Chapter 3: Assessing the Internal Environment of the Firm

Strategic Management

What is value‑chain analysis?

• Sequential process of value‑creating activities

• Value = what customers are willing to pay

• Firm is profitable when value > total cost

What are the primary activities in the value chain?

• Inbound logistics

• Operations

• Outbound logistics

• Marketing & sales

• Service

What are inbound logistics?

• Receiving, storing, distributing inputs

• Includes: material handling, warehousing, inventory control

What are operations?

• Transforming inputs → final product

• Includes: machining, assembly, testing, facility operations

What are outbound logistics?

• Collecting, storing, distributing final product

• Includes: warehousing, delivery, order processing

What are marketing & sales?

• Activities that get customers to buy

• Includes: advertising, pricing, sales force, channel selection

What is service?

• Enhancing or maintaining product value

• Includes: installation, repair, training, parts supply

What are the support activities in the value chain?

• Procurement

• Technology development

• Human resource management

• General administration

What is procurement?

• Purchasing inputs

• Focus on quality, speed, cost, supplier relationships

What is technology development?

• R&D, process improvements

• Includes: analytics, equipment, collaboration with other departments

What is human resource management?

• Recruiting, hiring, training, compensation

• Employee development & retention

What is general administration?

• Planning systems

• Stakeholder relations

• IT systems

• Top management’s ability to anticipate trends & build culture

Why are interrelationships important in the value chain?

• Activities affect each other

• Value is created through coordination

• Relationships with suppliers/customers also matter

What is the resource‑based view of the firm?

• Combines internal + external analysis

• Resources lead to competitive advantage when they are:

  • Valuable

  • Rare

  • Hard to imitate

  • Non‑substitutable

What are tangible resources?

• Physical assets (plants, equipment)

• Financial assets (cash, borrowing ability)

• Technological assets (patents, algorithms)

• Organizational systems (planning, control systems)

What are intangible resources?

• Hard to imitate; embedded in routines

• Human resources (skills, experience)

• Innovation resources (expertise, ideas)

• Reputation resources (brand, trust, quality)

What are organizational capabilities?

• Skills to combine resources effectively

• Examples:

  • Customer service

  • Product development

  • Innovation

  • Hiring/retaining talent

What four attributes create sustainable competitive advantage?

• Valuable

• Rare

• Difficult to imitate

• Non‑substitutable

What makes resources hard to imitate?

• Physical uniqueness

• Path dependency (history matters)

• Causal ambiguity (unclear why it works)

• Social complexity (culture, relationships)

What are the outcomes of VRIN?

• Valuable only → competitive parity

• Valuable + rare → temporary advantage

• Valuable + rare + hard to imitate + non‑substitutable → sustainable advantage

What are the five types of financial ratios?

• Liquidity

• Long‑term solvency

• Asset management (turnover)

• Profitability

• Market value

What makes ratio analysis meaningful

• Compare over time

• Compare to industry norms

• Compare to competitors

What financial goals show strategy is working?

• Profitability

• Growth

• Shareholder value

What improvements should strategy lead to?

• Higher sales

• Increased market share

• Lower operating expenses

• Higher asset turnover