Strategic Management PEARCE & ROBINSON

1. Chapter 5 Internal Analysis

3. Ingredients Critical to Successful Strategy Strategy must … Be consistent with conditions in the competitive environment Place realistic requirements on the firm’s resources Be carefully executed

4. What is the Resource-based View of the Firm? Firms differ in fundamental ways because each firm possesses a unique “bundle” of resources – tangible and intangible assets and organizational capabilities to make use of those assets

6. Ex. 5-2: Examples of Different Resources (selected) Coke’s global distribution coordination Katie Couric as NBC’s “Today” host Georgia Pacific’s land holdings Sony’s product development process Nike’s advertising with LeBron James 3M’s patents Wal-mart’s purchasing and inbound logistics Dell Computer’s reputation Ford Motor’s cash reserves Dell Computer’s customer service Budweiser’s brand name Hampton Inn’s reservation system Organizational Capabilities Intangible Assets Tangible Assets

16. What is a Value Chain? The term value chain describes a way of looking at a business as a chain of activities that transform inputs into outputs that customers value

18. Ex. 5-7: The Value Chain General Administration Human Resource Management Research, Technology, and Systems Development Procurement Inbound Logistics Operations Outbound Logistics Marketing and Sales Service Margin Margin Primary Activities Support Activities

22. Ex. 5-10 (contd.) Effectiveness of production control systems to improve quality and improve costs Efficiency of finished goods warehousing activities Appropriate automation of production processes Efficiency of raw material warehousing activities Timeliness and efficiency of delivery of finished goods and services Productivity of equipment compared to key competitors Soundness of material and inventory control systems Outbound Logistics Operations Inbound Logistics

24. SWOT Analysis Based on assumption an effective strategy derives from a sound “fit” between a firm’s internal resources and its external situation Opportunities A major favorable situation in a firm’s environment Threats A major unfavorable situation in a firm’s environment Strengths A resource advantage relative to competitors and the needs of markets firm serves Weaknesses A limitation or deficiency in one or more resources or competencies relative to competitors

25. Ex. 5-12: SWOT Analysis Diagram Numerous environmental opportunities Major environmental threats Critical internal weaknesses Substantial internal strengths Cell 3: Supports a turnaround-oriented strategy Cell 4: Supports a defensive strategy Cell 1: Supports an aggressive strategy Cell 2: Supports a diversification strategy

26. Internal Analysis: Making Meaningful Comparisons Perspectives to use 1. Comparison with past performance 2. Stages of industry evolution 3. Benchmarking – comparison with competitors 4. Comparison with success factors in industry

27. Ex. 5-13: Sources of Distinctive Competence at Different Stages of Industry Evolution Cost effective means of efficient access to selected channels and markets; strong customer loyalty or dependence; strong company image Skills in aggressively promoting products to new markets and holding existing markets; pricing flexibility; skills in differentiating products and holding customer loyalty Ability to establish brand recognition, find niche, reduce price, solidify strong distribution relations, and develop new channels Resources/skills to create widespread awareness and find acceptance from customers ; advantageous access to distribution Marketing Decline Maturity Growth Introduction Functional Area

28. Ex. 5-13 (contd.) Ability to prune product line; cost advantage in production, location or distribution; simplified inventory control; subcontracting or long production runs Ability to improve product and reduce costs; ability to share or reduce capacity; advantageous supplier relationships; subcontracting Ability to add product variants, centralize production, or otherwise lower costs; ability to improve product quality; seasonal subcontracting capacity Ability to expand capacity effectively, limit number of designs, develop standards Production operations Decline Maturity Growth Introduction Functional Area

29. Ex. 5-13 (contd.) Ability to reuse or liquidate unneeded equipment; advantage in cost of facilities; control system accuracy; streamlined management control Ability to generate and redistribute increasing net cash inflows; effective cost control systems Ability to finance rapid expansion, to have net cash outflows but increasing profits; resources to support product improvements Resources to support high net cash overflow and initial losses; ability to use leverage effectively Finance Decline Maturity Growth Introduction Functional Area

30. Ex. 5-13 (contd.) Capacity to reduce and reallocate personnel Ability to cost effectively, reduce workforce, increase efficiency Existence of an ability to add skilled personnel; motivated and loyal workforce Flexibility in staffing and training new management; existence of employees with key skills in new products or markets Personnel Decline Maturity Growth Introduction Functional Area

31. Ex. 5-13 (contd.) Finance: maximum investment recovery Production efficiency: successor products Sales: consumer loyalty; market share Engineering: market penetration Key functional area and strategy focus Ability to support other grown areas or to apply product to unique customer needs Ability to reduce costs, develop variants, differentiate products Skill in quality and new feature development; ability to start developing successor product Ability to make engineering changes, have technical bugs in product and process resolved Engineering and R&D Decline Maturity Growth Introduction Functional Area