited by past decisionsCurrent alternatives are limited by past decisions

U.S. is the ONLY industrial nation not on the metric systemU.S. is the ONLY industrial nation not on the metric system Honda’s core competency in gas engines took decades to Honda’s core competency in gas engines took decades to

buildbuild Sony took many decades to build its core competences in Sony took many decades to build its core competences in

electronic miniaturizationelectronic miniaturization

4-43Cecilia

HOW TO PROTECT A COMPETITIVE HOW TO PROTECT A COMPETITIVE ADVANTAGEADVANTAGE

3. Causal Ambiguity3. Causal Ambiguity Describe a situation in which the cause of success or Describe a situation in which the cause of success or

effect are not apparenteffect are not apparent Apple: iMac, iPod, iPhoneApple: iMac, iPod, iPhone WhyWhy has Apple had such a string of successful products? has Apple had such a string of successful products?

– Role of Steve Jobs’ vision?Role of Steve Jobs’ vision?– Unique talents of the Apple design team?Unique talents of the Apple design team?– Timing of product introductions? Timing of product introductions?

4. Social Complexity (4. Social Complexity (describe situations in which different social and describe situations in which different social and

business systems interactbusiness systems interact)) Two or more systems interact creating many possibilitiesTwo or more systems interact creating many possibilities

A group of 3 people has 3 relationshipsA group of 3 people has 3 relationships A group of 5 people has 12 relationshipsA group of 5 people has 12 relationships

4-44Cecilia

THE SWOT ANALYSISTHE SWOT ANALYSIS• External and internal analysis completedExternal and internal analysis completed• SWOT combines the twoSWOT combines the two

Evaluate current situation + future prospectsEvaluate current situation + future prospects Internal Internal SStrengths and trengths and WWeaknesseseaknesses

From VRIO frameworkFrom VRIO framework

External External OOpportunities and pportunities and TThreatshreats From PESTEL or competitive forces analysisFrom PESTEL or competitive forces analysis

Internal strengths to exploit external opportunitiesInternal strengths to exploit external opportunities Achieving a dynamic fit yields Achieving a dynamic fit yields sustained competitive sustained competitive

advantageadvantage

4-31Savannah

EXHIBIT 4.11 Strategic Questions in the SWOT Analysis

4-46Savannah

THE SWOT MATRIX (cont.)THE SWOT MATRIX (cont.)

• The SWOT matrix utilizes the SWOT analysis to The SWOT matrix utilizes the SWOT analysis to develop strategic alternatives for the firmdevelop strategic alternatives for the firm

• Look for combinations of internal and external Look for combinations of internal and external factors that might lead to an alternativefactors that might lead to an alternative

4-47Savannah

SWOT Matrix: (Text Extension)SWOT Matrix: (Text Extension)4 Categories of Alternatives4 Categories of Alternatives1.1. Strength-Opportunity:Strength-Opportunity: “Offensive” alternatives, utilize a “Offensive” alternatives, utilize a

strength to address an opportunitystrength to address an opportunity

2.2. Weaknesses-Threat:Weaknesses-Threat: “Defensive” alternatives, eliminate “Defensive” alternatives, eliminate or minimize a weakness in order to minimize the effect of or minimize a weakness in order to minimize the effect of a threata threat

3.3. Strength-Threat:Strength-Threat: Utilize a strength to minimize the effect Utilize a strength to minimize the effect of a threatof a threat

4.4. Weakness-Opportunity:Weakness-Opportunity: Shore up a weakness to enable Shore up a weakness to enable the organization to take advantage of an opportunitythe organization to take advantage of an opportunity

4-48Savannah

SWOT Matrix: Hypothetical Example for SWOT Matrix: Hypothetical Example for McDonald’sMcDonald’s

  Opportunities1. Growth in developing nations2. Health consciousness of U.S. population

Threats1. Possible increase in minimum wage2. Popularity of easy-to-prepare grocery items

Strengths1. Financial stability/resources2. Brand name/recognition3. Consistency

 

1)Launch new locations in China & Mexico (S1, S2, O1) 2) Develop and emphasize more healthy food menu items (W1, W2, O2) 3) Launch McDonald’s frozen foods in grocery outlets (S2, S3, T2)4) New ads showing ease of drive-thru order/take home (W1, T2)

Weaknesses1. Market share decline2. Dependence on fried foods on menu

Alternatives:

4-49Savannah

Strategic AlternativesStrategic Alternatives• SWOT matrix to develop alternatives-SWOT matrix to develop alternatives-

combination of internal and external factors with combination of internal and external factors with each alternativeeach alternative

• Pros and cons to each alternativePros and cons to each alternative

• Select one or more alternatives to implement Select one or more alternatives to implement

4-50Savannah

CHAPTERCASE 4 CHAPTERCASE 4 Consider This…Consider This…

• Circuit City employees shocked Circuit City employees shocked when the company closed rather when the company closed rather than being sold and remaining than being sold and remaining largely open. largely open.

• Why did Circuit City lose its Why did Circuit City lose its competitive advantage?competitive advantage?

• What could Circuit City’s What could Circuit City’s management have done management have done differently?differently?

4-51Savannah

Minicase 4Minicase 4

1–52

StarbucksStarbucks• Howard Schultz, CEO, created what became the Howard Schultz, CEO, created what became the

trademark of Starbucks – the ambiancetrademark of Starbucks – the ambiance

1–53Christine

Starbucks (cont.)Starbucks (cont.)• Core competency was to create a unique Core competency was to create a unique

consumer experience the world over – but consumer experience the world over – but someone forgot about thatsomeone forgot about that

Intangible resources atrophied when cookies, books, Intangible resources atrophied when cookies, books, sandwiches, and other retail merchandise were sandwiches, and other retail merchandise were introducedintroduced

The unique culture of Starbucks became diluted in the The unique culture of Starbucks became diluted in the new culturenew culture

Schultz entered the scene again in 2008Schultz entered the scene again in 2008 Baristas now working on only two drinks at a time – Baristas now working on only two drinks at a time –

starting a second while ending the first.starting a second while ending the first.

1–54Christine

Starbucks Discussion QuestionsStarbucks Discussion Questions

• How did Starbucks create its uniqueness in the How did Starbucks create its uniqueness in the first place?first place?

• Was Starbucks’s uniqueness a VRIO resource? Was Starbucks’s uniqueness a VRIO resource? Did it help Starbucks gain and sustain a Did it help Starbucks gain and sustain a competitive advantage? Why or why not?competitive advantage? Why or why not?

• Why and how did Starbucks lose its Why and how did Starbucks lose its uniqueness?uniqueness?

1–55Team

Starbucks Discussion Questions Starbucks Discussion Questions (cont.)(cont.)• How is Starbucks attempting to recreate it How is Starbucks attempting to recreate it

uniqueness? Do you think it will be successful? uniqueness? Do you think it will be successful? Why or why not?Why or why not?

• Explain Starbucks’s ups and downs using (a) Explain Starbucks’s ups and downs using (a) strategic activity systems (interconnected strategic activity systems (interconnected activities) and (b) the dynamic capabilities activities) and (b) the dynamic capabilities perspective (modifying resources). What perspective (modifying resources). What implications can you draw?implications can you draw?

• What recommendations would you give Howard What recommendations would you give Howard Schultz? Support your arguments. Schultz? Support your arguments.

1–56Team