Copyright © 2009 South-Western, a part of Cengage LearningAll rights reserved.

Power Point Presentation by Dr. Leslie A. KorbGeorgian Court University

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Understanding Business Strategy

Concepts & Cases

Part 2: Analyzing EnvironmentsChapter 4: Analyzing the Firm

Conducting an Internal Analysis

A firm cannot successfully implement any strategy without being able to use the appropriate set of resources, capabilities, and core competencies.

These must be identified and understood as a precursor to selecting a strategy: Strengths Weaknesses

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Conducting an Internal Analysis

In general terms, strengths suggest possibilities while weaknesses suggest constraints.

Firms deal with two kinds of resources – tangible and intangible. Tangible resources are valuable assets that can

be seen or quantified, such as manufacturing equipment and financial capital.

Financial capital

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Conducting an Internal Analysis

Intangible resources are assets that contribute to creating value for customers but are not physically identifiable.

Reputation Brand know-how Organizational culture

The full set of resources a firm holds is called a resource portfolio.

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Conducting an Internal Analysis

Tangible resources may be bought and sold.

Not hard to identify: human capital, money, physical assets.

Not hard to evaluate through accounting systems and external auditors.

Intangible resources must be constantly attended to.

Harder to identify: organization culture, reputation, brand names.

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Resources as Options

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Real options – Strategic flexibility for firms

- Future oriented

- Controlling uncertainty

- Examples: Rolls Royce and Pharmaceutical Companies

Resources as Options

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True value of resources emerges when converted to capabilities and eventually converted to core competencies.

Commonly, capabilities are part of organizational functions such as marketing, manufacturing, finance, and so forth. Example: Apple’s new products

Resources as Options

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Each of them is a product of deliberate attempts to integrate several resources with the purpose of completing one or more work tasks.

Capabilities result when employees think carefully about which combination of resources will allow the firm to create a capability with potential to become a core competence.

Resources as Options

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When core competencies allow the firm to create value for customers by performing a key activity better than competitors, it has a competitive advantage.

Product innovation: LG Electronics, Apple, Honda

Product leadership People leadership Market leadership

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Characteristics of Core Competencies

Valuable E.g. Apple’s iTunes

Rare E. g. Coca-Cola and PepsiCo

Difficult to Imitate E.g. Challenging Motorola, Nokia & Samsung

Nonsubstitutable E.g. Lexus’ after-sales service

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Competitive Advantages

Using resources, capabilities and core competencies in ways that create more value for customers compared to competitors’

Enable firms to capture larger shares of the market and increase their returns creating value for owners and other shareholders

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The Value Chain

The value chain is the structure of activities the firm uses to implement its business level strategy.

The focus of value chain analysis is on primary and secondary activities. Primary activities include: inbound logistics (such as sources of parts), operations (such as manufacturing if dealing with a physical

product), sales and distribution of products, and after-sales service.

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The Value Chain

Support activities provide support to the primary activities so that they can be completed effectively. Secondary activities include Human resources Information Technology Support Purchasing Accounting

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Outsourcing

Outsourcing involves acquiring a capability from an external supplier that contributes to the focal firm’s ability to create value for customers.

Firms seek one or more benefits when they decide to outsource the performance of an activity to an external supplier.

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Outsourcing

Benefits Concentrating resources on primary activities Reducing the risks assumed

Challenges Cost cutting is not a long term fix Often tactical in orientation rather than

strategic

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