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InternalAnalysis

CompetitiveAdvantage
AfirmhasCompetitiveAdvantageifits profitabilityisgreaterthantheaverage profitabilityofallthefirmsintheindustry Ifitisabletomaintainforlongerperiodthen itiscalledSustainableCompetitiveAdvantage Afirmhastofindoutwhatinternalresources willgiveSustainableCompetitiveAdvantage

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CreatingValue
Byexploitingtheircorecompetenciesfirms createvalue. Valueismeasuredby:
Productperformancecharacteristics Productattributesforwhichcustomersarewillingto pay

Firmscreatevaluebyinnovativelybundlingand leveragingtheirresourcesandcapabilities.
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How profitable a company becomes depends on three basic factors:

CompetitiveAdvantage,Value Creation,andProfitability

1. VALUEorUTILITYthecustomergetsfromowning theproduct 2. PRICEthatacompanychargesforitsproducts 3. COSTSofcreatingthoseproducts Consumersurplus istheexcessutilitya consumercapturesbeyondthepricepaid.

Basic Principle: the more utility that consumers get from a companys products or services, the more pricing options the company has.

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ValueCreationperUnit

ComparingToyota&GeneralMotors

Superior value creation requires that the gap between perceived utility (U) and costs of production (C) be greater than that obtained by competitors.

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SWOTAnalysis
PotentialResource Strengths
Powerfulstrategy Strongfinancial condition Strongbrandname image/reputation Widelyrecognized marketleader Proprietary technology Costadvantages Strongadvertising Productinnovation skills Goodcustomer service Betterproductquality AlliancesorJVs

PotentialResource Weaknesses
Noclearstrategic direction Obsoletefacilities Weakbalancesheet; excessdebt Higheroverallcosts thanrivals Missingsomekey skills/competencies Subparprofits... Internaloperating problems... FallingbehindinR&D Toonarrowproduct line Weakmarketingskills

PotentialCompany Opportunities
Servingadditional customergroups Expandingtonew geographicareas Expandingproduct line Transferringskillsto newproducts Verticalintegration OpeningstotakeMS fromrivals Acquisitionofrivals AlliancesorJVsto expandcoverage Openingstoexploit newtechnologies Openingstoextend brandname/image

PotentialExternal Threats
Entryofpotentnew competitors Lossofsalesto substitutes Slowingmarket growth Adverseshiftsin exchangerates&trade policies Costlynew regulations Vulnerabilityto businesscycle Growingleverageof customersorsuppliers Shiftinbuyerneeds forproduct Demographicchanges

ValueChainAnalysis
ValueChainanalysiswasfirstsuggestedby MichaelPorter(1995)asawayof presentingtheconstructionofvalueas relatedtoendcustomer.

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ValueChain
Thetermvaluechain describesawayoflooking atabusinessasachainofactivitiesthat transforminputsintooutputsthatcustomers value

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ValueChainAnalysis(VCA)
Valuechainanalysis(VCA)attemptsto understandhowabusinesscreatescustomer valuebyexaminingthecontributionsofdifferent activitieswithinthebusinesstothatvalue Italsohelpsustounderstandonhowtoimprove thevalueby Performingtheseactivitiesbetter
or Atalowercostthanthecompetitors

VCAtakesaprocesspointofview

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ValueChainAnalysis
Thevaluechainidentifiestheseparateactivitiesand businessprocessesperformedtodesign,produce, market,deliver,andsupportaproduct/serviceand howwelltheycreatecustomervalue. Consistsoftwotypesofactivities Primaryactivities :createcustomervalue
Inboundlogistics,Operations;Outboardlogistics;Sales &Marketing;&CustomerService

Supportactivities:Supportprimaryactivities
Procurement;Technologicaldevelopment;HRM;Firm infrastructure

SUPPORT

FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT

MARGIN

ACTIVITIES

TECHNOLOGY DEVELOPMENT PROCUREMENT

INBOUND LOGISTICS

OPERATIONS

OUTBOUND LOGISTICS

MARKET-ING & SALES

SERVICE
MARGIN

PRIMARY ACTIVITIES

THE GENERIC VALUE CHAIN

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PrimaryActivities
Inboundlogistics
Activitiesusedtoreceive,store,anddisseminateinputsto aproduct(materialshandling,warehousing,inventory control,etc.)

Operations
Activitiesnecessarytoconverttheinputsprovidedby inboundlogisticsintofinalproductform(machining, packaging,assembly,etc.)

Outboundlogistics
Activitiesinvolvedwithcollecting,storing,andphysically distributingtheproducttocustomers(finishedgoods warehousing,orderprocessing,etc.)

PrimaryActivities(contd)
Marketingandsales
Activitiescompletedtoprovidemeansthrough whichcustomerscanpurchaseproductsandto inducethemtodoso(advertising,promotion, distributionchannels,etc.)

Service
Activitiesdesignedtoenhanceormaintaina productsvalue(repair,training,adjustment, etc.)

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SupportActivities
Procurement
Activitiescompletedtopurchasetheinputsneededtoproduceafirms products

TechnologicalDevelopment
Activitiescompletedtoimproveafirmsproductandtheprocessesused tomanufactureit(processequipment,basicresearch,productdesign,etc)

HumanResourceManagement
Activitiesinvolvedwithrecruiting,hiring,training,developing,and compensatingallpersonnel

Firminfrastructure
Activitiesthatsupporttheworkoftheentirevaluechain(general management,planning,finance,accounting,legal,governmentrelations, etc.)

ConductingaVCA
1. Identifyactivities 2. Allocatecosts usingactivitybasedcosting 3. Analyzetheactivities

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ActivityBasedCostinginVCA
ActivityBasedVCAapproachwouldprovidea moremeaningfulanalysisoftheprocurement functionscostsandconsequent valueadded thanthetraditionalcostaccountingapproach Existingfinancialmanagementandaccounting systemsinmanyfirmsarenotsetuptoeasily provideactivitybasedcostbreakdowns

AnalyzingActivities
Eachactivityshouldbeexaminedrelativeto competitorsabilitiesandratedassuperior, equivalentorinferior Focusonactivitiesthatdifferentiatesthe companyfromothercompetitors Lowercostor uniquevalue Keepinmind theIndustry,Positionoffirmin industryvaluechainandobjectiveofthefirm Identifytheactivitieswherethefirms competitivestrengthishighaswellaslow

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AssessingOrganizationsCompetitive Strength
Whatdoesahighcompetitivestrengthratingrelativeto rivalsmean?
Strongcompetitiveposition&possessionofcompetitive advantages Opportunityforcompanytoimproveitslongtermmarket position

Goodstrategyentails
Lookingforopportunitiestoleveragecompanystrengths into competitiveadvantage Usingcompanystrengthstoattackthecompetitive weaknessesofrivals

WhyDoaCompetitiveStrength Assessment?
Revealsstrengthoffirmscompetitiveposition Showshowfirmstacksupagainstrivals,measure bymeasure pinpointsthecompanyscompetitive strengthsandcompetitiveweaknesses Indicateswhetherfirmisatacompetitiveadvantage /disadvantageagainsteachrival Identifiespossibleoffensiveattacks(pitcompany strengthsagainstrivalsweaknesses) Identifiespossibledefensiveactions(aneedto correctcompetitiveweaknesses)

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