2/27/2025

Strategic Management
WEEK 3

The Strategic Management

Process

External Environment Opportunities, Threats

Analysis Strengths, Weaknesses,
Internal Environment
unique competencies
Customers to be served
Vision/Mission Competencies to be
Formulation developed
Corporate, business and
Strategies
functional strategies
Organization structure,
Implementation
systems, processes, etc.
Adjustment/Evaluation (Cycle to earlier steps)

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Decomposition of value
creation
Bargaining
Advantage  Resource based view (RBV)
 Internal analysis
Value creation
advantage

Common
performance
 Porters five forces model
 I/O perspective

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Industry-wise profitability

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I/O Model: Basic Assumptions

 Emphasis on choice of industries than the decisions made by
managers inside their firm
 Most firms in an industry control similar sets of strategically
relevant resources and thus pursue similar strategies
 Resources used to implement strategies are highly mobile across
firms

Resource Based Model

A firm's resources and capabilities—found in its internal
environment—are more critical to determining the appropriateness
of strategic actions
◦ Resources are inputs into a firm's production process, These resources can
be tangible or intangible.
◦ Capabilities are the capacity for a set of resources to perform—integratively
or in combination—a task or activity.

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Resource Based model-

Assumptions
 Firms within an industry (or group) may be heterogeneous
with respect to the strategic resources they control.
 These resources may not be perfectly mobile across firms,
and thus heterogeneity can be long lasting.

Analyzing the
Internal
Environment

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Tools for Internal Analysis

 Identification of unique resources, capabilities and competencies
 Financial ratio analysis
◦ Profitability ratios
◦ Liquidity ratios
◦ Turnover ratios

 Value chain analysis

 Using the Balanced Scorecard

Some definitions
Resources
◦ Collection of tangible and intangible assets
Capability
◦ Ability to deploy resources to achieve the desired results (bundling of resources)
◦ Skills the firm needs to exploit full potential of its resources
Competence
◦ A firm’s ability to perform an activity consistently well and at an acceptable cost
Distinctive Competence
◦ Competence level in an activity better than its rivals
Core Competence
◦ A distinctive competence that is central (not peripheral or incidental) to a
company’s competitiveness and profitability

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Resource Based View

Tangible
resources Capabilities to
+ x deploy the = Competencies
Intangible resources
resources

Competitive
advantage

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Resource or Capability
 Machinery?
 Patent?
 Product design skill?
 Mineral deposits?
 Prime retails locations?
 Distribution skills?

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Tangible Resources
 Cash and borrowing capacity
 A manufacturing firm’s plant and equipment
 A telecom company’s network of towers, cables and satellites

 A direct marketing company’s mailing list

 An entertainment channel’s library of content
 A natural resource company’s land/offshore exploration leases

 A restaurant’s secret recipe

 State-of-the-art R&D facilities of a pharmaceutical company

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Intangible Resources
 A well known or trusted brand name

 A firm’s good reputation with various stakeholders

 A culture of innovation – 3M / Dupont

 A multi-national company’s accumulated experience of dealing with various national
governments – Unilever / Infosys

 A high level of community support – Tata

 Employee knowledge and expertise

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Capabilities
Functional Area Capabilities Example
Distribution Effective use of logistics and distribution techniques Walmart, ITC
Administration Management of multi-business, multinational Unilver, ABB, GE
organization
Manufacturing Miniaturizing of components and products Sony
Production of technologically sophisticated Honda
automobile engines
Marketing Gillette, P&G,
Effective promotion of brand name products
Coke
R&D Speed of new product development Cannon, Sony, Dr
Reverse engineering of production process Reddy’s
Deep knowledge of Silver-halide materials Kodak

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What Resources and Capabilities give

a firm Sustainable Competitive
Advantage?

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VRIN Conditions for Strategic

Capabilities
1. Valuable
• Helps a firm create a strong demand for its products or services
• It could be any machine, equipment, skill (Google’s search engine)
2. Rare
• Are not possessed by many others
• “Oreo” the brand, intellectual capital for service firms
• Extent of rarity depends upon
◦ Ease of Transferability
◦ Should not become a core-rigidity

3. Imperfectly imitable
• Hard to replicate
• A fantastic real estate location, patent-protected technology, an unusually
talented and motivated labor force etc.

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Non-Imitability
Isolating mechanisms – means through which firms limit
imitation
• Physical uniqueness
◦ Characteristics difficult to replicate – great location for a retailer, mineral spring for a
water bottler
• Path dependency
◦ Circumstances that lead to development of the capability Eg. Brand J&J in baby care
products
• Causal ambiguity
◦ Eg.3M’s innovation capabilities – Is it because of culture, hiring, luck, capital
budgeting, organization structure
• Scale deterrence
◦ Preemptive capacity building that deters competitors

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VRIN Conditions for Strategic

Capabilities
4. Non-substitutable
◦ No strategic equivalent
◦ British Airways had a superior computerized reservation system and more
advanced schedule management capabilities but these could not substitute
the capabilities of faster turnaround of EasyJet

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Outcome of Combinations
Non- Competitive Performance
Resource/ Costly to
Valuable? Rare? substitu Consequences consequences
Capability imitate?
table?
Competitive Below average
1 No No No No
disadvantage returns
2 Yes No No Yes/No Competitive parity Average returns
Temporary
Above average
3 Yes Yes No Yes/No competitive
returns
advantage
Sustainable
Above average
4 Yes Yes Yes Yes competitive
returns
advantage

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Criticism - Resource Based

View
◦ RBV breaks down in High Velocity Markets:
◦ Duration of competitive advantage unpredictable

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Dynamic capabilities
◦ Winners in the global marketplace
◦ Demonstrate timely responsiveness
◦ Rapid and flexible product innovation
◦ Management capability to effectively coordinate and redeploy internal and external
competences
◦ These advantages are referred to as Dynamic Capabilities
◦ ‘Dynamic’ refers to the responsiveness of the company to react to external
changes
◦ ‘Capabilities’ refers to the company resources or skills which they need to
react towards the changing environment.

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Dynamic capabilities
◦ A dynamic capability is the ability to modify, deepen, or augment the
company’s existing resources and capabilities.
◦ The capacity to improve existing resources and capabilities
incrementally.
◦ Toyota aggressively upgrades the company’s capabilities in fuel-efficient hybrid
engine technology and constantly fine-tunes its famed Toyota production system.

 The capacity to add new resources and capabilities to the company’s

competitive asset portfolio
 Ex – CISCO’s unique capabilities at acquiring and integrating other
firms.

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Resources/Capabilities for
“Sustainable Competitive
Advantage”?
 Talent
• Ability to buy (acquire new talent), build (develop existing talent), borrow
(access thought leaders through alliances or partnerships), bounce (remove
poor performers), and bind (keep the best talent)
 Speed
• Good at making important changes rapidly
• Possess “Dynamic Capabilities”
 Shared Mind-Set and Coherent Brand Identity
• Employees and customers have positive and consistent images of and
experiences with the organization
 Accountability
• Good at obtaining high performance from employees

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Resources/Capabilities for
“Sustainable Competitive
Advantage”?
 Collaboration
• Good at working across boundaries to ensure both efficiency and leverage.

◦ Learning
• Good at generating and generalizing ideas with impact
• benchmarking, experimentation, competence acquisition and continuous
improvement

◦ Leadership
• Good at embedding leaders throughout the organization

◦ Customer Connectivity
• Good at building enduring relationships of trust with targeted customers

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Resources/Capabilities for
“Sustainable Competitive
Advantage”?
 Strategic Unity
• Good at articulating and sharing a strategic point of view

 Innovation
• Good at doing something new in both content and process

 Efficiency
• Good at managing costs

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Creating a Competitive
Advantage
 Analyse activities undertaken to design, produce, sell deliver, and
service goods to look for –
• Avenues to reduce costs
• Avenues to increase willingness to pay
◦ Can be done by –
• Catalog the firm’s activities
• Examine costs associated with each activity
• Analyse how each activity generates customer’s willingness to pay
• Look for changes in the activities that broaden the wedge between
costs and supplier’s willingness to pay

◦ Value chain analysis

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Value Chain Analysis

Value Chain
◦ Set of activities a firm does for creating a product/service valuable to
the customer

Primary activities involved with

◦ A product’s physical creation
◦ A product’s sale and distribution to buyers
◦ The product’s service after the sale

Support Activities
◦ Provide the assistance necessary for the primary activities to take
place

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Value Chain Analysis

◦ A systematic way of analyzing all the activities that a firm does and
how they interact
◦ Firm’s suppliers (upstream), buyers (downstream) have their own value
chains.
◦ Gaining competitive advantage requires the understanding of both suppliers and
buyers value chain
◦ Similar firms in an industry may have different value chains
◦ The value chain activities that a firm performs better than its rivals is a source of
competitive advantage
◦ Ex: Different airlines may have different routines for boarding gate activities, crew
policies and aircraft operations.

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Value Chain Analysis

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A Typical Value Chain

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Value chain analysis – primary

activities
Primary activities are directly concerned with the creation or
delivery of a product or service.
◦ inbound logistics,
◦ operations,
◦ outbound logistics,
◦ marketing and sales,
◦ and service.
Each of these primary activities is linked to support activities which
help to improve their effectiveness or efficiency.

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Value chain analysis – primary

activities
Inbound Logistics
◦ Here goods are received from a company's suppliers.
◦ They are stored until they are needed on the production/assembly line.
◦ Goods are moved around the organization.

Operations
◦ This is where goods are manufactured or assembled.
◦ Individual operations could include room service in an hotel, packing of books/videos/games by an online
retailer, or the final tune for a new car's engine.

Outbound Logistics
◦ The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the
final consumer.

Marketing and Sales

◦ In true customer orientated fashion, at this stage the organization prepares the offering to meet the needs of
targeted customers. This area focuses strongly upon marketing communications and the promotions mix.

Service
◦ This includes all areas of service such as installation, after-sales service, complaints handling, training and so
on.

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Value chain analysis –

SECONDARY activities
Procurement
◦ This function is responsible for all purchasing of goods, services and materials. The aim is to
secure the lowest possible price for purchases of the highest possible quality.

Technology Development
◦ Technology development takes many forms – from basic research and product design to media
research, process equipment design, and servicing procedures.

Human Resource Management (HRM)

◦ Managing recruitment and selection, training and development, and rewards and
remuneration.

Firm Infrastructure
◦ This activity includes and is driven by corporate or strategic planning. It includes the
Management Information System (MIS), and other mechanisms for planning and control such
as the accounting, legal, government affairs department etc.

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Value Chain Analysis

◦ A useful tool for -
◦ Activity analysis and Benchmarking
◦ Managing the interlinkages between different activities of the firm
◦ Value chain reconfiguration
◦ Positioning within industry value chain

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Benchmarking
◦ Study the practices and procedures used by other companies
◦ Understand the best practices in performing an activity
◦ learn what is the “best” way to do a particular activity
◦ “best-in-industry” or “best-in-world” or ??
◦ Assess if company’s costs/quality of performing particular value chain
activities are in line with competitors
◦ Learn how other firms achieve lower costs/quality
◦ Implement changes

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Evaluating Cost Structure –

Bakery Example
80

8 1
70

4
60 26

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 Urban deliveries
(traffic)
Cost

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15  More stops
30  Frequent deliveries
(freshness)
20 6

12
10

0
Ingredients Operations Manufacturing Outbound logistics Advertising Promotions Profit
Activity

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Benchmarking – Cost
Structure

A narrow product mix

More preservatives
Limited promotions
Buy raw material in bulk
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What does the buyer want? –

Value proposition diagram
4.5

3.5

2.5
Scores

1.5

0.5

0
Low Price Brand Image Freshness Variety Size
Attributes

Betsy Baking Collins Kitchen Ontario Baking Savoury Pastries

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Levi’s “Personal
Pair” Jeans

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Levi’s Personal Pair

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Managing the Interlinkages

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Linkages within a value chain

Value chain activities are linked.
◦ For example – purchasing high quality, pre-cut sheets can simplify manufacturing and reduce scrap
◦ In fast food chains, the timing of promotional campaigns can influence capacity utilization.

Linkages can lead to competitive advantage through coordination and optimization.

Optimization of linkages lead to competitive advantage
◦ For example – a more costly product design, more stringent material specifications, or greater in-
process specifications may reduce service costs.

Coordination of linkages too can lead to competitive advantage

◦ For example – on time delivery may require coordination between operations, outbound logistics
and service (ex: installation).
◦ Better coordination leads to reduced inventory – reduced costs of operation.

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Linkages within a value chain

Most obvious linkages are between support and primary activities
◦ Product design usually effects manufacturing costs of a product
◦ Procurement practices often affect the quality of purchased inputs, and hence
production costs, inspection costs, and product quality.
◦ An interactive order entry system may reduce a salespersons time required per buyer
because salespersons can place orders faster and are freed from need to follow-up on
enquiries.

Most subtle linkages are between primary activities

◦ Enhanced inspection of incoming parts may reduce quality assurance costs later in
production process.
◦ More thorough inspection of finished goods often improves the reliability of products
in the field, reducing service costs.

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Managing the Interlinkages

◦ Linkages exist between a firm and its value chain partners (its buyers
and suppliers)
◦ A supplier's engineering staff works with a firm’s technology development and
manufacturing activities
◦ Linkages with value chain partners effect a firm’s cost and
differentiation.
◦ Frequent supplier shipments can reduce a firm’s inventory
◦ Appropriate packaging of supplier's products can lead to lower handling cost
◦ Supplier’s outgoing inspection can eliminate incoming inspection at the firm
◦ Linkages with a supplier is not a zero-sum game – but supplier and the
firm can gain
◦ Supplying bulk chocolate in tanks to a confectionary saves the supplier the cost of
making chocolate bars, their packaging while the firms saves in melting the chocolate
bars and inbound handling.

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Value Chain Reconfiguration -

Positioning within the value chain

Difficult for firms to extract

high value-added from
tangible products or
standardized services
The smile of value creation (source: Mudambi, 2007)

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Value Chain Reconfiguration

Think of value chain activities from the view point of their relevance
Relevance from customer’s point of view
Add or delete or modify activities in your value chain
◦ New activity added
◦ Existing activity totally eliminated
◦ Existing activity done differently
◦ Existing activity outsourced
◦ Existing activity outsourced to customer– Eg. IKEA

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The Value Chain System for an

Entire Industry
Assessing a company’s cost competitiveness involves comparing costs all along the industry’s
value chain
Suppliers’ value chains are relevant because
◦ Costs, quality, and performance of inputs provided by suppliers influence a firm’s own costs and
product performance

Forward channel allies’ value chains are relevant because

◦ Forward channel allies’ costs and margins are part of price paid by ultimate end-user
◦ Activities performed affect end-user satisfaction

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Positioning within industry

value chain

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Industry Choke Point

 Company controlling the Choke Point can influence the distribution of
profits
 Can arise because of patents, network externalities, sophisticated
technology
◦ Microsoft windows – computer
◦ Intel – computer

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Straits of Hormuz

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Suez Canal

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PC Industry Profit Pool

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How to gather
competitor
information?

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Competitor Information
◦ Practices considered both legal and ethical:
◦ Obtaining publicly available information
◦ Attending trade fairs and shows to obtain competitors’ brochures, view their exhibits, and
listen to discussions about their products
◦ Industry experts
◦ Practices considered both unethical and illegal:
◦ Blackmail
◦ Paying salaries to competitor’s employees
◦ Bribing
◦ Stealing drawings, samples, or documents
◦ Grey areas
◦ Talking to suppliers, customers, consultants
◦ Mystery shopping

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Thank You………..

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