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CHAPTER INTERNAL ANALYSIS 77 Bộ môn Quản trị chiến lược 9/16/2022 OUTLINE  4.1 Resources, capabilities, and core competencies  4.2 Building blocks of competitive advantages  4.3 Internal factor analysis summary (IFAS) 78 Bộ môn Quản trị chiến lược 9/16/2022 4.1.1 Resources  Resource: The inputs that firms use to create goods and services (Porter, 1985; Fred David, 2011)  Resources are what you have  Capabilities/competences are what you can 4.1.1 Resources  Tangible  Financial, Organizational, Physical, and Technological  Assets that can be seen, touched and quantified  Examples: equipment, facilities, distribution centers, formal reporting structures  Intangible  Human, Innovation and Reputational Resources  Assets rooted deeply in the firm’s history, accumulated over time  Usually, can’t be seen or touched  Examples: knowledge, trusts, organizational routines, capabilities, innovation, brand name, reputation 80 4.1.2 Capabilities Competence/Capability is central to a corporation’s main business operations and allows it to generate new products and services Competences are the skills and abilities by which resources are deployed effectively through an organization’s activities and processes 81 4.1.3 Core competencies Ackermann et al (2007, p 704) stated that “a core competency is one that is crucial to the success of the organization It is core because of its location in the linkages of competencies to aspirations” Core competences are the skills and abilities by which resources are deployed through an organization’s activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain (Gary Hamel and C.K Prahalad, 1990) 82 4.1.3 Core competencies  Essential to the firm’s competitiveness  Rewarded in marketplace  Combination of skills & knowledge, not products or functions  Flexible, long-term platforms  Embedded in the organization’s systems  Distinctive competencies are those the firm performs better than rivals  All core competencies have the potential to become core rigidities Examples of Core Competencies  IKEA Superior in designing modern functional home furnishings at low cost  Beats Electronics Superior marketing: perception of coolness  Facebook Superior algorithms to offer targeted online ads  General Electric Superior expertise in industrial engineering, designing and implementing efficient management processes, and developing and training leaders 84 Bộ môn Quản trị chiến lược 9/16/2022 Resources: human, financial, physical, technological, legal, informational + Tangible and visible assets Inputs to the firm’s processes Capabilities: Industry-specific skills, relationships, organizational knowledge Intangible and invisible assets = Core competence Distinctive and superior skills, technology relationships, knowledge and reputation of the firm Unique, and difficult to copy Perceived customer benefits/value added Integration of resources into value-adding activities Not all capabilities are core competences – only those that add greater value than those of competitors Denotes feedback loop denotes core competence development Figure1 The relationships between resources, capabilities and core competence OUTLINE  4.1 Resources, capabilities, and core competencies  4.2 Building blocks of competitive advantages  4.3 Internal factor analysis summary (IFAS) 86 Bộ môn Quản trị chiến lược 9/16/2022 4.2.1 Definition of competitive advantage  Competitive advantage: special capability that helps businesses achieve the same benefits as the competitors but at a lower cost (cost advantage) or achieve benefits far beyond the products competition (differential advantage) It allows businesses to provide higher value to customers, while generating greater profits for the company itself (Porter, 2016) 4-87 4.2.1 Definition of competitive advantage  Sustainable competitive advantage: According to Coyne Kevin (1986): Sustainable competitive advantage is related to enterprises' efforts to establish and maintain advantages over a long period of time Sustainable competitive advantage is influenced by three factors: size of the target market; greater access to resources and customers and limitations on the powers of the CCPs Often an enterprise can create a sustainable competitive advantage based on characteristics that cannot be easily copied 4-88 4.2.2 Building blocks  Four factors help a company build and sustain a competitive advantage 1) Superior efficiency 2) Superior quality 3) Superior innovation 4) Superior customer responsiveness 4-89 THE BUILDING BLOCKS OF COMPETITIVE ADVANTAGE 4-90 Superior Efficiency  The more efficient a company is, the fewer inputs are required to produce a particular output  The most common measure of efficiency for many companies is employee efficiency  Employee productivity refers to the output produced per employee  Employee productivity helps a company attain a competitive advantage through a lower cost structure 3-91 Superior Quality  A product is said to have superior quality when customers perceive that its attributes provide them with higher utility than the attributes of products sold by rivals  When customers evaluate the quality of a product, they commonly measure two attributes  Quality as excellence: Product design and styling, aesthetic appeal, features, and so on  Quality as reliability: The product consistently performs, its function well, and rarely, if ever, breaks down 3-92 Superior innovation  Innovation refers to the act of creating new products or processes There are two main types of innovation:  Product innovation is the development of products that are new to the world or have superior attribute to existing products (Apple developed the iPod, iPhone, and iPad in the 2000s)  Process innovation is the development of a new process for producing products and delivering them to customers (Toyota’s lean production system helped to boost employee productivity) 3-93 Superior Customer Responsiveness  To achieve superior customer responsiveness, a company must be able to a better job at identifying and satisfying its customers’ needs  A company needs to customize goods and services to the unique demands of individual customers or customer groups  Customer response time is the time it takes for the goods to be delivered or a service to be performed 3-94 Links between Competitive Advantage and Superior Firm Performance 95 Bộ môn Quản trị chiến lược 9/16/2022 4.2.3 Criteria for assessing sustainable competitive advantage (VRINE) Test Competitive implication Performance implication Valuable? Does the resource or capability allow the firm If so, it satisfies the value requirement to meet a market demand or protect the firm Valuable resources are needed just to compete from market uncertainties? in the industry, but value by itself does not convey an advantage Rare? Assuming the resource or capability is valuable, Valuable resources which are also rare convey a A temporary competitive advantage conveys the is it scarce relative to demand? Or, is it widely competitive advantage, but its relative potential to achieve above normal profits, at possessed by most competitors? permanence is not assured least until the competitive advantage is nullified The advantage is likely only temporary by other firms Inimitable and nonsubstitutable? Assuming a valuable and rare resource, how Valuable resources and capabilities which are difficult is it for competitors to either imitate the difficult to imitate or substitute provide the resource or capability or substitute for it with potential for sustained competitive advantage other resources and capabilities that accomplish similar benefits? A sustained competitive advantage conveys the potential to achieve above normal profits for extended periods of time (until competitors eventually find ways to imitate or substitute or the environment changes in ways that nullify the value of the resources) Exploitable? For each step of the preceding steps of the Resources and capabilities that satisfy the other VRINE test, can the firm actually exploit the VRINE requirements but which the firm is resources and capabilities that it owns or unable to exploit actually result in significant controls? opportunity costs (other firms would likely pay large sums to purchase the VRINE resources and capabilities) Alternatively, exploitability unlocks the potential competitive and performance implications of the resource or capability Firms which control unexploited VRINE resources and capabilities generally suffer from lower levels of financial performance and depressed market valuations relative to what they would otherwise enjoy (though not as depressed as firms lacking resources and capabilities which satisfy VRINE) 96 Valuable resources and capabilities convey the potential to achieve “normal profits” (i.e., profits which cover the cost of all inputs including the cost of capital) The VRIO Decision Tree 97 Bộ môn Quản trị chiến lược 9/16/2022 OUTLINE  4.1 Resources, capabilities, and core competencies  4.2 Building blocks of competitive advantages  4.3 Internal factor analysis summary (IFAS) 98 Bộ môn Quản trị chiến lược 9/16/2022 4.4.1 Stages of establishing IFAS  List key internal factors as identified in the internal-audit process Use a total of 10 to 20 internal factors, including both strengths and weaknesses List strengths first and then weaknesses Be as specific as possible, using percentages, ratios, and comparative numbers Recall that Edward Deming said, “In God we trust Everyone else bring data.”  Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm’s industry Regardless of whether a key factor is an internal strength or weakness, factors considered to have the greatest effect on organizational performance should be assigned the highest weights The sum of all weights must equal 1.0  Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4) Note that strengths must receive a or rating and weaknesses must receive a or rating Ratings are thus company-based, whereas the weights in step are industry-based  Multiply each factor’s weight by its rating to determine a weighted score for each variable  Sum the weighted scores for each variable to determine the total weighted score for the organization 99 Bộ môn Quản trị chiến lược 9/16/2022 4.4.2 IFAS framework 100 Bộ môn Quản trị chiến lược 9/16/2022 Do you have any questions? 101 Bộ môn Quản trị chiến lược 9/16/2022 ...  4. 1 Resources, capabilities, and core competencies  4. 2 Building blocks of competitive advantages  4. 3 Internal factor analysis summary (IFAS) 98 Bộ môn Quản trị chiến lược 9/16/2022 4. 4.1... OUTLINE  4. 1 Resources, capabilities, and core competencies  4. 2 Building blocks of competitive advantages  4. 3 Internal factor analysis summary (IFAS) 86 Bộ môn Quản trị chiến lược 9/16/2022 4. 2.1...OUTLINE  4. 1 Resources, capabilities, and core competencies  4. 2 Building blocks of competitive advantages  4. 3 Internal factor analysis summary (IFAS) 78 Bộ môn Quản trị chiến lược 9/16/2022 4. 1.1