2.  The process of identifying and evaluating an
organization’s specific characteristics
◦ Resources, capabilities, and core competencies
◦ Looks at organization’s
 Current vision
 Mission(s)
 Strategic & financial objectives
 Strategies

3.  Enables a firm to identify its strengths and
weaknesses.
 Enables a firm to make good strategic
decisions.
 Information from internal environment
provides basis for developing strategic
alternatives.

4.  Organizational resources are assets an
organization has for carrying out work activities
and processes
◦ Financial resources
 Current debt, credit lines, equity, cash reserves, etc.
◦ Physical resources
 Plant & equipment, inventories, supplies, fixtures, etc.
◦ Human resources
 Management & employee skills, training, experiences, etc

5. ◦ Intangible resources
 Brand names, patents, trademarks, copyrights, etc.
◦ Structural-cultural resources
 Culture, history, work systems policies, formal
reporting structures, etc
 Human, intangible, and structural-cultural
resources can be a source of competitive
advantage
◦ Play important role in determining capabilities or
competencies and core competencies

6.  Organizational capabilities/competencies
◦ The complex and coordinated network of company
routines and processes that determines how
efficiently and effectively the organization transforms
its resources into products (goods & services)
◦ Involves complex pattern of coordination between
people, & between people and resources
◦ It’s an internal activity that a company performs
better than other internal activities

7.  Organizational routines & processes:
 Regular, predictable, and sequential patterns of work
activity by organizational members
 Sustainable Competitive Advantage (CA):
 The prolonged maintenance of competitive advantage
 Capabilities that are capable of leading to CA today may
not continue to do so as conditions & rivals change
 Dynamic capabilities
 An organization’s ability to build, integrate and reconfigure
capabilities to address rapidly changing environments over
time.

8.  Core competencies
◦ A well-performed internal activity that is central, not
peripheral, to a company’s strategy, competitiveness,
and profitability
◦ Major value-creating skills and capabilities that
 are shared across multiple product lines or multiple
businesses
 Results from the collaboration among different parts of
an organization
◦ Gives a company a potentially valuable competitive
capability

9.  Types of Capabilities/Core Competencies
◦ Skills in manufacturing a high quality product
◦ System to fill customer orders accurately and
swiftly
◦ Fast development of new products
◦ Better after-sale service capability
◦ Superior know-how in selecting good retail
locations
◦ Innovativeness in developing popular product
features
◦ Merchandising and product display skills
◦ Expertise in an important technology
◦ Expertise in integrating multiple technologies to
create whole families of new products

10.  Distinctive Capabilities
◦ Special and unique capabilities that distinguish the
organization from its competitors
◦ A competitively valuable activity that a company
performs better than its rivals
◦ Allow a company to develop a sustainable
competitive advantage and outperform its
competition

11.  Characteristics of distinctive capabilities:
(1) Contribute to superior customer value and offers
real benefits to customers
(2) Difficult for competitors to imitate
(3) Allow the organization to use that capability in a
variety of ways
 What’s the relationship between
organizational capabilities, core
competencies and distinctive capabilities?

12.  Sharp Corporation
◦ Expertise in flat-panel display technology
 Toyota
◦ Low-cost, high-quality manufacturing capability and
short design-to-market cycles
 Intel Corporation
◦ Ability to design and manufacture ever more powerful
microprocessors for PCs
 Motorola
◦ Defect-free manufacture (six-sigma quality) of cell
phones

13.  Strengths
◦ Resources that an organization possesses and
capabilities that the organization has developed
◦ Both can be exploited and developed into a
sustainable competitive advantage
 Weaknesses
◦ Resources and capabilities that are lacking or
deficient; and that
◦ Prevents an organization from developing a
sustainable competitive advantage

14. Approaches to internal analysis
(1) Value Chain Analysis
(2) Competitive Strength Assessment
(3) An Internal Audit
(4) Internal Environmental Analysis Process
(5) Capabilities Assessment Profile

15.  Value Chain Analysis
◦ Customers want (demand) some type of value from
the goods and services they purchase or obtain
◦ Customer value arises from
(1) Uniqueness of product or service
(2) Low-priced product/service
(3) Quick response to specific or distinctive customer
needs
◦ Allow assessment of cost competitiveness of
organization with those of its rivals

16.  The value chain identifies the separate
activities and business processes performed
to design, produce, market, deliver, and
support a product/service and how well they
create customer value.
 Consists of two types of activities
◦ Primary activities : create customer value
 Inbound logistics, Operations; Outboard logistics; Sales
& Marketing; & Customer Service
◦ Support activities: Support primary activities
 Procurement; Technological development; HRM; General
Administration (Firm infrastructure)

17. Outbound
Logistics
Operations
Inbound
Logistics
Sales and
Marketing
Service
Profit
Margin
Procurement; Product R&D, Technology
Human Resources Management
General Administration (Firm Infrastructure)
Primary Activities and Costs
Support
Activities
and Costs

18. Internally
Performed
Activities,
Costs, &
Margins
Activities,
Costs, &
Margins of
Suppliers
Activities,
Costs, &
Margins of
Forward
Channel
Allies &
Strategic
Partners
Buyer/User
Value
Chains
Upstream
Value Chain Downstream Value Chains
Firm’s Own
Value Chain

19.  Soft Drinks Industry
Processing of basic ingredients
Syrup manufacture
Bottling & can filling
Wholesale distribution
Retailing
 Computer Software Industry
Programming
Disk Loading
Marketing
Distribution

20.  A company’s cost competitiveness
depends on how well it manages its
value chain relative to competitors
 Three areas contribute to cost
differences
1. Suppliers’ activities
2. The company’s own internal
activities
3. Forward channel activities

21.  Assessing a company’s cost
competitiveness involves comparing costs
along the industry’s value chain
 Suppliers’ value chains are relevant because
◦ Costs, quality, and performance of inputs provided
by suppliers influence a firm’s own costs and
product performance
 Forward channel allies’ value chains are
relevant because
◦ Forward channel allies’ costs and margins are part of
price paid by ultimate end-user
◦ Activities performed affect end-user satisfaction

22.  Supplier-related costs disadvantages:
◦ Negotiate more favorable prices with suppliers
◦ Work with suppliers to achieve lower costs
◦ Integrate backward
◦ Use lower-priced substitute inputs
◦ Do a better job of managing linkages between
suppliers’ value chains and firm’s own chain
◦ Make up difference by initiating cost savings in other
areas of value chain

23.  Forward channel allies’ costs disadvantages:
◦ Push for more favorable terms with distributors and
other forward channel allies
◦ Work closely with forward channel allies and
customers to identify win-win opportunities to reduce
costs
◦ Change to a more economical distribution strategy
◦ Make up difference by initiating cost savings earlier in
value chain

24.  Firm’s own internal cost disadvantages:
◦ Reengineer performance of high-cost activities or
business processes
◦ Eliminate some cost-producing activities altogether
by revamping value chain system (VCS)
◦ Relocate high-cost activities to lower-cost
geographic areas
◦ See if high-cost activities can be performed
cheaper by outside vendors/suppliers
◦ Invest in cost-saving technology
◦ Simplify product design
◦ Achieving savings in backward or forward portions
of VCS

25.  A company can create competitive advantage
by managing its value chain so as to
◦ Integrate the knowledge and skills of employees in
competitively valuable ways
◦ Leverage economies of learning or experience curve
effects
◦ Coordinate related activities in ways that build
valuable capabilities
◦ Build dominating expertise in a value chain activity
critical to customer satisfaction or market success

26.  The strategy-making lesson of value chain
analysis is that sustainable competitive
advantage can be created by:
(1). Managing the value chain activities better
than competitors; and
(2). Developing distinctive capabilities to serve
the needs of customers better

27.  How does the firm rank relative to key rivals on
each industry KSF and relevant measure of
competitive strength (capabilities or core
competencies)?
 Does the firm have a sustainable competitive
advantage or disadvantage
 What is the ability of the firm to defend its
position in light of
◦ Industry driving forces
◦ Competitive pressures
◦ Anticipated moves of rivals

28. 1. List industry key success factors and other
relevant measures of competitive strength
2. Rate firm and key rivals on each factor using
rating scale of 1 - 10 (1 = weak; 10 = strong)
3. Decide whether to use a weighted or
unweighted rating system
4. Sum individual ratings to get overall
measure of competitive strength for each rival
5. Determine whether the firm enjoys a
competitive advantage or suffers from
competitive disadvantage

29.  A weighted competitive strength analysis is
conceptually stronger than an unweighted
competitive strength analysis because
◦ All the strength measures are not equally important.
◦ E.g., in an industry with strong product differentiation,
the significant strength measures may be
 Brand awareness
 Reputation for quality
 Amount of advertising
 Distribution capability, etc.

30.  Quality/product performance
 Reputation/image
 Manufacturing capability
 Technological skills
 Dealer network/Distribution channels
 New product innovation
 Financial resources
 Relative cost position
 Customer service capability

31.  What does a high competitive strength rating
relative to rivals mean?
◦ Strong competitive position & possession of
competitive advantages
◦ Opportunity for company to improve its long-term
market position
 Good strategy entails
◦ Looking for opportunities to leverage company
strengths into competitive advantage
◦ Using company strengths to attack the competitive
weaknesses of rivals

32.  Reveals strength of firm’s competitive
position
 Shows how firm stacks up against rivals,
measure-by-measure -- pinpoints the
company’s competitive strengths and
competitive weaknesses
 Indicates whether firm is at a competitive
advantage / disadvantage against each rival
 Identifies possible offensive attacks (pit
company strengths against rivals’
weaknesses)
 Identifies possible defensive actions (a need
to correct competitive weaknesses)

33.  Internal Audit
◦ A thorough assessment of an organization’s various
internal functional areas
◦ Strategic decision makers use the internal audit to
assess the organization’s resources and capabilities
from the perspectives of its different functions

34.  Six primary functional areas
◦ Production-operations
◦ Marketing
◦ Research & development
◦ Financial and accounting
◦ Management, including HRM
◦ Information System
 Depending on products, markets, and
industries, individual organizational
structures may vary and, therefore, may
emphasize different sets of functional areas

35.  Assesses an organization’s internal activities
◦ Step 1: Survey strengths and weaknesses
◦ Step 2: Categorize these strengths & weaknesses
(S&W) in terms of resources & capabilities
◦ Step 3: Investigate the potential of strengths to lead
to competitive advantage
◦ Step 4: Evaluate the ability of these competitively
resources & capabilities to serve as the basis for an
appropriate competitive strategy

36.  Resembles the internal environmental analysis
◦ Similarity: Focuses on deeper evaluation of S&W
◦ Difference: Focuses only on an firm’s capabilities
 Analysis of capabilities is complex
◦ Not as easily identified as organization’s function or
even the value creating primary & support activities
◦ Complex nature of capabilities makes it hard for
competitors to imitate

37.  Analysis Consists of two phases:
◦ Phase I: Identify distinctive capabilities
◦ Phase II: Develop and leverage distinctive capabilities
 Identifying Distinctive Organizational Capabilities
◦ Step 1: Prepare current product-market profile
 Emphasize organization-customer interactions
 What is the organization selling?
 Who are the organization selling to?
 Is the organization providing superior customer value &
desirable benefits?

38. ◦ Step 2: Identify sources of competitive advantage &
disadvantage in the main product-market segment
 Determine why customers choose the organization’s
products vs. those of competitors
 Involves information on cost, product, and service
attributes
 When customers purchase
 What they’re actually purchasing
 What bundle of attributes satisfies their needs

39. ◦ Step 3: Describe all organizational capabilities &
competencies
 Examine resources, skills, & abilities of the various
divisions
 Determine which resources, skills, & abilities lead to a
competitive advantage
◦ Step 4: Sort the core capabilities/competencies
according to strategic importance
 Can capability provide wide access to a number of different
markets?
 Does the capability provide tangible customer benefits?
 Is the capability difficult for competitors to imitate?

40. ◦ Step 5: Identify and agree on the key capabilities or
competencies
 Provide basis for resource allocation
 Classifying an Organization’s S&W
◦ Past performance trends
 Measures such as financial ratios, operations efficiency, etc,
◦ Specific goal or targets
 Organization’s goals are statements of desired outcomes
◦ Comparison against competitors
 How are competitors doing?
◦ Personal opinions of decision makers & consultants