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Internal Organization Analysis
Junichi Yamanoi
5/31/11
Chuo University
Special Lecture (Strategy, Policy, and
Planning)
Why do we analyze
internal organizations?
• According to the five forces model, five forces surrounding an
industry determine industry attractiveness.
• Check Walmart’s performance and compare it with
competitors’ performance.
• General merchandize industry:
-Competitive rivalry: High because firms sell similar products and
compete based on price.
-Buyers’ bargaining power: High because buyers can easily switch to
other stores.
Even in the same industry, profitability varies among firms.
Why?Resources and capabilities.
Walmart: Supply chain management, distribution channels,
market power, etc….
Resource-Based Model
• The likelihood of achieving competitive advantage increases
when it is based on resources, capabilities, and core
competences.
• Resources and capabilities are heterogeneous not homogenous
across firms.
• By analyzing resources and capabilities of a firm, the
firm can identify what it can do.
• Not all resources or capabilities provide sustainable
competitive advantage for firms.
Four criteria for sustainable competitive advantage:
Valuable, rare, inimitable (costly-to-imitate), and nonsubstitutable.
What Are Resources?
• Inputs into a firm’s production process.
• Resources are the source of a firm’s capabilities.
• Tangible resources: Assets that can be observed
and quantified.
• Intangible resources: Assets that are rooted
deeply in the firm’s history, accumulate over
time, and are relatively difficult for competitors
to analyze and imitate.
Tangible Resources
• Financial Resources:
-The firm’s borrowing capacity
-The firm’s ability to generate internal funds
• Organizational Resources
-The firm’s formal reporting structure and its formal planning,
controlling, and coordinating systems
• Physical Resources
-Sophistication and location of a firm’s plant and equipment
-Access to raw materials
• Technological Resources
-Stock of technology, such as patents, trademarks, copyrights, and
trade secrets
Intangible Resources
• Human Resources
-Knowledge
-Trust
-Managerial capabilities
-Organizational routines
• Innovation Resources
-Ideas
-Scientific capabilities
-Capacity to innovate
• Reputational Resources
-Reputation with customers
-Brand name
-Perceptions of product quality, durability, and reliability
-Reputation with suppliers
-For efficient, effective, supportive, and mutually beneficial interactions and
relationships
What Are Capabilities?
• Capabilities represent the capacity to deploy
resources that have been purposely integrated to
achieve a desired end state.
• Capabilities emerge over time through complex
interactions among tangible and intangible
resources.
• Capabilities are often developed in specific
functional areas.
Examples of Capabilities (p.81)
• Distribution
-Effective use of logistics management techniques
• Human resources
-Motivating, empowering, and retaining employees
• Management Information Systems
-Effective and efficient control of inventories through point-of-purchase data
collection methods
• Marketing
-Effective promotion of brand-name products, Effective customer service, Innovative
merchandising
• Management
-Ability to envision the future of clothing, Effective organizational structure
• Manufacturing
-Design and production skills yielding reliable products, Product and design quality,
Miniaturization of components and products
• Research & Development
-Innovative technology
-Development of sophisticated control systems
-Rapid transformation of technology into new products and processes
-Digital technology
Core Competencies
• Core competencies: Capabilities that serve as a
source of competitive advantage for a firm over
its rivals.
• Core competencies distinguish a firm from its
rivals in competition.
• Next Question: What capabilities can be core
competencies?
Valuable, rare, costly-to-imitate, and nonsubstitutable capabilities.
Valuable and
Rare Resources and Capabilities
• Valuable resources and capabilities: Resources and
capabilities that allow the firm to exploit opportunities or
neutralize threats in its external environment.
• Rare resources and capabilities: Resources and capabilities
that are possessed by few competitors.
• If a resource or capability is not valuable, it is a source of
competitive disadvantage.
• If a resource or capability is only valuable (but not rare), it is a
source of competitive parity.
• If a resource or capability is valuable and rare, it is a source of
temporary competitive advantage.
Costly-to-Imitate Resource and
Capabilities
• Costly-to-imitate resources and capabilities: resources and
capabilities that other firms cannot easily imitate.
• Resources and capabilities are inimitable because of…
1. a firm’s unique historical condition,
-A unique and a valuable organizational culture or brand name, etc.
2. ambiguous causality between resources and capabilities and
competitive advantage, and
-Management by charismatic managers, R&D management, etc.
3. social complexity.
-Interpersonal relationships, trust, and friendship among managers, suppliers,
and customers.
• If a resource or capability is inimitable, the competitive
advantage derived from the capability would be sustainable.
Non-substitutable resources and
capabilities
• Non-substitutable resources and capabilities:
resources and capabilities that do not have strategic
equivalents.
• If competitors find a substitute of a firm’s valuable
and rare resource or capability, its competitive
advantage will disappear.
• If a resource or capability is non-substitutable, the
competitive advantage derived from the resource or
capability would be sustainable.
Outcomes from Combinations of the Four Criteria
(p.85)
Competitive
Consequences
Performance
Implications
No
No
No
No
Competitive
Disadvantage
Below Average
Returns
Yes
No
No
Yes/
No
Competitive
Parity
Average Returns
Yes
Yes
No
Yes/
No
Temporary Competitive Advantage
Above Average to
Average Returns
Yes
Yes
Yes
Yes
Sustainable Competitive Advantage
Above Average
Returns
Group work
• Let’s analyze the resources and capabilities of a company
(How about Starbucks?).
1. Please name one resource or capability of the company.
2. Is the resource/capability you chose valuable? Is it rare?
Compare the resources and capabilities with those of its
competitors.
3. Is the resource/capability costly-to-imitate? Is it nonsubstitutable? Why?
4. In total, is the resource/capability a source of competitive
advantage? If so, is it temporary or sustainable?
Value Chain Analysis
• Value chain: A template that firms use…
- to analyze their cost positions, and
-to identify multiple means that might be used to
facilitate implementation of a chosen business-level
strategy.
• To be a source of competitive advantage, a resource
or capability must allow the firm:
▫ To perform an activity in a manner that is superior to
the way competitors perform it, or
▫ To perform a value-creating activity that competitors
cannot perform.
Value Chain Analysis
Support Activities
Firm Infrastructure
Technological Development
Human Resource Management
Service
Marketing
& Sales
Logistics
Outbound
Operations
Logistics
Inbound
Procurement
Primary Activities
Primary and Support Activities
• Primary activities involved with:
-A product’s physical creation
-A product’s sale and distribution to customers
-The product’s service after the sale
• Support activities provide the assistance
necessary for the primary activities to take place.
Primary Activities
• Inbound Logistics
-Activities used to receive, store, and disseminate inputs to a product.
• Operations
-Activities necessary to convert the inputs provided by inbound
logistics into final product form.
• Outbound Logistics
-Activities involved with collecting, storing, and physically
distributing the product to customers.
• Marketing and Sales
-Activities completed to provide the means through which customers
can purchase products and to induce them to do so.
• Service
-Activities designed to enhance or maintain a product’s value.
Support Activities
• Procurement
-Activities completed to purchase the inputs needed to produce
a firm’s products.
• Technological Development
-Activities completed to improve a firm’s product and the
processes used to manufacture it.
• Human Resource Management
-Activities involved with recruiting, hiring, training,
developing, and compensating all personnel.
• Firm Infrastructure
-Activities that support the work of the entire value chain
(general management, planning, finance, accounting, legal,
government relations, etc.)
Summary
• By analyzing a firm’s resources and capabilities,
the firm can identify what it can do (By
analyzing a firm’s external environment, the
firm can identify what it might choose to do).
• Four criteria for sustainable competitive
advantage: Valuable, rare, costly-to-imitate,
and non-substitutable.
Sample Questions
for Writing Assignments
• Please choose a firm and define its industry. Compared
with the firm’s competitors in the same industry, is the
firm’s profitability high or low? Please analyze the firm’s
resources and capabilities and explain why the firm’s
performance is high/low based on the resource-based
model.
• Please choose two highly profitable firms in the same
industry. Please identify and analyze their core
competencies. Do they have similar/different core
competencies? Do you think that their high performance
is sustainable? Why or why not?
Sample Questions
for Writing Assignments
• Please analyze the value chain of a firm that you
choose. What activity of the value chain the most
creates the value? Compared with the firm’s
competitors, is the activity rare, costly to imitate,
and non-substitutable?