CHAPTER 3 installation, repair, training, parts supply, and

product adjustment.

ASSESSING THE INTERNAL Marketing and Sales

ENVIRONMENT OF THE FIRM -These activities are associated with purchases of
products and services by end users and the
Value-Chain Analysis inducements used to get them to make
-a strategic analysis of an organization that uses purchases.
value-creating activities. -They include advertising, promotion, sales force,

Value-chain analysis views the organization as quoting, channel selection, channel relations,
a sequential process of value-creating activities. and pricing.
The approach is useful for understanding the -Consider product placement.

building blocks of competitive advantage. -This is a marketing strategy that many firms are
-Value is the amount that buyers are willing to increasingly adopting to reach customers who are
pay for what a firm provides them and is not swayed by traditional advertising.
measured by total revenue, a reflection of the
price a firm’s product commands and the Support Activities
-activities of the value chain that either add value by
quantity it can sell. themselves or add value through important relationships with
-A firm is profitable when the value it receives both primary activities and other support activities; including
exceeds the total costs involved in creating its procurement, technology development, human resource
product or service. -Creating value for buyers that management, and general administration.
exceeds the costs of production (i.e., margin) is a
Procurement
key concept used in analyzing a firm’s
-refers to the function of purchasing inputs used
competitive position.
in the firm’s value chain, not to the purchased
inputs themselves. 14 Purchased inputs include
Primary Activities
-sequential activities of the value chain that refer to the raw materials, supplies, and other consumable
physical creation of the product or service, its sale and items as well as assets such as machinery,
transfer to the buyer, and its service after sale, including laboratory equipment, office equipment, and
inbound logistics, operations, outbound logistics, marketing buildings.
and sales, and service.
Technology Development
Inbound Logistics
-activities associated with the development of
-primarily associated with receiving, storing, and
new knowledge that is applied to the firm’s
distributing inputs to the product. It includes
operations.
material handling, warehousing, inventory
- Every value activity embodies technology. 18
control, vehicle scheduling, and returns to
The array of technologies employed in most firms
suppliers.
is very broad, ranging from technologies used to
-Just-in-time (JIT) inventory systems, for example,
prepare documents and transport goods to those
were designed to achieve efficient inbound
embodied in processes and equipment or the
logistics.
product itself.
- Technology development related to the product
Operations
and its features supports the entire value chain,
-include all activities associated with transforming
while other technology development is associated
inputs into the final product form, such as
with particular primary or support activities.
machining, packaging, assembly, testing,
printing, and facility operations.
Human Resource Management
-Creating environmentally friendly manufacturing
-consists of activities involved in the recruiting,
is one way to use operations to achieve
hiring, training, development, and compensation
competitive advantage.
of all types of personnel. It supports both
individual primary and support activities (e.g.,
Outbound Logistics
hiring of engineers and scientists) and the entire
-associated with collecting, storing, and
value chain (e.g., negotiations with labor unions).
distributing the product or service to buyers.
These activities include finished goods,
General Administration
warehousing, material handling, delivery vehicle
-consists of a number of activities, including
operation, order processing, and scheduling.
general management, planning, finance,
accounting, legal and government affairs, quality
Service This primary activity includes all actions
management, and information systems.
associated with providing service to enhance or
-Administration (unlike the other support
maintain the value of the product, such as
activities) typically supports the entire value
chain and not individual activities.
-Although general administration is sometimes The resource-based view (RBV) of the firm
viewed only as overhead, it can be a powerful combines two perspectives:
source of competitive advantage. (1) The internal analysis of phenomena within a
company and
Interrelationships among Value- (2) An external analysis of the industry and its
Chain Activities within and across competitive environment.
-It goes beyond the traditional SWOT (strengths,
Organizations
weaknesses, opportunities, threats) analysis by
There are two levels: integrating internal and external perspectives.
(1) Interrelationships among activities within -The ability of a firm’s resources to confer
the firm competitive advantage(s) cannot be determined
without taking into consideration the broader
(2) Relationships among activities within the firm competitive context. A firm’s resources must be
and with other stakeholders (e.g. Customers and evaluated in terms of how valuable, rare, and
suppliers) that are part of the firm’s expanded hard they are for competitors to duplicate.
value chain. Otherwise, the firm attains only competitive
parity.

Interrelationships -collaborative and strategic exchange Types of Firm Resources

relationships between value-chain activities either (a) within
firms or (b) between firms. Strategic exchange relationships
-Firm resources are all assets, capabilities,
involve exchange of resources such as information, people,
technology, or money that contribute to the success of the organizational processes, information,
firm. knowledge, and so forth, controlled by a firm that
enable it to develop and implement value
The “Prosumer” Concept: creating strategies.
Integrating Customers into the
Tangible Resources
Value Chain -These are assets that are relatively easy to
identify.
-When addressing the value-chain concept, it is -They include the physical and financial assets
important to focus on the interrelationship that an organization uses to create value for its
between the organization and its most important customers.
stakeholder—its customers. -Among them are financial resources (e.g., a
- A key to success for some leading-edge firms is
firm’s cash, accounts receivables, and its ability
to team up with their customers to satisfy their to borrow funds); physical resources (e.g., the
particular need(s). As stated in a recent IBM company’s plant, equipment, and machinery as
Global CEO Study: well as its proximity to customers and suppliers);
In the future, we will be talking more and more
organizational resources (e.g., the company’s
about the “prosumer”—a customer/ producer strategic planning process and its employee
who is even more extensively integrated into development, evaluation, and reward systems);
the value chain. As a consequence, production and technological resources (e.g., trade secrets,
processes will be customized more precisely patents, and copyrights).
and individually.
Intangible Resources
-Including customers in the actual production -organizational assets that are difficult to identify and account
for and are typically embedded in unique routines and
process can create greater satisfaction among practices, including human resources, innovation resources,
them. It also has the potential to result in and reputation resources that have evolved and
significant cost savings and to generate accumulated over time.
innovative ideas for the firm, which can be -These include human resources (e.g., experience
transferred to the customer in terms of lower and capability of employees, trust, effectiveness
prices and higher quality products and services. of work teams, managerial skills), innovation
resources (e.g., technical and scientific expertise,
Applying the Value Chain to Service ideas), and reputation resources (e.g., brand
Organizations name, reputation with suppliers for fairness and
with customers for reliability and product quality).
A firm’s culture may also be a resource that
Resource-Based View of the provides competitive advantage.
Firm Organizational Capabilities
-are not specific tangible or intangible assets, but
rather the competencies or skills that a firm
employs to transform inputs into outputs. In
short, they refer to an organization’s capacity to Valuable?
deploy tangible and intangible resources over • Neutralize threats and exploit opportunities
time and generally in combination, and to Rare?
leverage those capabilities to bring about a • Not many firms possess
Difficult to imitate?
desired end. -Examples of organizational • Physically unique
capabilities are outstanding customer service, • Path dependency (how accumulated over time)
excellent product development capabilities, • Causal ambiguity (difficult to disentangle what it is or
superb innovation processes, and flexibility in how it could be re-created)
manufacturing processes. • Social complexity (trust, interpersonal relationships,
culture, reputation)
Firm Resources and Sustainable Difficult to substitute?
• No equivalent strategic resources or capabilities
Competitive Advantages
Can the Resource Be Imitated Easily?
Is the Resource Valuable? Inimitability (difficulty in imitating) is a key to
Organizational resources can be a source of value creation because it constrains competition.
competitive advantage only when they are 46 If a resource is inimitable, then any profits
valuable. Resources are valuable when they generated are more likely to be sustainable.
enable a firm to formulate and implement Having a resource that competitors can easily
strategies that improve its efficiency or copy generates only temporary value. This has
effectiveness. The SWOT framework suggests important implications. Since managers often fail
that firms improve their performance only when to apply this test, they tend to base long-term
they exploit opportunities or neutralize (or strategies on resources that are imitable.
minimize) threats.
The fact that firm attributes must be valuable in Clearly, an advantage based on inimitability
order to be considered resources (as well as won’t last forever. Competitors will eventually
potential sources of competitive advantage) discover a way to copy most valuable resources.
reveals an important complementary relationship However, managers can forestall them and
among environmental models (e.g., SWOT and sustain profits for a while by developing
five-forces analyses) and the resource-based strategies around resources that have at least
model. Environmental models isolate those firm one of the following four characteristics
attributes that exploit opportunities and/or
neutralize threats. Thus, they specify what firm Physical Uniqueness The first source of
attributes may be considered as resources. The inimitability is physical uniqueness, which by
resource-based model then suggests what definition is inherently difficult to copy. A
additional characteristics these resources must beautiful resort location, mineral rights, or
possess if they are to develop a sustained Pfizer’s pharmaceutical patents simply cannot be
competitive advantage. imitated. Many managers believe that several of
their resources may fall into this category, but on
close inspection, few do.
Is the Resource Rare? If competitors or
potential competitors also possess the same Path Dependency A greater number of
valuable resource, it is not a source of a resources cannot be imitated because of what
competitive advantage because all of these firms economists refer to as path dependency. This
have the capability to exploit that resource in the simply means that resources are unique and
same way. Common strategies based on such a therefore scarce because of all that has
resource would give no one firm an advantage. happened along the path followed in their
For a resource to provide competitive development and/or accumulation. Competitors
advantages, it must be uncommon, that is, rare cannot go out and buy these resources quickly
relative to other competitors. and easily; they must be built up over time in
This argument can apply to bundles of valuable ways that are difficult to accelerate.
firm resources that are used to formulate and
develop strategies. Some strategies require a mix Causal ambiguity
of multiple types of resources— tangible assets, -a characteristic of a firm’s resources that is costly to imitate
because a competitor cannot determine what the resource is
intangible assets, and organizational capabilities.
and/or how it can be re-created.
If a particular bundle of firm resources is not rare,
then relatively large numbers of firms will be able Social complexity
to conceive of and implement the strategies in - a characteristic of a firm’s resources that is costly to imitate
question. Thus, such strategies will not be a because the social engineering required is beyond the
capability of competitors, including interpersonal relations
source of competitive advantage, even if the
resource in question is valuable.
among managers, organizational culture, and reputation with
suppliers and customers.

Are Substitutes Readily Available?

The fourth requirement for a firm resource to be
a source of sustainable competitive advantage is
that there must be no strategically equivalent
valuable resources that are themselves not rare
or inimitable. Two valuable firm resources (or two
bundles of resources) are strategically equivalent
when each one can be exploited separately to
implement the same strategies.
Substitutability may take at least two forms. First,
though it may be impossible for a firm to imitate
exactly another firm’s resource, it may be able to
substitute a similar resource that enables it to
develop and implement the same strategy.
Clearly, a firm seeking to imitate another firm’s
high-quality top management team would be
unable to copy the team exactly. However, it
might be able to develop its own unique
management team.