Assignment

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( Bus 690: Business Policy and Strategic Management Th: 3:35 – 6:20p.m. BUS 218 1 BUS 690 ) ( Agenda – 2/5 Effective Case Analysis Business-Level Strategy •   General environment analysis •   Industry analysis •   Five-Forces Model •   Video: Michael Porter on the 5 forces •   Discussion G. Desa 2 BUS 690 )

( Housekeeping •   Start thinking about your team. •   Student info forms - by end of this week •   Individual case assignments on iLearn •   Current Event presentation schedule on iLearn G. Desa 3 BUS 690 ) ( BUS 690 Learning Objectives •   Why it’s important to analyze a firm’s internal environment •   What the differences are among resources , capabilities and core competencies –   What are the criteria to determine if a resource or capability is a core competence •   Characteristics of resources and capabilities that protect them from imitation •   What the value chain is and how to use it to analyze a firm’s capabilities G. Desa 4 )

( BUS 690 Where we are… G. 5 Introduction to Strategy Internal Environment Business-Level Strategy External Environment Competitive Positioning Competitive Dynamics (Rivalry) Innovation & Entrepreneurship Corporate-Level Strategy Diversification Mergers & Alliances Acquisitions International Strategy Corporate Governance ) ( BUS 690 The Fundamental Question Why are some firms more successful than others? Industrial Organization Perspective: Profits = f (industry structure) Choose “good” industries Resource-Based View: Profits = f (internal firm structure) Be a “better” firm •   Remember: ~80% of variation in firm profitability is not explained by variance in industry structure G. 6 )

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( 7 ) ( 8 ) ( 9 ) ( 10 ) ( 11 ) ( 12 ) ( BUS 690 Discovering Core Competencies Value Chain Analysis Criteria of Sustainable Advantages G. 8 $Above-average returns$ )

( BUS 690 Sustainable Competitive Advantage G. 7 What the firm Might do Chapter 2 EXTERNAL ENVIRONMENT •   General environment •   Five Forces analysis Chapter 3 INTERNAL ANALYSIS •   Resources, Capabilities, and Core Competencies What the firm Can do ) ( Core Competencies Sources of Competitive Advantage Capabilities •   Teams of Resources Resources •   Tangible •   Intangible )

( BUS 690 Resources: What a firm Has •   Resources –   What a firm has to work with •   Its assets, including its people and the value of its brand name –   Represent inputs into a firm’s production process and contribute to its ability to provide value •   Such as capital equipment, employees’ skills and knowledge, brand names, finances, managerial talent G. Desa 9 ) ( Resources •   Tangible resources –   Financial –   Physical –   Organizational –   Technological •   Intangible resources –   Human –   Innovation –   Reputation G. Desa 10 BUS 690 )

( Capabilities: What a firm Does •   Capabilities –   The firm’s capacity or ability to integrate firm resources to achieve a desired objective –   Become important when they combine resources in unique combinations that create economic value and can lead to competitive advantage G. Desa 11 BUS 690 ) ( BUS 690 Resources, Capabilities & Competition •   Firms compete on resources & capabilities as much as they do on products –   Visible competition – product market competition –   Invisible competition – resource & capability development and deployment G. Desa 12 )

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( •   Search engine •   ~$300 million revenue (2002) -> $3.2 billion (2004) •   Revenue model –   License search engine technology –   “Search sensitive” advertising •   Attracted over 200,000 advertisers last year •   Dimensions of visible competition –   Search speed –   Accuracy –   Amount –   Simple presentation BUS 690 G. Desa 13 ) ( •   Invisible competition –   Resources •   >100,000 custom-built computer servers –   130,000 processors –   128 TB of RAM, 5000 TB of Hard drive space •   Proprietary link analysis software –   pursuing data mining using AI –   Search algorithms protected via patents and trade secret •   Culture –   Capability: process 300 million searches/day –   “ Managing search at our scale is a very serious barrier to entry.” »   Eric E. Schmidt, CEO BUS 690 G. Desa 14 )

( BUS 690 Core Competencies •   What a firm does that is strategically valuable –   “…the essence of what makes an organization unique in its ability to provide value to customers.” •   Criteria for capability to be a core competency –   Valuable, Rare, Costly to Imitate, Nonsubstitutable G. Desa 15 ) ( BUS 690 Criteria for Core Competencies •   Valuable –   Capabilities that either help a firm to exploit opportunities to create value or to neutralize threats in the environment •   Rare –   Capabilities possessed by few, if any, current or potential competitors •   Costly to imitate –   Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity •   Nonsubstitutable –   Capabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships G. Desa 16 )

( Criteria for sustainable advantage YES YES YES YES G. 17 Sustainable Competitive Advantage Above Average Returns BUS 690 ) ( BUS 690 What affects ease of imitation? •   Unique Historical Conditions –   Unusual evolutionary pattern of growth can contribute to the development of competencies in a manner unique to those circumstances (“path dependency”) •   Example: SWA •   Causal Ambiguity –   Inability to understand the causal nature of how a firm integrates resources into a capability that provides competitive advantage •   Social Complexity –   When a firm’s capabilities are the result of complex social phenomena such as the structure and characteristics of interpersonal relationships •   Example: investment banking G. Desa 18 )

( 19 ) ( 20 ) ( BUS 690 Core Competencies: The Dark Side •   Core competencies –   may not continue to provide a source of competitive advantage –   may become Core Rigidities •   former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment •   strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats •   Example: U.S. auto manufacturers in the mid 1970’s G. Desa 19 ) ( BUS 690 )Key Questions in Internal Analysis

•  How to assemble resources and capabilities to create value for the customer?

–  Which of these are distinct from our competitors?

•  Are these assets or activities easily imitated or substituted for?

•  Will environmental change make our core competencies obsolete?

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( 21 ) ( 22 ) ( BUS 690 Value Chain Analysis •   Disaggregate the firm into separate activities •   Identify resources and capabilities associated with each activity •   Identify linkages/relationships across activities –   often the source of advantage due to complexity and causal ambiguity •   Determine what changes in firm activities need to be made to support strategy G. Desa 22 ) ( BUS 690 )Value Chain Analysis

•H  elps to identify which resources and capabilities add value

Secondary Activities

Primary Activities

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