Ch.3 - Assesing the Internal Environment of the Firm

Definition of Value-Chain Analysis

views the organization as a sequential process of value-creating activities

What is the Value-Chain Analysis useful for?

Understanding the building blocks of competitive advantage

Definition of Value

The amount buyers are willing to pay for what a firm provides them

How is Value measured?

by total revenue, a reflection of the price a firm’s product commands, and the quantity it can sell

When is a firm profitable?

When the value it receives exceeds the total costs involved in creating its product or service

What are two different Value-Chain activities?

• Primary activities

• Support activities

Definition of Primary Activities in Value-Chain Analysis

contribute to the physical creation of the product or service; the sale & transfer to the buyer; and service after the sale

Examples of Primary Activities in Value-Chain Analysis

Operations, inbound logistic, outbound logistics, marketing & sales, service

Definition of Support Activities in Value-Chain Analysis

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

Examples of Support Activities in Value-Chain Analysis

Procurement, tech development, human resource management, general administration

Definition of Inbound Logistics in Primary Activities

primarily associated with receiving, storing, and distributing inputs to the product

Examples of Inbound Logistics in Primary Activities

material handling, warehousing, inventory control. vehicle scheduling, returns to suppliers

What are factors to consider of Inbound Logistics in Primary Activities

Location of distribution facilities and warehouse layout

Definition of Operations in Primary Activities

all activities associated with transforming inputs into the final product form.

Examples of Operations in Primary Activities

machining, packaging & assembly, testing or quality control, printing, facility operations

What are factors to consider of Operations in Primary Activities

Efficient plant operations & layout and incorporation of appropriate process tech

Definition of Outbound Logistics in Primary Activities

collecting, storing, and distributing the product or service to buyers.

Examples of Outbound Logistics in Primary Activities

Finished goods & warehousing, material handling, delivery vehicle operation, order processing / scheduling & distribution

What are factors to consider of Outbound Logistics in Primary Activities

Effective shipping processes and minimizing shipping costs by grouping goods into large lot sizes

Definition of Marketing & Sales in Primary Activities

activities associated with purchases of products and services by end users and includes how to induce buyers to make those purchases

Examples of Marketing & Sales in Primary Activities

Advertising & promotion, sales force management, pricing & price quoting, channel selection & channel relations

What are factors to consider of Marketing & Sales in Primary Activities

Innovative approaches to promotion & advertising and proper identification of customer segments & needs

Definition of Service in Primary Activities

actions associated with providing service to enhance or maintain the value of the product.

Examples of Service in Primary Activities

installation & repair, training, parts supply, product adjustment

What are factors to consider of Services in Primary Activities

Quick response to customer needs and quality of service personnel, ongoing training

Definition of Procurement in Support Activities

involves how the firm purchases inputs used in its value chain

What does Procurement of Raw Material Inputs do?

Optimize quality & speed and minimize associated costs

What are activities of Procurement in Support Activity?

• Development of collaborative win-win relationships with suppliers

• Analysis & selection of alternative sources of inputs to minimize dependence on one supplier

Definition of Technology Development in Support Activities

the development of new knowledge that is applied to the firm’s operations.

What are activities of Technology Development in Support Activity?

• Effective research and development (R&D) activities for process & product initiatives

• Collaborative relationships bwt R&D and other deparments

• Excellent professional qualifications of personnel

• Use of data analytics

Definition of Human Resource Management in Support Activities

activities involved in recruitment, hiring, training & development, and compensation of all types of personnel

What are activities of Human Resource Management in Support Activity?

• Effective employee recruiting, development, retention mechanisms

• Quality relations with trade unions

• Reward & incentive programs to motivate all employees

Definition of General Administration in Support Activities

activities that support the entire value chain and not individual activities; general management, finance, legal & gov affairs, info systems quality management

What are activities of General Administration in Support Activity?

• Effective planning systems to attain overall goals & objectives

• Effective info tech to coordinate and integrate value-creating activities across value chain

• Excellent relations with stakeholder groups

What must managers not ignore the importance of?

Relationships among value-chain activities

What are the two levels of Relationships Among Value-Chain Activities?

1. Interrelationships among activities within the firm

2. Relationships among activities within the firm and with other stakeholders

How to consider integrating customers into the Value Chain?

Creating individualized products and soliciting ideas for products & services

Definition of Resource-Based View Of The Firm (RBV)

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

What two activities does a Resource-Based View Of The Firm (RBV) integrate?

1. An internal analysis of phenomena within a company

2. An external analysis of the industry & it’s competitive environment

How can resources lead to a competitive advantage in Resource-Based View Of The Firm (RBV)?

• If they are valuable, rare, and hard to duplicate

• If tangible resources, intangible resources, & organizational capabilities are combines

Definition of Tangible Resources

organizational assets that are relatively easy to identify

What are the type of assets in Tangible Resources?

• Physical assets

• Financial assets

• Technological resources

• Organizational resource

Example of Physical Assets in Tangible Resources?

Plant & facilities, location, machinery & equipment

Example of Financial Assets in Tangible Resources?

Cash & cash equivalents, borrowing capacity, capacity to raise equity

Example of Technological Resources in Tangible Resources?

Trade secrets, patents, copyrights, trademarks, innovative production processes

Example of Organizational Resources in Tangible Resources?

Effective planning process, evaluation & control systems

Definition of Intangible Firm Resources

organizational assets that are difficult to identify and account for and are typically embedded in unique routines and practices

What are the type of recources in Intangible Firm Resources?

• Human resources

• Innovation resources

• Reputation resources

Example of Human Resources in Intangible Firm Resources?

trust, experience & capabilities of employees; managerial skills & effectiveness of work teams, firm specific practices & procedures

Example of Innovation Resources in Intangible Firm Resources?

technical & scientific expertise & ideas; innovation capabilities

Example of Reputation Resources in Intangible Firm Resources?

brand names, reputation for fairness with suppliers, non-zero sum relations; reputation for reliability & product quality with cutomers

Definition of Organizational Capabilities

competencies or skills that a firm employs to transform inputs into outputs.

What is Organizational Capabilities?

The capacity to combine tangible & intangible resources to attain desired ends

Example of Organizational Capabilities

Outstanding customer service, excellent product development capabilities, flexibility in manufacturing process, ability to hire & motivate & retain human capital

Strategic Resource has how many attributes?

four (4)

What are the four Strategic Resource attributes?

1. Valuable

2. Rare or uncommon

3. Difficult to imitate or copy

4. Difficult to substitute

Why is Inimitability a key to value creation?

It constrains competition

What are the Sources of Inimitability?

• Physical uniqueness

• Path dependency

• Casual ambiguity

• Social complexity

Definition of Physical Uniqueness in Sources of Inimitability?

resources that are physically unique, therefore impossible to duplicate.

Definition of Path Dependency in Sources of Inimitability?

hard to duplicate because of all that has happened along the path followed in the development and/or accumulation of resources

Definition of Causal Ambiguity in Sources of Inimitability?

a resources that is costly to imitate because a competitor cannot determine what the resource is and/or how it can be re-created

Definition of Social Complexity in Sources of Inimitability?

resources that result from social engineering such as interpersonal relations, culture, and reputation with suppliers & customers

What are the four factors that explain how to obtain high level profits for a firm?

1. Employee bargaining power

2. Employee replacement cost

3. Employee exit cost

4. Manager bargaining power

What are the two approaches to use when evaluating a firm’s performance?

1. Financial ration analysis

2. A Broader stakeholder view

Definition of Financial Ratio Analysis

a method of evaluating a company’s performance and financial well-being through ratios of accounting values

What are the five types of Financial Ratios?

1. Short-term solvency or liquidity

2. Long-term solvency measures

3. Asset management or turnover

4. Profitability

5. Market value

What does meaningful ratio analysis must include?

• Analysis of how ratios change over time

• Comparison with industry norms

• Comparison with key competitors

Definition of Balanced Scorecard

a method of evaluating a firm’s performance using performance measures from the customer, internal, innovation and learning, and financial perspectives.

What is the Balanced Scorecard four perspectives?

• Customer perspective

• Internal business perspective

• Innovation and learning perspective

• Financial perspective

Definition of Customer Perspective

indicate how well firms are satisfying customers’ expectations.

Definition of Internal Business Perspective

indicate how well firms’ internal processes, decisions, and actions are contributing to customer satisfaction.

Definition of Balanced Scorecard

indicate how well firms are changing their product and service offerings to adapt to changes in the internal and external environments.

Definition of Financial Perspective

indicate how well strategy, implementation, and execution are contributing to bottom-line improvement.

In the Customer Perspective of a Balanced Scorecard, what do managers do?

Articulate goals for customer concerns

• Time versus quality

• Performance and service versus cost

What happens in Innovation & Learning Perspective of a Balanced Scorecard?

• Managers must make frequent changes to existing products & services

• Introduce entirely new products w/ extended capabilities

What does the Innovation & Learning Perspective of a Balanced Scorecard require?

• Human capital (skills, knowledge, talent)

• Information capital (info systems, networks)

• organizational capital (culture, leadership)

What do Financial Goals include in the Financial Perspective of a Balanced Scorecard?

Profitability, growth, shareholder value

What do the Financial Goals in the Financial Perspective of a Balanced Scorecard lead to?

• Improved sales

• Incr market share

• Reduced operating expenses

• High asset turnover

What are limitations of a Balanced Scorecard?

• Not a “quick fix” — needs proper execution

• Needs commitment to learning

• Needs emp involvement in continuous process improve

• Needs cultural change

• Needs focus on nonfinancial rather than financial

• Needs data on actual performance