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Session 3_PPT_MGT406……………………………………...ppt
- 2. Recap: Session 2 EnvironmentalUncertainty Modes of Environmental Scanning Scanning External Business Environment General Environment Analysis - PESTEL/STEEP Industry Analysis – Porter’s 5 Force Model Industry Structure and Environmental Opportunities
- 3. MCQ 1 PESTLE/STEEPis an analytical tool which helps to undertake: A. An internal analysis. B. An external analysis. C. A competitor analysis. D. A strategic analysis.
- 4. MCQ 2 Ananalysis of the external environment enables a firm to identify: A. Strengths and opportunities. B. Strengths and weaknesses. C. Weaknesses and threats. D. Opportunities and threats.
- 5. MCQ 3 Porter's5 Force of Competition model is used for analysis of industry environment can be used by _ A. An organization planning to enter in industry. B. An organization present in the industry. C. An organization planning to exit the industry. D. All of the above.
- 6. Copyright ©2015 PearsonEducation, Ltd. All rights reserved. Evaluating a Firm’s Evaluating a Firm’s Internal Capabilities Internal Capabilities 3-6 Chapter 3 Chapter 3 Week 2 Session 3
- 7. What Does InternalAnalysis Tell Us? Internal analysis provides a comparative look at a firm’s resources and capabilities. • What are the firm’s strengths? • What are the firm’s weaknesses? • How do these strengths and weaknesses compare to competitors?
- 8. Why Does InternalAnalysis Matter? • establish strategies that will exploit any sources of competitive advantage • determine if its resources and capabilities are likely sources of competitive advantage Internal analysis helps a firm:
- 9. The Theory BehindInternal Analysis The Resource-Based View (RBV) • developed to answer the question: Why do some firms achieve better economic performance than others? • assumes that a firm’s resources and capabilities are the primary drivers of competitive advantage and economic performance • used to help firms achieve competitive advantage and superior economic performance Jay Barney Resource Based View
- 10. The Resource-Based View(RBV) 3 Key RBV Questions: 1. What resources does a firm have? 2. What resources can a firm build? 3. What resources can a firm maintain? The focus is on the firm as opposed to the industry.
- 11. The Resource-Based View Resourcesand Capabilities Resources • tangible and intangible assets of a firm » tangible: factories, products intangible: reputation/brand name/Teamwork! • used to conceive of and implement strategies Capabilities capabilities are bundles of resources that give a firm the ability to compete in its market. • Are often based on developing, carrying and exchanging information and knowledge through the firm’s human capital. •Are often developed in specific functional areas, such as R&D and marketing.
- 12. The Resource-Based View FourCategories of Resources and capabilities • Financial (cash, retained earnings) • Physical (plant and equipment, geographic location) • Human (skills and abilities of individuals) • Organizational (reporting structures, relationships)
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- 15. Capabilities Capabilities are bundlesof resources that give a firm the ability to compete in its market. Are often based on developing, carrying and exchanging information and knowledge through the firm’s human capital. Are often developed in specific functional areas, such as R&D and marketing. One well- known capability is Wal-Mart's cross-docking logistics system. It is part of a broader "customer pull" system that starts with individual stores placing their orders on the basis of store-movement data. Walmart cross docking
- 16. The Resource-Based View Whatare strategic capabilities? Walmart
- 17. The Resource-Based View TwoCritical Assumptions of the RBV • Resource Heterogeneity » Different firms may have different resources. • Resource Immobility » It may be costly for firms without certain resources to acquire or develop them. » Some resources may not spread from firm to firm easily.
- 18. The Resource-Based View •Heterogeneity of resources typically occurs as the result of “bundling” the resources, skills and capabilities of a firm. Resource Heterogeneity • Managers of a firm could take resources that seem homogeneous and “bundle” them to create heterogeneous combinations. • Competitive advantage typically stems from several resources and capabilities “bundled” together.
- 19. The Resource-Based View Quoteof the Day When activities mutually reinforce each other, competitors can’t easily imitate them
- 20. The Resource-Based View ResourceHeterogeneity The best example of heterogeneous factors is that of Netflix and Apple TV. Netflix has a very high subscriber base, while Apple TV is just starting. The pricing of Netflix is very high compared to Apple TV because they have a lot of original content compared to Apple TV. Apart from the original content, Netflix also features licensed content from other sources. At the same time, Apple TV subscribers get to see only Apple content, which is why it is priced at a lesser subscription rate. Both of the video apps face the same external challenge from external competition. For example, in May 2020, when HBO Max was launched, it was a threat to both apps because the originality of the content was highest compared to both of these apps, but the pricing of HBO max was very high.
- 21. The Resource-Based View ResourceImmobility This assumption states that the resources cannot move from one organization to another for the short term. Because of this, companies are unable to copy similar strategies like their competitors and implement them in the market. Resource immobility (stickiness) is like a barrier (an isolating mechanism) that prevents imitation of specific assets by rivals.
- 22. The Resource-Based View Whatdo these assumptions really mean? • if one firm has resources that are valuable and other firms don’t, and… • if other firms can’t imitate these resources without incurring high costs, then… • the firm possessing the valuable resources will likely gain a sustained competitive advantage
- 23. Sources of SustainedCompetitive Advantage
- 24. The Internal AnalysisTool VRIO – A Resource-Based Framework (developed by Prof. Jay Barney) For Sustained Competitive Advantage Four Important Questions: • Value • Rarity • Imitability • Organization Jay Barney
- 25. The Internal AnalysisTool The VRIO Framework Four Questions 1.Value – Does the resource enable the firm to exploit an opportunity or neutralize a threat? The evidence of a positive response to this question is usually that the resource somehow increases revenue or decreases cost. 2.Rarity – Is the resource rare? Is the resource rare enough that there is still scarcity in the marketplace for this resource? 3.Imitability – Is the resource costly to imitate? Specifically, is the resource so costly to imitate that no one would try to imitate it? 4.Organization – Is the firm organized in such a way that the resource can be exploited? If the answer to these four questions is AFFIRMATIVE, then the firm can reasonably expect to achieve a competitive advantage.
- 26. The VRIO Framework •A resource or bundle of resources is subjected to each question to determine the competitive implication of the resource. Applying the Tool • Each question is considered in a comparative sense (competitive environment).
- 27. Applying the VRIOFramework The Question of Value • In theory: Does the resource enable the firm to exploit an external opportunity or neutralize an external threat? • The practical: Does the resource result in an increase in revenues, a decrease in costs, or some combination of the two? Sony / Apple • One way to identify potential valuable resources and One way to identify potential valuable resources and capabilities controlled by a company is to study its capabilities controlled by a company is to study its value chain value chain
- 28. • Value chain •a linked set of value-creating activities that begin with basic raw materials coming from suppliers moving on to a series of value- added activities involved in producing and marketing a product or service, and ending with distributors getting the final goods into the hands of the ultimate consumer. Value-Chain Analysis Typical Value Chain for a Manufactured Product
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- 30. TESLA Value ChainAnalysis
- 31. Corporate Value Chain 1.Examine each product line’s value chain in terms of the various activities involved in producing the product or service 2. Examine the linkages within each product line’s value chain 3. Examine the potential synergies among the value chains of different product lines or business units Porter's Value Chain: How to Create Value in Your Organization McDonald's Value Chain
- 32. Applying the VRIOFramework The Question of Rarity: How many competing firms already possess Particular valuable resources & capabilities? • A resource must be rare enough that perfect competition has not set in. Some resources might be very common (not rare) but are essential and this may lead to competitive disadvantage !! • If a resource is not rare, then perfect competition dynamics are likely to be observed (i.e., no competitive advantage, no above normal profits). • Thus, there may be other firms that possess the resource, but still few enough that there is scarcity (several pharmaceuticals sell cholesterol- lowering drugs, but the drugs are still scarce—look at prices).
- 33. Applying the VRIOFramework Valuable and Rare If a firm’s resources are: The firm can expect: Not Valuable Competitive Disadvantage Valuable, but Not Rare Competitive Parity Valuable and Rare Competitive Advantage (at least temporarily)
- 34. Take care !It might be “in-between” like its not 100% rare But also not so “common” or “spread” In general, firms who have the “V” and the “R” are the strategic innovators and the first movers but! Only if other firms who will try to copy will face a cost disadvantage !
- 35. Applying the VRIOFramework • The temporary competitive advantage of valuable and rare resources can be sustained only if competitors face a cost disadvantage in imitating the resource. » Intangible resources are usually more costly to imitate than tangible resources. (Harley-Davidson’s styles may be easily imitated, but its reputation cannot. Same for iphone Apple stores) The Question of Imitability: Do firms without a resource or capability face a cost disadvantage in obtaining or developing it compared to firms that already possess it?
- 36. Applying the VRIOFramework • If there are high costs of imitation, then the firm may enjoy a period of sustained competitive advantage. » A sustained competitive advantage will last only until a duplicate or substitute emerges. If a firm has a competitive advantage, others will attempt to imitate it. (Razor scooters were a big hit and others quickly imitated them.) The Question of Imitability: Do firms without a resource or capability face a cost disadvantage in obtaining or developing it compared to firms that already possess it?
- 37. Applying the VRIOFramework The Question of Imitability: Why might it be costly to imitate another firm’s resources or capabilities? Costs of Imitation 1. Unique Historical Conditions Unique Historical Conditions (McDonald) • first mover advantages ADNOC: One Vision .. One Brand
- 38. Applying the VRIOFramework The Question of Imitability Costs of Imitation 2. Causal Ambiguity Causal Ambiguity • Causal links between resources and competitive advantage may not be understood. • Bundles of resources fog these causal links.
- 39. Applying the VRIOFramework The Question of Imitability Costs of Imitation 3. Social Complexity Social Complexity • The social relationships entailed in resources may be so complex that managers cannot really manage them or replicate them.
- 40. Applying the VRIOFramework The Question of Imitability Costs of Imitation 4. Patents Patents • Patents may be a two-edged sword. • Offer a period of protection if the firm is able to defend its patent rights. • Required disclosure may actually decrease the cost of imitation, and the timing.
- 41. Applying the VRIOFramework The Question of Imitability Costs of Imitation
- 42. Applying the VRIOFramework Value, Rarity, and Imitability If a firm’s resources are: The firm can expect: Valuable, Rare, but not Costly to Imitate Temporary Competitive Advantage Valuable, Rare, and Costly to Imitate Sustained Competitive Advantage (if Organized appropriately)
- 43. Applying the VRIOFramework • A firm’s structure and control mechanisms must be aligned so as to give people ability and incentive to exploit the firm’s resources. • Examples: formal and informal reporting structures, management controls, compensation policies, relationships, and so on • These structure and control mechanisms complement other firm resources—taken together, they can help a firm achieve sustained competitive advantage. (3M Company, Apple, Tesla) The Question of Organization: Is a firm organized to exploit the full competitive potential of its resources & capabilities
- 44. Organizati on How Apple IsOrganized for Innovation
- 45. The VRIO Framework Valuable?Rare? Costly to Imitate? Exploited by Organization? Competitive Implications No Yes Yes Yes Yes Yes Yes Yes No No No Disadvantage Parity Temporary Advantage Sustained Advantage Economic Implications Below Normal Normal Above Normal Above Normal
- 46. A simple wayto evaluate whether or not a strategy was likely to be a source of sustained competitive advantage. It depended on the answer to four questions, something called the VRIO framework. Is Your Strategy a Source of Competitive Advantage? VALUABLE: Will a strategy increase a firm’s revenues/reduce its costs compared to what would be the case if this strategy were not pursued? RARE: Does a firm possess unusual skills needed to execute a strategy? IMITABLE: How long will it take other firms to imitate this strategy? ORGANIZATION: Is a firm efficiently organized to implement a strategy? 1.Valuable strategies, by themselves, are only sources of parity. 2.Valuable and rare strategies are sources of temporary advantage. 3.Valuable, rare, and difficult-to-imitate strategies are sources of sustained advantage.
- 47. Competitive Dynamics ofResource Imitation Given that a particular firm in an industry has a competitive advantage, How should other firms respond? Competitive Dynamics: • the strategic decisions and actions of firms in response to the strategic decisions and actions of other firms No Response Change Tactics Change Strategy
- 48. Competitive Dynamics • theother firm is serving a different market A firm may decide to take no action because: • a response may hurt its own competitive advantage • it does not have the resources and capabilities to mount an effective response “No Action” Response (Rolex Casio)
- 49. Competitive Dynamics “Change” Responses Tactics(Kroger) Strategy (Target) • specific actions » tweaking product characteristics • usually imitated so quickly that there is no advantage • a fundamental change in a firm’s theory • may be necessary if current strategy becomes obsolete • a mimetic change may achieve parity, but not advantage Walmart, Safeway, Kroger, and Target in US Discount Grocery Market
- 50. The Resource-Based View •Valuable • Rare • Costly to Imitate • Organized to Exploit CA will be sustained if: • other firms’ costs of imitation are greater than benefit of imitation • the firm is organized to exploit advantages
- 51. Managers’ Job: • BUNDLEresources and capabilities to achieve competitive advantage Internal Analysis Tells us: • what the firm should do, given the relative strengths and weaknesses of resources and capabilities VRIO Framework Helps Managers Recognize Sources of Competitive Advantage
- 52. Apply the VRIOFramework in the following settings. Will the actions described be a source of competitive disadvantage, parity, temporary advantage, or sustained competitive advantage?
- 53. Apply the VRIOFramework in the following settings. Will the actions described be a source of competitive disadvantage, parity, temporary advantage, or sustained competitive advantage? 1. Proctor and Gamble introduces new smaller packaging for its laundry detergent, Tide. 2. American Airlines announces a 5% across-the-board reduction in airfares. 3. The Korean automobile firm Hyundai announces a 10-year, 100,000 mile warranty on its cars. 4. Microsoft makes it easier to transfer data and information from Microsoft Word to Excel. 5. Merck is able to coordinate the work of its chemists and biologists in the development of new drugs. 6. Ford patents a new kind of brake pad for its cars. 7. Ashland chemical, a specialty chemical company, patents a new specialty chemical. 8. The New York Yankees sign all star pitcher Roger Clemens to a long term contract. 9. Michael Dell uses the money he has made from Dell Computers to purchase the Dallas Cowboys football team. 10.Ted Turner uses the money he has made from his broadcasting empire to purchase the Atlanta Braves baseball team.
- 54. Apply the VRIOFramework in the following settings. Will the actions described be a source of competitive disadvantage, parity, temporary advantage, or sustained competitive advantage? 1. Proctor and Gamble introduces new smaller packaging for its laundry detergent, Tide. Temporary advantage. This will be imitated by other firms. 2. American Airlines announces a 5% across-the-board reduction in airfares. Temporary advantage. This will be imitated by other airline carriers. 3. The Korean automobile firm Hyundai announces a 10-year, 100,000 mile warranty on its cars. Sustained competitive advantage. 100,000 mile warranty is valuable, rare, and costly to imitate. 4. Microsoft makes it easier to transfer data and information from Microsoft Word to Microsoft Excel. Sustained competitive advantage. Costly to imitate.
- 55. Apply the VRIOFramework in the following settings. Will the actions described be a source of competitive disadvantage, parity, temporary advantage, or sustained competitive advantage? 5. Merck is able to coordinate the work of its chemists and biologists in the development of new drugs. Could be either temporary or sustained competitive advantage. Merck is using “organization” to exploit its resources and capabilities. 6. Ford patents a new kind of brake pad for its cars. Temporary advantage. Depends on the cost to imitate and perceived value. 7. Ashland chemical, a specialty chemical company, patents a new specialty chemical. Temporary or sustained competitive advantage. Depending upon the rarity of the chemical, cost to imitate, and its value. 8. The New York Yankees sign all star pitcher Roger Clemens to a long term contract. Parity - This could be considered parity or temporary advantage as this resource is not permanent.
- 56. Apply the VRIOFramework in the following settings. Will the actions described be a source of competitive disadvantage, parity, temporary advantage, or sustained competitive advantage? 9. Michael Dell uses the money he has made from Dell Computers to purchase the Dallas Cowboys football team. Competitive disadvantage. The resources could be better utilized for research and new product development. The football team does not directly benefit the firm. 10. Ted Turner uses the money he has made from his broadcasting empire to purchase the Atlanta Braves baseball team. Competitive disadvantage, parity and perhaps, temporary advantage.
- 57. In class exercise • Whatare the sources of SCA of the company you have chosen for a group project work. • You can work in groups.
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Editor's Notes
- #1 Go through the course outline...discuss about mandatory attendance in tutorial at least 70%,
- #2 Modes…Ad-hoc scanning , regular, continuous
- #6 This topic discusses evaluating company’s internal situation including resources and capabilities, its competitive strength and weaknesses
- #9 https://www.youtube.com/watch?v=l7BMrhw2K5I 8mins…not play https://www.youtube.com/watch?v=POLXj3OeWhU
- #11 Game: persoanlity (weaknesses/strenghts)
- #12 What’s missing…Technological: availability of IPRS Innovation Resources: Ideas, Capacity to Innovate Reputational: Brand name, Perception of product quality, reliability
- #15 https://www.youtube.com/watch?v=1V_3l1SdHpo
- #17 Second, some of these resource and capability differences among firms may be long lasting because it may be very costly for firms without certain resources and capabilities to develop or acquire them. This is the assumption of resource immobility. For example, Toyota has had its advantage in manufacturing for at least 30 years. Apple has had product design advantages over IBM since Apple was founded in the 1980s. And eBay has been able to retain its brand reputation since the beginning of the online auction industry. It is not that GM, IBM, and eBay’s competitors are unaware of their disadvantages. Indeed, some of these firms—notably GM and IBM—have made progress in addressing their disadvantages. However, despite these efforts, Toyota, Apple, and, to a lesser extent, eBay continue to enjoy advantages over their competition.
- #19 https://www.youtube.com/watch?v=gFK4bYsGI2g https://www.youtube.com/watch?v=61SAU1C3-h4 What Makes Tesla's Business Model Different? Investopedia https://www.investopedia.com › ... › Tech Companies Tesla's business model is based on a three-pronged approach to selling, servicing, and charging its electric vehicles. Tesla applied the idea of open innovation by establishing research and development collaborations with large companies\ Amazon's high-performance culture, with its focus on customers, data, and outcomes, is supported by a unique annual planning process. Leaders . Apple unique eco-system of offerings…The Apple ecosystem is the connection and integration between different Apple devices—such as the iPhone, iPad, MacBook, Apple Watch, AirPods, ... The secret to Apple's ecosystem is that instead of selling products or services, Apple ends up selling experiences made possible by controlling ..
- #20 Variation is essential to have a competitive advantage.
- #21 Whenever an employee gets selected in an organization, he won’t leave it for the first 3 to 6 months. If he performs better in the organization, then he will continue working in the same organization. It will be very long before he decides to change and switch to the competition. In this case, it will be very long before the competition can learn about the organization from its old employee.
- #22 Let’s consider Southwest and Amazon! It has been difficult/impossible (?) for any airline organization to duplicate Southwest’s unique culture of esprit de corps, one of the sources of its competitive advantage under Herb Kelleher’s era. It is equally difficult to replicate Amazon’s relentless culture of getting things done!
- #24 Other tools like Gap analysis.. For fine tuning a single process, implementation tool to check internal consistency
- #27 Intangible resources include those non-physical assets that the company uses to produce goods or provide services, or expects to generate future productive benefits” (Hill et al, 2007). The Sony brand is considered “one of the world’s most recognisable and trusted brands” and was “ranked 21st in the Business Week/Interbrand list of the World’s 100 Most Valuable Brands with an estimated value of US$14 billion” (Singh et al, 2005). The Sony brand is associated with “superior quality, innovation and style” (Sony United, 2007), in the minds of its customers.
- #31 https://www.youtube.com/watch?v=aeshYi6lj2Y 3 mins
- #35 Imitability: Do the competitors have the financial ability to imitate?
- #36 The Razor Scooter is a compact folding scooter developed by Micro Mobility Systems and manufactured by JD Corporation.
- #37 Unique historical circumstances can give a firm a sustained competitive advantage in at least two ways. First, it may be that a particular firm was the first in an industry to recognize and exploit an opportunity, and being first gave the firm one or more of the first-mover advantages discussed in Chapter 2. Thus, although in principle other firms in an industry could have exploited an opportunity, that only one firm did so makes it more costly for other firms to imitate the original firm. A second way that history can have an impact on a firm builds on the concept of path dependence.15 A process is said to be path dependent when events early in the evolution of a process have significant effects on subsequent events. In the evolution of competitive advantage, path dependence suggests that a firm may gain a competitive advantage in the current period based on the acquisition and development of resources in earlier periods. // Consider, for example, a firm that purchased land for ranching some time ago and discovered a rich supply of oil on this land in the current period. The difference between the value of this land as a supplier of oil (high) and the value of this land for ranching (low) is a source of competitive advantage for this firm. Moreover, other firms attempting to acquire this or adjacent land will now have to pay for the full value of the land in its use as a supply of oil (high) and thus will be at a cost disadvantage compared to the firm that acquired it some time ago for ranching.
- #38 Fog…confusion // Finally, it may be that not just a few resources and capabilities enable a firm to gain a competitive advantage, but that literally thousands of these Organizational attributes, bundled together, generate these advantages. When the resources and capabilities that generate competitive advantage are complex networks of relationships between individuals, groups, and technology, imitation can be costly. Whenever the sources of competitive advantage are widely diffused across people, locations, and processes in a firm, those sources will be costly to imitate. Perhaps the best example of such a resource is knowledge itself. To the extent that valuable knowledge about a firm’s products, processes, customers, and so on is widely diffused throughout an organization, competitors will have difficulty imitating that knowledge, and it can be a source of sustained competitive advantage
- #39 A wide variety of firm resources and capabilities may be socially complex. Examples include the interpersonal relations among managers in a firm, a firm’s culture, and a firm’s reputation among suppliers and customers.
- #43 Also culture…leadership
- #44 Accordingly add more as intangible resources…culture, role of leadership etc // https://www.youtube.com/watch?v=5hENFA3CJUY
- #47 Tactics is very specific activity like price reduction, withdrawal etc, strategy is for long term implications
- #48 For example, digital timekeeping has made accurate watches available to most consumers at reasonable prices. A firm such as Casio has a competitive advantage in this market because of its miniaturization and electronic capabilities. Indeed, Casio’s market share and performance in the watch business continue to climb although demand for watches, overall, has gone down. How should Rolex—a manufacturer of very expensive, non-electronic watches—respond to Casio? Rolex’s decision has been: Not at all. Rolex appeals to a very different market segment than Casio. Should Rolex change its strategies—even if it replaced its mechanical self-winding design with the technologically superior digital design—it could easily compromise its competitive advantage in its own niche market.28 In general, when a firm already possesses its own sources of competitive advantage, it will not respond to different sources of competitive advantage controlled by another firm. //but no response might be costlier in long run…it its signal towards a major trend or megatrend. Like Kodak took no response to digital film…Or when Tesla introduced EV…others were with no action at the beginning.
- #49 Tactics are the specific actions a firm takes to implement its strategies. Examples of tactics include decisions firms make about various attributes of their products—including size, shape, color, and price—specific advertising approaches adopted by a firm, and specific sales and marketing efforts. Generally, firms change their tactics much more frequently than they change their strategies // Given that a particular firm in an industry has a competitive advantage, how should other firms respond? Decisions made by other firms given the strategic choices of a particular firm define the nature of the competitive dynamics that exist in an industry. In general, other firms in an industry can respond to the advantages of a competitor in one of three ways. First, they can choose to limit their response. For example, when Wal-Mart entered the discount grocery market with the creation of Super Walmarts, some competitors (e.g., Safeway) ignored Wal- Mart’s moves and continued on as before. Other competitors (e.g., Kroger) modified some of their tactics, including, for example, selling more prepared foods and more specialty foods than before. Finally, other firms fundamentally altered their strategies (e.g., Target began building stores that also sold discount groceries).
- #57 Take your chosen company from your group case study. Apply the VRIO framework to at least two value chain activities and decide if these are indeed resources/capabilities that lead to a sustained competitive advantage. Identify at least fine such R/C.