Internal analysis
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Internal analysis

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    Internal analysis Internal analysis Presentation Transcript

    • Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability Chapter 3
    • Internal Analysis: Identifying Strengths and Weaknesses
      • Managers must understand
        • The role of resources, capabilities, and distinctive competencies in the process by which companies create value and profit
        • The importance of superior efficiency, innovation, quality, and responsiveness to customers
        • The sources of their company’s competitive advantage (strengths and weaknesses)
    • Distinctive Competences and Competitive Advantage
      • Distinctive competencies
        • Firm-specific strengths that allow a company to gain competitive advantage by differentiating its products and/or achieving lower costs than its rivals
        • Arise from unique application of resources and acquisition of capabilities
    • The Role of Resources
      • Resources
        • Capital or financial, physical, social or human, technological, and organizational factor endowments
          • Tangible and intangible
      • A firm-specific and difficult to imitate resource is likely to lead to distinctive competency
      • A valuable resource that creates strong demand for a firm’s products may lead to distinctive competency
    • The Role of Capabilities
      • Capabilities
        • A company’s skills at coordinating and using its resources
      • Capabilities are the product of organizational structure, processes, and control systems
      • We must add people, particularly leadership in building the structure, etc.
    • Strategy, Resources, Capabilities, and Competencies
    • A Critical Distinction
      • If a firm has firm-specific and valuable resources, it must also have the capability to use them effectively to create distinctive competency
      • A firm can create distinctive competency without firm-specific and valuable resources if it has unique capabilities
    • Competitive Advantage, Value Creation, and Profitability
      • Profitability factors
        • Amount of value customers place on the company’s products
        • Price charged
        • Costs of creating the value
    • Value Creation and Pricing Options
    • Comparing Toyota and General Motors
    • Differentiation and Cost Structure: Roots of Competitive Advantage
    • The Value Chain
      • A company is a chain of activities for transforming inputs into outputs that customers value
      • The transformation process is composed of primary and support activities that add value to the product
    • The Value Chain: Primary and Support Activities
    • The Generic Building Blocks of Competitive Advantage
    • Exercise
      • Strategy in Action 3.2: Southwest Airlines
      • What portions of the value chain does Southwest Airlines work on to create value for its customers?
      • Why these portions rather than the more significant costs like fuel?
    • Efficiency
      • The quantity of inputs it takes to produce a given output. Usually measured as outputs over inputs; examples of latter
        • No. of employees
        • Capital investment
      • Productivity leads to greater efficiency and lower costs
        • Employee productivity
        • Capital productivity
    • Quality
      • Superior quality = customer perception of greater value in a specific product’s attributes
        • Form, features, performance, durability, reliability, style, design
      • Quality products = goods and services that are reliable and that are differentiated by attributes that customers perceive to have higher value
    • Quality (cont’d)
      • The impact of quality on competitive advantage
        • High-quality products increase the value of (differentiate) the products in customers’ eyes
        • Greater efficiency and lower unit costs are associated with reliable products
    • A Quality Map for Automobiles
    • Innovation
      • The act of creating new, commercially viable products or processes
        • Product innovation
          • Creates products that customers perceive as more valuable, increasing the company’s pricing options
        • Process innovation
          • Creates value by lowering production costs
      • Perhaps the most important building block of competitive advantage
    • Responsiveness to Customers
      • Doing a better job than competitors of identifying and satisfying customers’ needs
        • Superior quality and innovation are integral to superior responsiveness to customers
        • Customizing goods and services to the unique demands of individual customers or customer groups
    • Responsiveness to Customers (cont’d)
      • Sources of enhanced customer responsiveness
        • Customer response time, design, service, after-sales service and support
      • Differentiates a company’s products; leads to brand loyalty and premium pricing
    • Value Creation per Unit
    • Analyzing Competitive Advantage and Profitability
      • Benchmarking company performance against that of competitors and the company’s own historic performance
      • Return on invested capital
      • Net profit = Total revenues – Total costs
    • Definitions of Basic Accounting Terms
    • Drivers of Profitability (ROIC)
    • Ways to Increase ROIC
      • Increase the company’s return on sales
        • Reduce cost of goods sold
        • Reduce spending on sales force, marketing, general, and administrative expenses
        • Reduce R&D spending
        • Increase sales revenue more than costs
      • Increase sales revenues from invested capital
        • Reduce the amount of working capital
        • Reduce amount of fixed capital
    • The Durability of Competitive Advantage
      • Barriers to Imitation
        • Imitating Resources
        • Imitating Capabilities
      • Capability of Competitors
        • Strategic commitment
        • Absorptive capacity
      • Industry Dynamism
    • Why Companies Fail
      • Inertia
        • Companies find it difficult to change their strategies and structures
      • Prior strategic commitments
        • Limit a company’s ability to imitate and cause competitive disadvantage
      • The Icarus paradox
        • A company can become so specialized based on past success that it loses sight of market realities
        • Craftsmen, builders, pioneers, salesmen