Assessing the Internal Environment
of the Firm
Looking Ahead
• Value-Chain Analysis.
• Resource-Based View of the Firm.
• Evaluating Firm Performance: Two
Approaches.
The Important of the Internal Environment
Which activities must a firm effectively manage
and integrate in order to attain competitive
advantages in the marketplace?
Which resources and capabilities must a firm
create and nurture in order to sustain a
competitive advantage?
Value-Chain
Analysis
• Value-chain analysis looks at the
sequential process of value-creating
activities.
• Value is the amount buyers are
willing to pay for what a firm
provides.
• How is value created within the
organization?
• How is value created for other
organizations in the overall supply
chain or distribution channel?
• The value received must exceed the
costs of production.
Value-Chain
Analysis Primary
Activities
• contribute to the direct
physical creation of the
product or service; the
sale and transfer to the
buyer; and service after
the sale.
• Inbound logistics.
• Operations.
• Outbound logistics.
• Marketing and sales.
• Service.
Question 1
• In assessing its primary activities, an airline would examine
A. employee training programs.
B. baggage handling.
C. criteria for lease versus purchase decisions.
D. the effectiveness of its lobbying activities.
Value-Chain
Analysis Support
Activities
• Support activities either add
value by themselves or add
value through important
relationships with both primary
activities and other support
activities.
• Procurement.
• Technology development.
• Human resource
management.
• General administration.
The Value Chain
• Exhibit 3.1 The Value Chain: Primary and Support Activities
• Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael
E. Porter. Copyright © 1985, 1998 by The Free Press.
Primary Activity
• Inbound logistics are primarily associated with receiving, storing and distributing inputs to the product.
• Operations include all activities associated with transforming inputs into the final product form.
• Machining.
• Outbound logistics includes collecting, storing, and distributing the product or service to buyers.
• Marketing and sales activities involve purchases of products and services by end users, and how to get buyers to
make those purchases.
• Service includes all actions associated with providing service to enhance or maintain the value of the product.
• Procurement involves how the firm purchases inputs used in its value chain.
• Technology development is related to a wide range of activities.
• Human resource management consists of activities involved in recruitment, hiring, training and development, and
compensation of all types of personnel.
• General administration
Example: The Value Chain in Service Organizations
• Exhibit 3.4 Some Examples of Value Chains in Service Industries
Resource-Based View of the
Firm
• The resource-based view of the firm (RBV) integrates two
activities.
• An internal analysis of phenomena within a company.
• An external analysis of the industry and its
competitive environment.
• Resources can lead to a competitive advantage.
• If they are valuable, rare, hard to duplicate
• If tangible resources, intangible resources, and
organizational capabilities are combined.
Types of Firm
Resources
Tangible resources are assets that are
relatively easy to identify.
Intangible resources are difficult for
competitors to account for or imitate. They are
embedded in unique routines and practices.
Organizational capabilities are competencies
or skills that a firm employs to transform inputs
into outputs.
Capacity to combine tangible and intangible
resources, using organizational processes to
attain desired ends.
Question 2
• 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.
Firm Resources and Sustainable
Competitive Advantages
• Resources that can provide a firm with the potential for a
sustainable competitive advantage have four attributes.
• Valuable in formulating and implementing strategies to
improve efficiency or effectiveness.
• Rare or uncommon; difficult to exploit.
• Difficult to imitate or copy due to physical uniqueness,
path dependency, causal ambiguity, or social
complexity.
• Difficult to substitute with strategically equivalent
resources or capabilities.
Sources of Inimitability
• Physical uniqueness: these are resources that are
physically unique, therefore impossible to duplicate.
• Path dependency: hard to duplicate because of all that has
happened along the path followed in the development
and/or accumulation of resources.
• Causal ambiguity: impossible to explain what caused a
resource to exist or how to re-create it.
• Social complexity: resources that result from social
engineering such as interpersonal relations, culture.
Criteria for Sustainable Competitive Advantage
Is a resource or
capability
VALUABLE?
Is a
resource or
capability
RARE?
Is a resource
or capability
DIFFICULT TO
IMITATE?
Is a resource or
capability WITHOUT
SUBSTITUTES?
What are the
IMPLICATIONS FOR
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
• Exhibit 3.7 Criteria for Sustainable Competitive Advantage and Strategic
Implications
• Source: Adapted from Barney, J.B. 1991. Firm Resources and Sustained Competitive Advantage. Journal of
Management, 17:99 – 120.
The Balanced
Scorecard
• A meaningful integration of many
issues that come into evaluating
performance
• Four key perspectives:
• How do customers see us?
(customer perspective)
• What must we excel at?
(internal perspective)
• Can we continue to improve
and create value? (innovation
and learning perspective)
• How do we look to
shareholders? (financial
perspective)
Customer Perspective vs. Internal Business
Perspective
Using the balanced scorecard, managers
articulate goals for customer concerns.
Time versus Quality.
Performance and service versus cost.
Then focus on those critical internal operations
that enable them to satisfy customer needs.
Business processes.
• Cycle time, quality, employee skills, productivity.
Decisions.
Coordinated actions.
Key resources and capabilities.
