...Evaluating Firm Strengths and Weaknesses What Does Internal Analysis Tell Us? Internal analysis provides a comparative look at a firm’s capabilities • what are the firm’s strengths? • what are the firm’s weaknesses? • how do these strengths & weaknesses compare to competitors? Why Does Internal Analysis Matter? Internal analysis helps a firm: • determine if its resources and capabilities are likely sources of competitive advantage • establish strategies that will exploit any sources of competitive advantage Traditional research on firm strengths and weaknesses • Theories of distinctive competence – General managers as distinctive competencies – Institutional leadership as a distinctive competence • Ricardian economics • Penrose’s theory of firm growth Research on the skills of general managers, institutional leaders, economic rents and firm growth have been brought together to develop a rigorous model to analyze a firm’s strengths and weaknesses: the resource-based view of the firm The Theory Behind Internal Analysis The Resource-Based View • developed to answer the question: Why do some firms achieve better economic performance than others? • used to help firms achieve competitive advantage and superior economic performance • assumes that a firm’s resources and capabilities are the primary drivers of competitive advantage and economic performance The Resource-Based View Resources and Capabilities Resources: • tangible and intangible assets of a firm » tangible:...
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...------------------------------------------------- VRIO From Wikipedia, the free encyclopedia The VRIO framework, in a wider scope, is part of a much larger strategic scheme of a firm. The basic strategic process that any firm goes through begins with a vision statement, and continues on through objectives, internal & external analysis, strategic choices (both business-level and corporate-level), and strategic implementation. The firm will hope that this process results in a competitive advantage in the marketplace they operate in. VRIO falls into the internal analysis step of these procedures, but is used as a framework in evaluating just about all resources and capabilities of a firm, regardless of what phase of the strategic model it falls under. VRIO is an acronym for the four question framework you ask about a resource or capability to determine its competitive potential: the question of Value, the question of Rarity, the question of Imitability (Ease/Difficulty to Imitate), and the question of Organization (ability to exploit the resource or capability). * The Question of Value: "Is the firm able to exploit an opportunity or neutralize an external threat with the resource/capability?" * The Question of Rarity: "Is control of the resource/capability in the hands of a relative few?" * The Question of Imitability: "Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain, develop, or duplicate the resource/capability...
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...computer. As a resource it is more powerful than the original computer on the Space Shuttle, however, I could not land the Space Shuttle with it. So in this case I have a superior resource but an inferior capability. Resources and capabilities can take many different forms. Literally anything an organization possesses can be considered a resource. Examples include financial resources, plants, equipment, technology, reputation, brands, and organizational expertise. In short there is no potential constraint on what can be considered a firm's resources or capabilities. VRIO Analysis Given that almost anything a firm possesses can be considered a resource or capability how should you attempt to narrow down the ones that explain why firm performance differs? In order to lead to a sustainable competitive advantage a resource or capability should be Valuable, Rare, Inimitable (including non-substitutable), and Organized. This VRIO framework is the foundation for internal analysis.1 If you ask a business person why their firm does well while others do poorly, a common answer is likely to be "our people." But this is really not an answer, it may be the start of an answer, but...
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...Strategy Exam Framework Executive Summary (5%) I would recommend that (the company)… The company faces (the main issue), which has caused (major symptoms)… However, the following constraints must be addressed… - Timing - - In addressing this issue, the following alternatives were considered: - - - The alternatives were evaluated based on the following set of decision criteria: - - - The first alternative was selected because it satisfies (decision criteria). The second alternative was not chosen because it does not satisfy (decision criteria). Similarly, the third alternative was not preferred because it does not address (decision criteria). To implement the recommendations, the company should first (action plan). In the short term… In the long term… Issue Identification (10%) * Quantitative calculations Rule of 7272/# of years=Time it takes to double growth Rule of 114Number of years to triple growth Rule of 144Number of years to quadruple growth CAGR calculations CAGR=(1+Percentage growth)^n years Market share now versus market share in the future? (Current sales/Current market size) (Projected sales/Projected organic market size growth) Quantitative calculations Rule of 7272/# of years=Time it takes to double growth Rule of 114Number of years to triple growth Rule of 144Number of years to quadruple growth CAGR calculations CAGR=(1+Percentage growth)^n years Market share now versus market share in the future? (Current...
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...computer. As a resource it is more powerful than the original computer on the Space Shuttle, however, I could not land the Space Shuttle with it. So in this case I have a superior resource but an inferior capability. Resources and capabilities can take many different forms. Literally anything an organization possesses can be considered a resource. Examples include financial resources, plants, equipment, technology, reputation, brands, and organizational expertise. In short there is no potential constraint on what can be considered a firm's resources or capabilities. VRIO Analysis Given that almost anything a firm possesses can be considered a resource or capability how should you attempt to narrow down the ones that explain why firm performance differs? In order to lead to a sustainable competitive advantage a resource or capability should be Valuable, Rare, Inimitable (including non-substitutable), and Organized. This VRIO framework is the foundation for internal analysis.1 If you ask a business person why their firm does well while others do poorly, a common answer is likely to be "our people." But this is really not an answer, it may be the start of an answer, but...
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...“VRIO framework is the tool used to analyze firm’s internal resources and capabilities to find out if they can be a source of sustained competitive advantage.” In order to understand the sources of competitive advantage firms are using many tools to analyze their external (Porter’s 5 Forces, PEST analysis) and internal (Value Chain analysis, BCG Matrix) environments. One of such tools that analyze firm’s internal resources is VRIO analysis. The tool was originally developed by Barney, J. B. (1991) in his work ‘Firm Resources and Sustained Competitive Advantage’, where the author identified four attributes that firm’s resources must possess in order to become a source of sustained competitive advantage. According to him, the resources must be Valuable, Rare, imperfectly Imitable and Non-substitutable. His original framework was called VRIN. In 1995, in his later work ‘Looking Inside for Competitive Advantage’ Barney has introduced VRIO framework, which was the improvement of VRIN model. VRIO analysis stands for four questions that ask if a resource is: Valuable? Rare? Costly to Imitate? And is a firm Organized to capture the value of the resources? A resource or capability that meets all four requirements can bring sustained competitive advantage for the company. Valuable The first question of the framework asks if a resource adds value by enabling a firm to exploit opportunities or defend against threats. If the answer is yes, then a resource is considered valuable. Resources...
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...2.0 Environmental analysis Environmental analysis of Dunkin Donut as the study on internal and external environment of the company has carry out. Michael Porter’s Five Forces which include bargaining power of suppliers, bargaining power of customers, rivalry among competitors, threat of substitutes and threat of new entrants. The VRIO analysis is then done to assess the resources and capabilities of a company to determine their competitive potential; VRIO stands for Valuable, Rare, Inimitable, and Organized to Exploit. After that, SWOT analysis also done to make an understanding on the strengths and weakness of the company and to identify the opportunities and threats for the company. 2.1 Michael Porter’s Five Forces 2.1.1 Bargaining Power of Suppliers Main suppliers in Dunkin’ Donuts are going to be food ingredients and more important is coffee. Bargaining power of supplier is low for Dunkin’ Donuts because there are not only one suppliers who supply breakfast items and coffee beans; and the supplier does not have much bargaining power as they typically will be in a contract. In 2012, Dunkin’ Donuts has sign long term supply chain agreement with National DCP (NDCP) which has bring benefits on providing long term agreement with company for the procurement and distribution of products; develop more streamlined system, consolidated cooperative board structure and greater consistency in supply and distribution service levels to all U.S restaurants (Leach, 2012). 2.1.2 Bargaining...
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...focus on providing pizzas of superior quality to its customers has laid down the foundation for its success in the long run. Unlike its competitors who focused on cost reduction, Papa Johns focused on differentiating its pizzas. In fact, they were also able to prove in court that they used fresh and better ingredients in comparison to its competitors. This allowed Papa Johns to be rated number one in terms of customer satisfaction among all pizza chains in USA. Applying the VRIO framework, it can be said that this focus provided value to the company owing to its many benefits. Although a restaurant chain selling pizzas was not rare, selling pizzas of such high quality was not common. At the same time, this is not easily imitable by companies because focusing on higher quality will need a major shift from their current procedures and marketing strategies. Furthermore, Papa Johns has been extremely organized in exploiting this competence to its benefit. Hence, as this competence fulfills all the criteria of the VRIO framework, it is both a core and a distinctive competence. Operating System Papa Johns’ efficient operating system is also considered to be one of the competences as it provides value to the company by reducing restaurant operating costs, improving the food quality and promoting superior customer service. The most significant aspect of its operating system is its commissary system or its domestic QC Center system which benefits from bulk purchasing of food and supplies...
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...Internal Environment Ch6 -Mini Lecture Last session I exposed you to two tools that you will use in the analysis phase of the strategic management process. More specifically, tools which helped you analyze the external environment. Now I want to introduce you to three (really two and a half) tools that help you analyze the internal environment. SWOT Analysis Chapter 6 of your text describes how to conduct a SWOT analysis. In short the S’s and O’s are good, the W’s and T’s are not. The S’s and W’s are internal and the O’s and T’s are external. Last module we gave you two tools to use when you look at the T’s (PESTEL and P5F). Remember, T’s are about the environment so we know that real well. I am not going to spend any time on the O’s, that will be for a later discussion on entrepreneurship but let’s now turn our attention to the internal stuff – the S’s and W’s. What we most want to focus on today is the S’s - the strengths. So how do we know what our strengths really are, where do we look for them within our organization and what criteria do we use to determine whether or not it truly is strength. Value Chain Analysis Michael Porter didn’t only focus on the external environment but he also gives us a tool for the internal environment – The value chain. He proposes that there are nine core activities in which organizations engage which have the potential of providing the organization with a sustainable competitive advantage over its rivals. Looking at exhibit...
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...of Tata Group Introduction In the following case we will briefly analyze and evaluate the business model of Tata Group, an Indian giant that is moving into a global powerhouse. We will firstly use the SWOT analysis tool in order to understand the internal and external environment. Then we will strategically position the group with the help of the Porters Generic Strategy which will be followed by an overview of the VRIO model and conclude with looking into the croups portfolio with the Boston Consulting Group (BCG). According to Johnson et all described in their book Exploring Corporate Strategy, ”A business model describes the structure of product, service and information flows and the roles of the participating parties” For example a it is how the description of raw material is being converted to a final product and transferred to the final consumer. SWOT Analysis SWOT analysis is a tool that helps us develop strategic development by creating strategic options and evaluate future planning. This is achieved by identifying and analyzing the most important issues in a company’s environment as well as the strategic capability of an organization. Strengths: * Innovation is one step that Tata has advantage because, the lot of companies the group has helps each other and makes it easier to develop. * Resources are easier to being accessed due to the fact that Tata has a wide range of companies in their portfolio that generate money. * Capabilities are gathered...
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...Case Study 1-2 Wal-Mart Stores, Inc., in 2010 In 1979, Wal-Mart store was an unknown retailer compared to Kmart, the industry leader. “In less than 25 years, Wal-Mart had risen to become the largest corporation in sales,” (Barney & Hesterly, 2012, PC 1-13). Wal-Mart had many challenges to face in the discount trade. This case displays Wal-Mart’s competitive advantages, how they developed them, if they are sustainable and how they have battled with their competitors. Furthermore, through the VRIO Framework and Porter’s Five Forces Model, it helped analyze how Wal-Mart has strived passed its competitors and what keeps it the market’s frontrunner. Competitive Advantages Wal-Mart has a competitive advantage over other discount stores. Competitive advantage is described as, “When it is able to create more economic value than rival firms,” (Barney & Hesterly, 2012, p 10). The most critical competitive advantages over their competitors would be pricing. “Large discount retailers such as Wal-Mart derived considerable purchasing clout with suppliers because of their immense size,” (Barney & Hesterly, 2012, PC 1-7). Due to the fact that Wal-Mart has so many stores, they can negotiate price. Competitors were not able to get their products pricing down as low as Wal-Mart’s, which in return allowed them to offer their customers lower prices. “Economic value is simply the difference between the perceived benefits gained by a customers that purchases a firm’s products...
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...Wal-Mart Case Study September 16, 2014 Sam Walton started Wal-Mart in 1962. When Wal-Mart was first introduced, it was believed to be the least likely to succeed in the discount retailing business. The central focus of Wal-Mart was on price. By 1970, Wal-Mart had expanded to 30 towns, all in small towns. In order to expand Wal-Mart beyond its small region, Wal-Mart decided to go public. By the 1990s, 100 shares increased in value from $1,650 to $3,000,000. At this time, Wal-Mart had also spread throughout the United States in both large cities and small towns. Wal-Mart had many different opportunities and threats facing them including, but not limited to, the general environment, five-forces, and their industry structure. Using the VRIO framework, one can assess Wal-Mart’s resources and capabilities and conclude whether or not they have sustainable competitive advantages. The overall general environment of Wal-Mart posed opportunities as well as threats. Technology posed disadvantageous to Wal-Mart and other companies in the discount retail industry. “Internet shopping was appealing because of the convenience and selection available, but perhaps the most attractive aspect was the competitive pricing” (Hesterly, p. 1-13). Less people were coming in to look around the stores, and many items could be ordered at the comfort of the consumers’ home with the click of a finger. The demographics posed an opportunity for the discount retail industry and Wal-Mart. Demographics shifted...
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...Strategy and Innova.on – Assignment 1 FPC2050 Lecturer: Lesley Teasdale Email: lteasdale@cityplym.ac.uk Faculty of Higher Educa@on City College Plymouth in conjunc@on with the University of Plymouth Assignment 1 Introduc.on • Introduce H&M and explain what type of business it is o In which market does it operate? o Describe who their typical customers are • History: o Name the founder o When did the business begin (year), and where? • In which countries/con@nents do H&M operate? • What is the annual turnover for H&M? • Using Porter’s ideas, explain which generic strategy H&M is following – explain your ideas using suppor@ng evidence Faculty of Higher Educa@on City College Plymouth in conjunc@on with the University of Plymouth 10 marks 2 Assignment 1 • What are...
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...resources - Physical & human cost, availability - strength / weakness ORGANIZATIONAL APPRAISAL Organization behaviour Identity & character of an organization leadership, Mgt. Philosophy, values, culture, Qly of work environment, Organization climate, organization politics etc. Resource Behaviour Distinctive competence - Any advantage a company has over its competitor - it can do something which they cannot or can do better - opportunity for an organization to capitalize - low cost, Superior Quality, R&D skills etc. METHODS & TECHNIQUES USED FOR ORGANIZATIONAL APPRAISAL Comprehensive, long term Financial Analysis - Ratio Analysis, EVA, ABC Key factor rating - Rating of different factors through different questions Value chain analysis VRIO framework METHODS & TECHNIQUES USED FOR ORGANIZATIONAL APPRAISAL « BCG, GE Matrix , PIMS, McKinsey 7S Balanced Scorecard Competitive Advantage Profile Strategic Advantage profile Internal Factor Analysis Summary SWOT ANALYSIS Identify & classify firm¶s resources-S&W Combine firm¶s strength into specific capabilities ± Corporate capability- may be distinctive competence Strategy that best exploits the firms resources Identify resource gaps & Invest in upgrading ORGANIZATIONAL APPRAISAL Organizational Capability Profile (OCP) - Weakness(-5), Normal(0), Strength(5) Financial Capability Profile (a) Sources of funds (b) Usage...
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...Introduction Genzyme is a biotechnology company with a leading role in the world’s treatment for Orphan and neglected diseases. At the moment its Senior VP, Mr. Geragthy faces a time for decisions. The analysis momentum is over and he must propose the best direction for the company. I will go deeply inside the company and analyse the inside and outside scenario to be able to run the VRIO model and give my preference to Mr. Geragthy. 2. Genzyme’s history All started with the supply of enzymes, fine chemicals and reagents to research and pharmaceutical companies. Its founder, Mr. Henry Blair since the beginning had a vision to become a world leader and always focused by identifying patient’s needs, targeting a focused technology capability, and developing a set of values that clearly defined its role as a corporation society. Since the beginning the strategy was on orphaned diseases and it reflected in its portfolio of drugs and achieving the leadership with revenues of almost $4 billion in 2007. In 1983 Mr. Blair felt the need for help and brought on board Mr. Henri Termeer who had a very important role on the company’s development and together they have taken the company public and launched the orphan drug application for the enzyme that turned to be a turn around point for Genzyme. Since the beginning Mr. Termeer saw the importance of R & D to build a diversified pipeline of products. 3. The Corporate Social Responsibility importance Genzyme decided to take a...
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