Strategy Arc

STRATEGY

Environment

Firm

Search for resources and capabilities that provide the firm with sustainable competitive advantage

Assumptions

All firms are alike and all firms are different

Firms develop unique qualities based on their history, experiences and strategies

Success of individual firms depends on how well firms develop and utilize their skills, resources, and capabilities to

• create profits (provide value, control costs)• satisfy their stakeholders• create barriers to competitors

Internal Analysis

Internal Analysis has two parts1. Evaluation of the firms strategy to

determine how well the strategy integrates the firm with the external environment.

2. Systematic analysis of the skills, resources, capabilities, and competencies the firm utilizes to support its strategy

Environment

Firm

STRATEGY

Strategy

Identify the strategy approach Rational v. Emergent Low Cost v. Differentiated v. Integrated Broad v. Focused

Evaluate the effectiveness of the strategy Financial Balanced Scorecard Stakeholder

Firm

STRATEGY

Environment

Strategy Models

Traditional or IO Model

Stakeholder Model

Value Chain Model

Resource-Based View (RBV)

Environment

STRATEGY

Firm

ExternalExternal

InternalInternal

IO Model

Views the firm as an economic actor responding to market forces

The external environment is the primary determinant of success

Strategic decisions involve choosing products and markets

Primary Tools: Industry Analysis Financial Ratios

Stakeholder Model

Views firm as an extended network of relationships and dependencies

Key stakeholders determine sustainability Primary Tools

Stakeholder Analysis Financial Ratios

Value Chain Model

Views firm as a set of linked value creating activities that transform inputs into outputs

Market determine success Strategic decisions involve creating

superior value at lowest cost Primary Tools:

Value Chain Analysis Activity-Based Accounting Benchmarking

The Value Chain

General administration

Human resource management

Technology development

Procurement

Inbound logistics

OperationsOutbound logistics

Marketing and sales

Service

Value-Chain Analysis

Firm is profitable to the extent the revenue it receives exceeds the total costs involved in creating its products or services

Value chain analysis involves identifying key activities that support the

firm’s strategy Evaluating the effectiveness of key activities

Compare the costs and value added of key activities in the value chain

Benchmarking to compare key activities to competitors

Resource Based View

Views firm as a unique collection of resources and competencies

Unique characteristics of the firm determine success

Strategic decisions involve creating and sustaining competitive advantage through core competencies

Primary Tools: VRIN Analysis Financial Ratios

Resource Based Model

Firm converts inputs into outputs using Resources: the assets available to a firm to

develop and implement value creating strategies

Tangible: assets the firm uses to create value financial, physical, technological,

organizational Intangible: unique routines and practices that

are developed over time human, creative, reputation, culture

Organizational Capabilities: the procedures and processes the firm has developed to use its resources effectively to achieve desired ends; the ability to put resources to productive use

Core Competencies

Competitive advantage is derived from unique resources and capabilities.

Firms distinguish themselves from competitors by developing Core Competencies

The resources of a firm that allow it to differentiate its products or services from competitors

Core competencies are the basis for strategy and competitive advantage

Core competencies are most effective when they are based on intangible resources and organizational capabilities

VRIN Analysis

To be a source of sustainable competitive advantage, a resource must have four attributes:ValuableRareInimitableNonsubstitutable

VRIN Analysis• Valuable: Allows the firm to differentiate

products/services and create unique value• Satisfies customers needs better than competitors• Generates superior profits

• Rare: Competitors do not have access to the resource or an equivalent

Resources that are valuable and rare allow temporary competitive

advantage

VRIN Analysis• Inimitable: Competitors cannot easily copy

or reproduce the resource• Path dependent• Causal ambiguity; social complexity

• Nonsubsitutable: Equivalent resources that may allow similar strategy are not readily available

Resources that are inimitable and nonsubstitutable allow sustainable

competitive advantage

VRIN Analysis

Identify key competencies Construct a VRIN Table

Competency

Valuable Rare Inimitable

Non- Sub

Conclusion

Superior Engineering

Yes No No Yes Comp. Parity

Automated Production

Yes Yes No No Temp. comp. adv.

Integrated Design

Yes Yes Yes Yes Sustainable comp. adv.• Look for combinations of capabilities

• Assess strategic implications for success