Essay Internal Analysis 1 Learn

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Internal analysis 1
The basis of competitive performance
The potential of a firm’s resources and capabilities

1

Limitations of the environmentled approach
Leads to predictable strategies
 Positioning advantage often transient


◦ Competitive environment changes rapidly
◦ Internal capabilities adapt slowly


Advantage based on internal characteristics often more robust
◦ Some organisations perform well in ‘unattractive’ industries 2

Building Blocks of Competitive
Advantage
Competitive advantage has to be based on superior capabilities in one or more of these four ‘building blocks’:

3

The four building blocks


Care is required over definitions:



Efficiency
◦ Units of output per unit of input



Quality
◦ Greater customer-perceived value
◦ Features; reliability



Innovation
◦ Advances in product, process or strategy
◦ Rate of change of the other ‘blocks’?



Responsiveness to customers
◦ Identifying and satisfying needs of customers
◦ Customisation; response time
- To what degree might some be achieved at the expense of others?
4

Texas Instruments: too efficient? 

User of the experience curve concept
◦ Unit costs declined 73% with every doubling of accumulated output
◦ Slashed the price of new products to stimulate demand and accumulate output
◦ 1960s, 70s and to 1982 rapid growth



1982 on:
◦ Competitors focused on additional features valued by customers ◦ Kept to its existing technology (in which it had a cost advantage), and did not adopt metal-oxide semiconductors ◦ Lost share to HP, Casio, Intel and Motorola
See “The Icarus Paradox” – Danny Miller
(how exceptional companies bring about their own downfall)
5

Scale Economies
Often, but not always, powerful.
 Limitations


◦ Efficiency gains often depend on implementing process improvements.
◦ Little or no additional gain beyond minimum efficient scale.
◦ Innovation can change the parameters of scale efficiency. ◦ Driving down costs can impact on other sources of advantage
 Reengineering or downsizing rarely worked.

6

Toyota’s lean production system


Drawbacks of traditional mass production
◦ Large inventory of finished goods
◦ Difficulty of fixing defects early
◦ Unable to accommodate diversity



Some elements of Toyota’s approach
◦ Reduced set-up times (1 day to 3 minutes to change dies on stamping equipment)
◦ Shorter production runs led to reduced inventories
◦ Defects were able to be traced more quickly to source 7

Return on Capital Employed for U.S.
Department Stores, 1989-1998

Source: Data from Value Line Investment Survey

8

Resource-Based View of the firm
(RBV) and VRIO analysis


An economic perspective stating that:
◦ Firms have unique resource endowments that are not easily traded
◦ These can confer sustained competitive advantage if they are:
 Valuable
 Able to generate or improve market returns by exploiting opportunities or neutralising threats
 Value is relative to other firms and relative to costs)

 Rare (few other firms have it or a close equivalent)
 Hard to Imitate (or substitute for)(costly/slow/risky)
 The firm can Organise to exploit them

Barney, J. (1991), Firm resources and sustained competitive advantag
Journal of Management 17:9-120.
9

A taxonomy of firm resources Everything listed can be considered ‘resources’ in the RBV
Source: Hill, Jones, Galvin and Haidar, Strategic
Management

10

Assessing resources with
VRIO
Value

Rarity

Imitability

Organised to exploit?

Competitive implications Resource
1

Yes

No

No

Yes

Competitive parity Resource
2

Yes

Yes

No

Yes

Temporary competitive advantage

Resource
3

Yes

Yes

Yes

Yes

Sustained competitive advantage

Resource
4

No

Yes

No

Yes

Competitive disadvantage Resource
5

Yes

Yes

Yes

No

Competitive parity 11

Resources satisfying RBV conditions 

Often they tend to be:
◦ Intangible
 Technical or marketing know-how
 Collective managerial capability

◦ Combinations, not individual resources
◦ Linked to company history
◦
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