Strategy Arc STRATEGY Environmen t Firm Search for resources and capabilities that provide the firm with sustainable competitive advantage
Dec 13, 2015
Strategy Arc
STRATEGY
Environment
Firm
Search for resources and capabilities that provide the firm with sustainable competitive advantage
Assumptions
All firms are alike and all firms are different
Firms develop unique qualities based on their history, experiences and strategies
Success of individual firms depends on how well firms develop and utilize their skills, resources, and capabilities to
• create profits (provide value, control costs)• satisfy their stakeholders• create barriers to competitors
Internal Analysis
Internal Analysis has two parts1. Evaluation of the firms strategy to
determine how well the strategy integrates the firm with the external environment.
2. Systematic analysis of the skills, resources, capabilities, and competencies the firm utilizes to support its strategy
Environment
Firm
STRATEGY
Strategy
Identify the strategy approach Rational v. Emergent Low Cost v. Differentiated v. Integrated Broad v. Focused
Evaluate the effectiveness of the strategy Financial Balanced Scorecard Stakeholder
Firm
STRATEGY
Environment
Strategy Models
Traditional or IO Model
Stakeholder Model
Value Chain Model
Resource-Based View (RBV)
Environment
STRATEGY
Firm
ExternalExternal
InternalInternal
IO Model
Views the firm as an economic actor responding to market forces
The external environment is the primary determinant of success
Strategic decisions involve choosing products and markets
Primary Tools: Industry Analysis Financial Ratios
Stakeholder Model
Views firm as an extended network of relationships and dependencies
Key stakeholders determine sustainability Primary Tools
Stakeholder Analysis Financial Ratios
Value Chain Model
Views firm as a set of linked value creating activities that transform inputs into outputs
Market determine success Strategic decisions involve creating
superior value at lowest cost Primary Tools:
Value Chain Analysis Activity-Based Accounting Benchmarking
The Value Chain
General administration
Human resource management
Technology development
Procurement
Inbound logistics
OperationsOutbound logistics
Marketing and sales
Service
Value-Chain Analysis
Firm is profitable to the extent the revenue it receives exceeds the total costs involved in creating its products or services
Value chain analysis involves identifying key activities that support the
firm’s strategy Evaluating the effectiveness of key activities
Compare the costs and value added of key activities in the value chain
Benchmarking to compare key activities to competitors
Resource Based View
Views firm as a unique collection of resources and competencies
Unique characteristics of the firm determine success
Strategic decisions involve creating and sustaining competitive advantage through core competencies
Primary Tools: VRIN Analysis Financial Ratios
Resource Based Model
Firm converts inputs into outputs using Resources: the assets available to a firm to
develop and implement value creating strategies
Tangible: assets the firm uses to create value financial, physical, technological,
organizational Intangible: unique routines and practices that
are developed over time human, creative, reputation, culture
Organizational Capabilities: the procedures and processes the firm has developed to use its resources effectively to achieve desired ends; the ability to put resources to productive use
Core Competencies
Competitive advantage is derived from unique resources and capabilities.
Firms distinguish themselves from competitors by developing Core Competencies
The resources of a firm that allow it to differentiate its products or services from competitors
Core competencies are the basis for strategy and competitive advantage
Core competencies are most effective when they are based on intangible resources and organizational capabilities
VRIN Analysis
To be a source of sustainable competitive advantage, a resource must have four attributes:ValuableRareInimitableNonsubstitutable
VRIN Analysis• Valuable: Allows the firm to differentiate
products/services and create unique value• Satisfies customers needs better than competitors• Generates superior profits
• Rare: Competitors do not have access to the resource or an equivalent
Resources that are valuable and rare allow temporary competitive
advantage
VRIN Analysis• Inimitable: Competitors cannot easily copy
or reproduce the resource• Path dependent• Causal ambiguity; social complexity
• Nonsubsitutable: Equivalent resources that may allow similar strategy are not readily available
Resources that are inimitable and nonsubstitutable allow sustainable
competitive advantage
VRIN Analysis
Identify key competencies Construct a VRIN Table
Competency
Valuable Rare Inimitable
Non- Sub
Conclusion
Superior Engineering
Yes No No Yes Comp. Parity
Automated Production
Yes Yes No No Temp. comp. adv.
Integrated Design
Yes Yes Yes Yes Sustainable comp. adv.• Look for combinations of capabilities
• Assess strategic implications for success