Assessing the Internal

Environment of the Firm

Chapter Three

McGraw-Hill/Irwin Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

 Learning Objectives

LO1 The primary and support activities of a firm’s value

chain.
LO2 How value-chain analysis can help managers create
value by investigating relationships among activities
within the firm and between the firm and its customers
and suppliers.
LO3 The resource-based view of the firm and the different
types of tangible and intangible resources, as well as
organizational capabilities. 主动性， utilize resources
LO4 The four criteria that a firm’s resources must possess
to maintain a sustainable advantage.

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 Value-Chain Analysis
Value-chain analysis
a strategic analysis of an organization that
uses value creating activities.
Value is the amount that buyers are willing
to pay for what a firm provides them and is
measured by total revenue

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 Value-Chain Analysis
Primary activities
contribute to the physical creation of the
product or service, its sale and transfer to
the buyer, and its service after the sale.
inbound logistics, operations, outbound
logistics, marketing and sales, and service

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 Value-Chain Analysis
Support activities
activities of the value chain that either add
value by themselves or add value through
important relationships with both primary
activities and other support activities
procurement 采购 , technology development,
human resource management, and general
administration.

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Primary Activity: Inbound Logistics
Associated with receiving, storing and
distributing inputs to the product
Location of distribution facilities
Warehouse layout
and designs

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 Primary Activity: Operations
Associated with transforming inputs into the
final product form
Efficient plant operations
Incorporation of appropriate process
technology
Efficient plant layout and workflow design

3-7
 Primary Activity: Outbound Logistics
Associated with collecting, storing, and
distributing the product or service to buyers
Effective shipping processes to provide
quick delivery and minimize damages
Shipping of goods in large lot sizes to
minimize transportation costs.

3-8
Primary Activity: Marketing and Sales
Associated with purchases of products and
services by end users and the inducements
used to get them to make purchases
Innovative approaches to promotion and
advertising
Proper identification of customer segments
and needs

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 Primary Activity: Service
Associated with providing service to
enhance or maintain the value of the product
Quick response to customer needs and
emergencies
Quality of service
personnel and
ongoing training

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 Support Activity: Procurement
Function of purchasing inputs used in the
firm’s value chain
Procurement of raw material inputs
Development of collaborative “win-win”
relationships with suppliers
Analysis and selection of alternate 交替的
sources of inputs to minimize dependence
on one supplier

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 Support Activity:
Human Resource Management
Activities involved in the recruiting, hiring,
training, development, and compensation of
all types of personnel
Effective recruiting, development, and
retention mechanisms for employees
Quality relations with trade unions
Reward and incentive programs to motivate
all employees

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 Support Activity:
Technology Development
Related to a wide range of activities and
those embodied in processes and
equipment and the product itself
Effective R&D activities for process and
product initiatives
Positive collaborative relationships between
R&D and other departments
Excellent professional qualifications of
personnel

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 Support Activity:
General Administration
Typically supports the entire value chain and
not individual activities
Effective planning systems
Excellent relationships with diverse
stakeholder groups
Effective information technology to integrate
value-creating activities

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 The Value Chain

Exhibit 3.1
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 Resource-Based View of the Firm
Resource-based view of the firm
perspective that firms’ competitive
advantages are due to their endowment of
strategic resources that are valuable, rare,
costly to imitate, and costly to substitute.

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 Types of Resources
Tangible resources
organizational assets that are relatively easy
to identify, including physical assets,
financial resources, organizational
resources, and technological resources.

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 Tangible resources
• Financial
 Firm’s cash account and cash equivalents
 Firm’s capacity to raise equity
 Firm’s borrowing capacity
• Physical
 Modern plant and facilities
 Favorable manufacturing locations
 Sate-of-the-art machinery and equipment
• Technological
 Trade secrets
 Innovative production processes
 Patents, copyrights, trademarks documented
• Organizational
 Effective strategic planning processes
 Excellent evaluation and control systems
relatively easy to imitate
 Types of Resources
Intangible resources organizational
assets that are difficult to identify and
account for and are typically embedded in
unique routines and practices, including
human resources, innovation resources, and
reputation resources.

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 Intangible resources
• Human
 Experience and capabilities of employees
 Trust
 Managerial skills
 Firm-specific practices and procedures
• Innovation and creativity
 Technical and scientific skills
 Innovation capacities
• Reputation
 Brand name
 Reputation with customers for quality and reliability
 Reputation with suppliers for fairness, non-zero-sum
relationships
 Types of Resources
• Organizational
capabilities

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 Organizational capabilities
• Firm competencies or skills the firm employs to
transfer inputs to outputs
• Capacity to combine tangible and intangible
resources, using organizational processes to
attain desired end. E.g.
 Outstanding customer service
 Excellent product development capabilities
 Innovativeness of products and services
 Ability to hire, motivate, and retain human capital
 Identifying
Identifying Organizational
Organizational Capabilities:
Capabilities:
AA Functional
Functional Classification
Classification
FUNCTION CAPABILITY EXEMPLARS
CORPORATE Financial control Exxon Mobil, PepsiCo
FUNCTIONS Management development General Electric, Shell
Strategic innovation Google, Haier
Multidivisional coordination Unilever, Shell
Acquisition management Cisco Systems, Luxottica
International management Shell, Banco Santander

MANAGEMENT Comprehensive, integrated MIS network linked Wal-Mart, Capital One, Dell Computer
INFORMATION to managerial decision making

R&D Research IBM, Merk

Innovative new product development 3M, Apple
Fast-cycle new product development Canon, Inditex (Zara)

OPERATIONS Efficiency in volume manufacturing Briggs & Stratton, YKK

Continuous improvements in operations Toyota, Harley-Davidson
Flexibility and speed of response Four Season Hotels

PRODUCT DESIGN Design capability Nokia, Apple

MARKETING Brand management Procter & Gamble, Altria

Building reputation for quality Johnson & Johnson
Responsiveness to market trends MTV, L’Oreal

SALES AND Effective sales promotion and execution PepsiCo, Pfizer

DISTRIBUTION Efficiency and speed of order processing L. L. bean, Dell Computer
Speed of distribution [Link]
Customer service Singapore Airlines, Caterpillar 23
 QUESTION
Gillette combines several technologies to
attain unparalleled success in the wet
shaving industry. This is an example of
their
A. Tangible resources
B. Intangible resources
C. Organizational capabilities
D. Strong primary activities

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 Firm Resources and Sustainable
Competitive Advantages
• 1. the resource must be valuable in the sense
that it exploits opportunities and/or neutralizes
threats in the firm’s environment.
• 2. it must be rare among the firm’s current and
potential competitors.
• 3. the resource must be difficult for competitors
to imitate.
• 4. the resource must have no strategically
equivalent substitutes.

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 VRIN
• Valuable
 Neutralize threats and exploit opportunities
• Rare
 Not many firms possess
• Inimitable
 Physically unique
 Path dependency (accumulated over time)
 Causal ambiguity (difficult to disentangle what it is or how it
could be re-created)
 Social complexity (trust, interpersonal relationships, culture,
reputation)
• No substitute
 No equivalent strategic resources or capabilities
 Criteria for sustainable competitive
advantage
Is a resource or capability…
Valuable? Rare? Difficult to Few Implications for
imitate? substitutes? competitiveness?

No No No No Competitive disadvantage

Yes No No No Competitive parity

Yes Yes No No Temporary competitive

advantage

Yes Yes Yes Yes Sustainable competitive

advantage
3-28
 Value-chain analysis (1)
Value-chain activity Creating value or not If yes, how?

Primary:

--inbound logistics

--operations

--outbound logistics

--marketing & sales

--service
 Value-chain analysis (2)
Value-chain activity Creating value or not If yes, how?

Support:

--procurement

--technology
development
--human resource
management
--general
administration
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 Data summary

* About 2.1 million vehicles are covered in both floor mat and pedal recalls. Total vehicles
approx: 8.54m

Toyota recalls by place and problem

Accelerator
Hybrid braking, Slipping floor mat TOTAL RECALL
Region/country pedals,
09/02/2010 29/09/2009 PROBLEMS
28/01/2010

Canada 8,450 270,000 400,000 678,450

China 75,552 75,552
Other Europe 44,500 1,530,000 1,574,500
Japan 223,000 223,000
US 146,550 2,210,000 5,350,000 7,706,550
UK 8,500 180,000 188,500
Other 5,000 180,000 185,000
TOTALS 436,000 4,445,552 5,750,000 10,631,552 *

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Walmart

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OREO
3-36