Capstone Project
badrbanan
790Mod2.PartB_InternalAnalysisforWEB.pptxInternal Analysis
1
‘Resource-based theory’ (RBT) offers the best explanation of why a firm outperforms others
Internal, firm-level differences #1
External, industry factors #2 (we’ll address later)
Luck, change, random effects #3
RBT – Firms have unique bundles of resources and capabilities…so we want to know the answer to:
Q: What is that a firm has or does that best explains its superior performance?
What is the purpose of internal analysis?
2
Defining a business in terms of what it is capable of is a better basis for formulating strategy than selecting a ‘position’
Creating, defending, and exploiting an internal competitive advantage is the primary path of sustainable performance
So, what is the firm’s source of competitive advantage - so we can defend, exploit, extend it?
OR… if doing poorly, what foundation can we build on to create CA?
OR….if no foundation, what specific res/cap should be acquired/developed to best create CA?
A framework for internal analysis
3
Identifying strategic resources
Always recall that we are not after an asset list – we are seeking to understand sources of competitive advantage
“Inputs to the production process”; ‘competitive assets’ possessed/available to the firm; all assets that can be drawn on when formulating and implementing strategy
Tangible; Intangible; Financial; Human
What we DON’T mean
Outcomes/things ‘achieved – customers; market share
Outcomes/things produced – inventory; product line
Resources are ‘things’, nouns – what the firm possess that can be used in the production and delivery of their products or services
A framework for internal analysis
4
Identifying strategic capabilities
Ulrich and Smallwood: the skills, abilities, and expertise of an organization
The ways (i.e. routines through which) people and resources are brought together to accomplish work.
Capabilities are things the firm does (processes, activities performed), does well, and does repeatedly.
Not what the firm achieves
Not “the capability to grow”
Capabilities describe what they DO that leads to the outcome
E.g. The capability to identify and develop attractive new retail locations
Whereas resources are things (nouns) capabilities involve verbs “…capability TO XYZ (e.g. innovate, identify, motivate, hire and train, design…”)
A framework for internal analysis
5
Identifying the underlying sources (actual or potential) of competitive advantage
Do we need to know ALL the resources and capabilities a firm possesses? - NO - recall our purpose
What make a resource or capability strategically valuable…which are sources of sustainable competitive advantage?
Sources of competitive advantage
6
Value, protected from erosion and imitation, durable
Barney –
V – valuable
Contributes to value creation or value capture
R – rare
Few if any rivals possess it
I – Inimitable
Difficult or costly to imitate
O - Organization
Of little value if don’t have means to exploit it
Prioritizing
7
Let’s refer to all resources and capabilities as ‘resources’
Begin with those you identify as ‘Valuable’
Next, which are rare/most uncommon
At least sources of temporary advantage
Next, which are more inimitable
At least potential sources of sustainable advantage
Next, how well is the firm organized with complementary resources to exploit it?
Valuable, unique, sustainable, and we have all we need to exploit it!
Rate and rank technique
8
Another means to prioritize
Use VRIO - Rate on scale; then rank by sum
A ‘rational’ systematic method to argue sources of CA
But what if none? What would you do…?
So…what?
9
So what do you do with this information?
Always best to craft strategy around existing strengths – Porter: what is unique, valuable, and durable
What sources of competitive advantage exist…and how can we defend and further exploit them?
What potential sources of competitive advantage do we have and how might we exploit?
If we have none, what competitive advantage should we strive to develop and how?
