Assessing the Internal Environment of the Firm Chapter Three McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Assessing the Internal

Environment of the Firm

Chapter Three

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning ObjectivesAfter reading this chapter, you should have a good

understanding of:LO3.1 The benefits and limitations of SWOT analysis in

conducting an internal analysis of the firm.LO3.2 The primary and support activities of a firm’s value

chain.LO3.3 How value-chain analysis can help managers create

value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

LO3.4 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities.

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Learning Objectives (cont.)LO 3.5 The four criteria that a firm’s resources must

possess to maintain a sustainable advantage and how value created can be appropriated by employees and managers.

LO 3.6 The usefulness of financial ratio analysis, its inherent limitations, and how to make meaningful comparisons of performance across firms.

LO 3.7 The value of the “balanced scorecard” in recognizing how the interests of a variety of stakeholders can be interrelated.

LO 3.8 How firms are using Internet technologies to add value and achieve unique advantages. (Appendix)

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Value-Chain Analysis

Value-chain analysis a strategic analysis of an organization that

uses value creating activities.

Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue

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Value-Chain Analysis

Primary activities contribute to the physical creation of the

product or service, its sale and transfer to the buyer, and its service after the sale.

inbound logistics, operations, outbound logistics, marketing and sales, and service

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Value-Chain Analysis

Support activities activities of the value chain that either add

value by themselves or add value through important relationships with both primary activities and other support activities

procurement, technology development, human resource management, and general administration.

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The Value Chain

3-7Exhibit 3.1

Support Activity: Human Resource Management

Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel Effective recruiting, development, and

retention mechanisms for employees Quality relations with trade unions Reward and incentive programs to motivate

all employees

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Support Activity: Technology Development

Related to a wide range of activities and those embodied in processes and equipment and the product itself Effective R&D activities for process and

product initiatives Positive collaborative relationships between

R&D and other departments Excellent professional qualifications of

personnel

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Value Chains in Service Industries

3-10Exhibit 3.4

Resource-Based View of the Firm

Resource-based view of the firm perspective that firms’ competitive

advantages are due to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute.

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Types of Resources

Tangible resources organizational assets that are relatively easy

to identify, including physical assets, financial resources, organizational resources, and technological resources.

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Types of Resources

Intangible resources organizational assets that are difficult to identify and

account for and are typically embedded in unique routines and practices, including human resources, innovation resources, and reputation resources.

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Types of Resources

Organizational capabilities The competencies

and skills that a firm employs to transform inputs into outputs.

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Five Types of Financial Ratios

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