Strategic management

1. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Chapter 3
Examining the Internal Environment:
Resources, Capabilities, and Activities

2. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Objectives
1
2
3
4
5
Explain the internal context of strategy
Identify a firm’s resources and capabilities and
explain their role in its performance
Define dynamic capabilities and explain their role
in both strategic change and a firm’s performance
Explain how value-chain activities are related to
firm performance and competitive advantage
Explain the role of managers with respect to
resources, capabilities, and value-chain activities

3. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Comparative Industry Reformance
How do
such differences in
profitability
materialize?
ROA
ROS
Grocery Store
Global Auto
Semiconductor

4. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Resources, Capabilities, and Managerial
Decisions
Strategy
Competitive
advantage/
disadvantage
Management
strategic
decision making
Capabilities
Managers
Resources
Performance

5. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Resources and Capabilities: Fundamental
Building Blocks of Strategy
The inputs that firms use to create
goods and services
• Undifferentiated or firms-specific
• Tangible or intangible
• Easy to acquire or difficult
A firm’s skill in using its resources
to create goods and services.
The combination of procedures
and expertise that the firm relies
on to engage in distinct activities
in the process of producing goods and
services
Strategy

6. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Trust as an Organizational Resource
Trust is an intangible resource
1
A trustworthy reputation for a firm can be leveraged.
2

7. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Knowledge
Knowledge as a
resource
Explicit (easy
competitive
intelligence)
Tacit (more
valuable)

8. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Examples of Capabilities
1: Stalk, Evans, and Shulman, 1992
2: Makadok, 2003
Capability Result
Logistics—distributing vast
amounts of goods quickly and
efficiently to remote locations
An extraordinarily frugal system for
delivering the lowest cost structure
in the mutual fund industry, using
both techno-logical leadership and
economies of scale
Generating new ideas then turning those
ideas into new, profitable products
200,000-percent return to
share-holders during first 30
years since IPO1
25,000-percent return to share-
holders during the 30-plus year
tenure of CEO John Connelly.2
As for ongoing expenses, share-
holders in Vanguard equity funds
pay, on average, just $30 per
$10,000, vs. a $159 industry
average. With bond funds, the
bite is just $17 per $10,000
30 percent of revenue from
products introduced within the
past four years
Company

9. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
The VRINE Model
Performance implication
Test Competitive implication
Valuable? Does the resource or capability allow
the firm to meet a market demand or
protect the firm from market
uncertainties?
If so, it satisfies the value
requirement. Valuable resources are
needed just to compete in the
industry, but value by itself does not
convey an advantage
Valuable resources and capabilities
convey the potential to achieve “normal
profits” (i.e., profits which cover the
cost of all inputs including the cost of
capital)
Rare? Assuming the resource or capability is
valuable, is it scarce relative to
demand? Or, is it widely possessed by
most competitors?
Valuable resources which are also rare
convey a competitive advantage, but
its relative permanence is not assured.
The advantage is likely only temporary.
A temporary competitive advantage
conveys the potential to achieve above
normal profits, at least until the
competitive advantage is nullified by
other firms
Inimitable
and non-
substituta
ble?
Assuming a valuable and rare resource,
how difficult is it for competitors to
either imitate the resource or capability
or substitute for it with other resources
and capabilities that accomplish similar
benefits?
Valuable resources and capabilities
which are difficult to imitate or
substitute provide the potential for
sustained competitive advantage
A sustained competitive advantage
conveys the potential to achieve above
normal profits for extended periods of
time (until competitors eventually find
ways to imitate or substitute or the
environment changes in ways that
nullify the value of the resources)
Exploitabl
e?
For each step of the preceding steps
of the VRINE test, can the firm actually
exploit the resources and capabilities
that it owns or controls?
Resources and capabilities that
satisfy the VRINE requirements but
which the firm is unable to exploit
actually result in significant
opportunity costs (other firms would
likely pay large sums to purchase the
VRINE resources and capabilities).
Alternatively, exploitability unlocks the
potential competitive and performance
implications of the resource
or capability
Firms which control unexploited VRINE
resources and capabilities generally
suffer from lower levels of financial
performance and depressed market
valuations relative to what they would
otherwise enjoy (though not as
depressed as firms lacking resources
and capabilities which do satisfy VRINE)

10. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Sustainability
Sustainability:
Just having a
competitive advantage
is not enough. Can it
be sustained?
Durability
Imitability

11. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Tangible and Intangible Advantages
=
=
=
Intangible
Location
selection
Brand
Tangible
Rural real-estate
High traffic
real-estate
+
+
+
Wal-Mart
McDonald’s

12. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
How Would You Do That?
Inimitable and
non-
substitutable?
Can competitors imitate?
Can they substitute?
Exploitable? Can Pfizer exploit?
Rare?
Do Pfizer's patents provide
“rarity”?
Valuable?
Do patents on Zoloft®
provide value?
Pfizer’s
Zoloft®

13. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Dynamic Capabilities
Mail Boxes Etc. franchise
Value
Dynamic capability:
how we integrate recon-
figure, acquire, or divest
resources for competitive
advantage?
Mail boxes, etc.,
has developed the
ability to combine
resources better
than the
competition
Start-up plans
People
Brand
Location
Processes

14. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Value Chain: Internet Startup Example
Inbound
shipment of
top titles
Warehousing
Server
operations
Billing
Collections
Picking and
shipment of top
titles from
warehouse
Shipment of
other titles
from third-
party
distributors
Pricing
Promotions
Advertising
Product
information and
reviews
Affiliations with
other websites
Returned items
Customer
feedback
CDs
Shipping
Computers
Telecom lines
Shipping
services
Media
Inventory
system
Site
software
Pick & pack
procedures
Site look & feel
Customer research
Return
procedures
Financing, legal support, accounting
Recruiting, training, incentive system, employee feedback
Procurement
Technology
Development
Human
Resources
Firm
Infrastructure
Support
Activities
Inbound
Logistics
Operations Outbound
Logistics
Marketing
& Sales
After-Sales
Service
Primary Activities

15. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Guidelines for Outsourcing
Activities that can create value for the firm should not
be outsourced.
1
Those activities that represent key sources of learning
for the firm should not be outsourced.
2

16. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Using Value Chains to Gain Competitive
Advantage
Identical Differentiated
Find a different way
to perform activities
Find a better way to
perform the same
activities
Longer-lasting
advantage
Shorter-term
advantage
(competitors
catch up)

17. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Trade-off Protection Your Rivals Choose
Not to Copy You
Selected difference between Southwest and large Airlines
Southwest
made choices so
that competitors
did not copy -
because copying
would require
them to
abandon
activities
essential to their
strategies
Technology
and design
Operations
Marketing
Southwest
• Single aircraft
• Short segment flights
• Smaller markets and secondary
airports in major markets
• No baggage transfers to others
airlines
• No meals
• Single class of service
• No seat assignments
• Limited use of travel agents
• Word of mouth
Major Airlines
• Multiple types of
aircrafts
• Hub and spoke
system
• Meals
• Seat assignments
• Multiple classes of
service
• Baggage transfer
to other airlines
• Extensive use of
travel agents

18. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Innovation and Integration of the Value
Chain
Transferred assembly and delivery to
the consumer
Choose an entirely direct distribution
model (rather than through retailers)
and outsourced component
manufacturing
IKEA
Dell
Area of innovation

19. Strategic Management: Concept and Cases, 2e Author: Mason A. Carpenter
Copyright
©
2012
Dorling
Kindersley
(India)
Pvt.
Ltd.
Strategic Leadership
“Companies that overlook the role of leadership
in the early phases of strategic planning often
find themselves scrambling when it’s time to
execute. No matter how thorough the plan, with-
out the right leaders it is unlikely to succeed”
– McKinsey & Company