Value chain

Ch3-1

The Internal Environment: The Internal Environment: Resources, Capabilities and Resources, Capabilities and

Core CompetenciesCore Competencies

www.aashrayforeveryone.orgwww.aashrayforeveryone.org

Ch3-2

Chapter 2Chapter 2External EnvironmentExternal EnvironmentWhat the Firm Might DoWhat the Firm Might Do

Chapter 3Chapter 3Internal EnvironmentInternal EnvironmentWhat the Firm Can DoWhat the Firm Can Do

SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage

Ch3-3

SWOT Analysis

• Strengths

• Weaknesses

• Opportunities

• Threats

Ch3-4

The purpose of SWOT Analysis

• It is an easy-to-use tool for developing an overview of a company’s strategic situation– It forms a basis for matching your

company’s strategy to its situation

Ch3-5

Strengths

• A STRENGTH is something a company is good at doing or a characteristic that gives it an important capability.

• Possible Strengths:– Name recognition– Proprietary technology– Cost advantages– Skilled employees– Loyal Customers

Ch3-6

Weaknesses

• A WEAKNESS is something a company lacks or does poorly (in comparison to others) or a condition that places it at a disadvantage

• Possible Weaknesses:– Poor market image– Obsolete facilities– Internal operating problems– Poor marketing skills

Ch3-7

Strengths and Weakness form a basis for INTERNAL analysis• By examining strengths, you can

discover untapped potential or identify distinct competencies that helped you succeed in the past.

• By examining weaknesses, you can identify gaps in performance, vulnerabilities, and erroneous assumptions about existing strategies.

Ch3-8

ResourcesResources

** TangibleTangible** IntangibleIntangible

CapabilitiesCapabilities

Teams of ResourcesTeams of Resources

Sources ofSources of

CoreCoreCompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns


Gained throughGained throughCore CompetenciesCore Competencies

DiscoveringDiscoveringCoreCore

CompetenciesCompetencies

Discovering Core CompetenciesDiscovering Core Competencies

Criteria ofSustainableAdvantages

ValueChain

Analysis

ValuableRareCostly to ImitateNonsubstitutable

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Ch3-9

How do we assemble How do we assemble bundlesbundles of Resources, of Resources, Capabilities and Core Competencies to create Capabilities and Core Competencies to create

VALUEVALUE for customers? for customers?

Will environmental changes make our core Will environmental changes make our core competencies obsolete?competencies obsolete?

And...And...

Are substitutes available for our core Are substitutes available for our core competencies?competencies?

Are our core competencies easily imitated?Are our core competencies easily imitated?

Key Questions for Managersin Internal Analysis

Key Questions for Managersin Internal Analysis

Ch3-10

ResourcesResources



Ch3-11

What a firm has to work with:What a firm has to work with:

its its assetsassets, including its , including its peoplepeople and and the value of its the value of its brand namebrand name

What a firm What a firm HasHas......ResourcesResources

Ch3-12

Resources represent Resources represent inputs into a inputs into a firm’s production processfirm’s production process......

such as capital equipment, skills of such as capital equipment, skills of employees, brand names, finances employees, brand names, finances and talented managersand talented managers

What a firm What a firm HasHas......


its assets, including its people its assets, including its people and the value of its brand nameand the value of its brand name

ResourcesResources

Ch3-13


its assets, including its people its assets, including its people and the value of its brand nameand the value of its brand name

Resources represent inputs into a Resources represent inputs into a firm’s production process...firm’s production process...

such as capital equipment, skills such as capital equipment, skills of employees, brand names, of employees, brand names, finances and talented managersfinances and talented managers

““Some genius invented the Oreo. We’re just Some genius invented the Oreo. We’re just living off the inheritance.”living off the inheritance.”

F. Ross Johnson,F. Ross Johnson,Former President & CEO, Former President & CEO,

RJR NabiscoRJR Nabisco

What a firm What a firm HasHas......ResourcesResources

Ch3-14

Tangible ResourcesTangible ResourcesFinancialFinancial**

PhysicalPhysical**

Human ResourcesHuman Resources**

OrganizationalOrganizational**

What a firm Has...

What a firm has to work with:

its assets, including its people and the value of its brand name

Resources represent inputs into a firm’s production process...

such as capital equipment, skills of employees, brand names, finances and talented managers

Intangible ResourcesIntangible Resources

TechnologicalTechnological**

InnovationInnovation**

ReputationReputation**

“Some genius invented the Oreo. We’re just living off the inheritance.”

F. Ross Johnson,Former President & CEO, RJR Nabisco

ResourcesResources

Ch3-15

ResourcesResources





Ch3-16

What a firm Does...

Capabilities represent:Capabilities represent:

the firm’s capacity or ability to the firm’s capacity or ability to integrate integrate individual firm resources individual firm resources to achieve a desired to achieve a desired objective.objective.


Ch3-17

What a firm Does...

Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees.


Capabilities represent:the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.


Ch3-18

What a firm Does...

Capabilities represent:the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.


Capabilities become important when they are combined Capabilities become important when they are combined in in unique combinations unique combinations which create core competencies which create core competencies which havewhich have strategic value strategic value and can lead toand can lead to competitive competitive advantageadvantage..


Ch3-19

ResourcesResources










Ch3-20

What a firm Does...that is Strategically

Valuable

“…“…are the essence of what makes an organization are the essence of what makes an organization unique in its ability to provide value to unique in its ability to provide value to customers.”customers.”

Leonard-Barton, Bowen, Clark, Holloway & WheelwrightLeonard-Barton, Bowen, Clark, Holloway & Wheelwright

McKinsey & Co. recommends identifying three to four McKinsey & Co. recommends identifying three to four competencies to use in framing strategic actions.competencies to use in framing strategic actions.


Ch3-21

ResourcesResources











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Ch3-22

For a strategic capability to be a For a strategic capability to be a Core Competency, it must be:Core Competency, it must be:


ValuableValuable

RareRare

Costly to ImitateCostly to Imitate

NonsubstitutableNonsubstitutable


Valuable

Ch3-23

Core Competencies must be:

NonsubstitutableNonsubstitutableCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationshipsCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships


Valuable


ValuableValuable

RareRare

Costly to ImitateCostly to ImitateCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexityCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity

Capabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors

Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment

Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment

Ch3-24

ResourcesResources









ValueChain

Analysis

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Ch3-25

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value

Ch3-26

SupportActivities

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ProcurementProcurement


Ch3-32

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Technological DevelopmentTechnological Development


Ch3-33

SupportActivities

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Human Resource ManagementHuman Resource Management


Ch3-34

SupportActivities

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Firm InfrastructureFirm Infrastructure


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Ch3-35

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Ch3-36

SupportActivities

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OutsourcingOutsourcing





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Strategic Choice to Purchase Some Activities From Outside Suppliers

Ch3-37

SupportActivities

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Inbound Inbound LogisticsLogistics

OperationsOperationsOutboundOutboundLogisticsLogistics

ServiceService

Marketing Marketing & Sales& Sales




MARGIN

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Firms often purchase a portionportion of their value-creating activities from specialty external suppliers who can perform these functions more efficientlymore efficiently

OutsourcingOutsourcingStrategic Choice to Purchase Some Activities From Outside Suppliers

Ch3-38

Lets company focus on broader business issues by having outside experts handle various operational detailsLets company focus on broader business issues by having outside experts handle various operational details

Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing

Improve Business FocusImprove Business Focus

Permits firm to redirect efforts from non-core activities toward those that serve customers more effectivelyPermits firm to redirect efforts from non-core activities toward those that serve customers more effectively

Free Resources for Other PurposesFree Resources for Other Purposes

Provide Access to World-Class CapabilitiesProvide Access to World-Class Capabilities

Accelerate Business Re-Engineering BenefitsAccelerate Business Re-Engineering Benefits

Share RisksShare Risks

The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications

Achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over processAchieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process

Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities

Ch3-39

Core Competencies--Cautions and RemindersCore Competencies--Cautions and Reminders

Never take for granted that core competencies will continue to provide a source of competitive advantageNever take for granted that core competencies will continue to provide a source of competitive advantage

All core competencies have the potential to become Core RigiditiesAll core competencies have the potential to become Core Rigidities

Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment

Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment

Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats

Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats

Ch3-40

ResourcesResources







StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns


Gained throughGained throughCore CompetenciesCore Competencies



ValueChain

Analysis


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* Outsource



Value chain

Leadership & Management

Transcript of Value chain