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Weekly Lectures/Week 3 Lecture Internal Factors.html

MGMT 670: Week 3 Lecture

Week 3:  Internal Aspects of a Business: The students will study, in detail, the internal environment of companies. They will analyze the strengths and the weaknesses facing a business, using a SWOT analysis. They will learn what the Resource-Based View is and how to calculate it. They will analyze a company’s value chain.

Learning Objectives:

1. Evaluate an organization’s internal capabilities and competences (private, public, and nonprofit organizations).
2. Describe what is meant by the core competencies of a business.
3. Explain what RBV is used for and how to calculate it.
4. Evaluate a company’s strengths and weaknesses, using a SWOT.
5. Explain what value chain analysis is used for and how to perform one.

Introduction

This week, we’ll be looking at a company’s internal resources to see how well its current strategy is working. When deciding whether a strategy is working, we look at whether the company is recording gains in financial strength and profitability, and whether the company’s competitive strength and market standing are improving. Indicators of how well a company’s strategy is working include

• Trends in the company’s sales and earnings growth and stock price
• The company’s overall financial strength
• The company’s customer retention rate and the rate at which new customers are acquired
• Changes in the company’s image and reputation with customers
• Improvement in internal processes

Resource and Capability Analysis

The company’s business model and strategy must match its resources and capabilities. Therefore, any evaluation of the company’s internal factors must include resource and capability analysis. Such an analysis involves first identifying the available resources and capabilities (its core competencies) and then deciding whether they support a competitive advantage over rival firms (“Developing strategy through internal analysis,” 2010). A resource is “An economic or productive factor required to accomplish an activity, or as means to undertake an enterprise and achieve desired outcome” (“Resource,” 2016). A capability is the capacity of a firm to competently perform some internal activity. “A firm's resources and capabilities include all of the financial, physical, human, and organizational assets used by a firm to develop, manufacture, and deliver products or services to its customers” (Barney, 1995, p. 50). 

Tangible resources are assets that can be seen and quantified. Production equipment, manufacturing plants, and formal reporting structures are examples of tangible resources. Intangible resources typically include assets that are rooted deeply in the firm’s history and have accumulated over time. Because they are embedded in unique patterns of routines, intangible resources are relatively difficult for competitors to analyze and imitate. Knowledge, trust between managers and employees, ideas, the capacity for innovation, managerial capabilities, organizational routines (the unique ways people work together), scientific capabilities, and the firm’s reputation for its goods or services and how it interacts with people (such as employees, customers, and suppliers) are all examples of intangible resources. (“Developing strategy through internal analysis,” 2010)

Resource-Based View

The resource-based view (RBV) is a model that sees resources as key to superior firm performance. The RBV “of strategy holds company assets as the primary input for overall strategic planning, emphasizing the way in which competitive advantage can be derived via rare resource combinations” (“The resource-based view,” 2016). If a resource exhibits VRIO (valuable, rare, imitatable, organization) attributes, the resource enables the firm to gain and sustain competitive advantage. Use the VRIO test (Barney, 1995; Jurevicius, 2013) by asking these four questions:

1. “Do a firm's resources and capabilities add value by enabling it to exploit opportunities and/or neutralize threats?” (Barney, 1995, p. 50).
2. “How many competing firms already possess these valuable resources and capabilities?” (Barney, 1995, p. 52), Or, how rare are they?
3. “Do firms without a resource or capability face a cost disadvantage in obtaining it compared to firms that already possess it?” (Barney, 1995, p. 53). Or, how easily is the resource imitated?
4. “Is a firm organized to exploit the full competitive potential of its resources and capabilities?” (Barney, 1995, p. 56).