INTERNAL ANALYSIS

Nidhi Kaicker
Managers want to leverage their firm’s internal strengths to exploit
external opportunities, while mitigating internal weaknesses and
external threats

Strengths Weaknesses

Opportunities Threats
Where did the Chicken in Kentucky
Fried Chicken disappear?
Why do firms like KFC get so focused on efficiency that they take
actions that weaken their value chain?
• In early 2018, KFC made a major change in its supply chain system in the United
Kingdom

• Switched logistics service provider from Bidvest to DHL in the quest for cost-cutting

• Logistics of fresh chicken very different, and very challenging

• Spoiling of tons of chicken, and closing of outlets for several days

• Inbound logistics is a key link in the firm’s value chain

• Solution: KFC signed a long-term contract with Bidvest to supply around a third of
KFCs outlets in northern England. DHL’s centralized warehouse continues to supply
the remaining set of restaurants
Value Chain Analysis - strategic analysis of an organization that
uses value-creating activities
• A firm must effectively manage and integrate the key value creating activities (e.g.,
operations, marketing and sales, and procurement) in order to attain competitive
advantages in the marketplace

• Firms not only must pay close attention to their own value-creating activities but also
must maintain close and effective relationships with key organizations outside the firm
boundaries, such as suppliers, customers, and alliance partners

• 5 primary activities: (i) inbound logistics, (ii) operations, (iii) outbound logistics, (iv)
marketing and sales, and (v) service
• These contribute to the physical creation of the product or service, its sale and
transfer to the buyer, and its service after the sale.

• Support activities—procurement, technology development, human resource

management, and general administration—either add value by themselves or add
value through important relationships with both primary activities and other support
activities
The Value Chain: Primary and Support Activities
Primary Activities
Support Activities
Some Case Studies
How Dell Revolutionized PC How Coca Cola is engaging in
Business? Sustainable Packaging?

Netflix Is Ad Free, but It Isn’t Brand Exemplary Customer Service at

Free Sephora
From Value Chain to the Resource Based View

• The value chain can be used to answer the important question, “What is a
firm good at?”

• We also need to answer the critical question - “What is the firm better at than
relevant competitors?”
• Resources, Capabilities and Core Competencies are the foundation of
competitive advantage.
• Resources are bundled to create organizational capabilities. In turn,
capabilities are the source of a firm’s core competencies, which are the
basis of establishing competitive advantages.

• Resource-based view (RBV) of the firm is a perspective that firms’

competitive advantages are due to their endowment of strategic resources
that are valuable, rare, costly to imitate, and costly to substitute.
Resources and Capabilities

• Resources are inputs to a firm’s production process

• Tangible resources are organizational assets that are relatively easy to
identify, including physical assets, financial resources, organizational
resources, and technological resources.
• Intangible resources are organizational assets that are difficult to identify
and account for and are typically embedded in unique routines and
practices, including human resources, innovation resources, and
reputation resources.

• Organizational capabilities are not specific tangible or intangible assets, but

rather the competencies or skills that a firm employs to transform inputs into
outputs
• Examples of organizational capabilities are outstanding customer service,
excellent product development capabilities, superb innovation processes,
and flexibility in manufacturing processes.
Operating Capabilities at
McDonalds
McDonald’s developed a set of operating capabilities, or processes, that are
implemented in each of these stores. The process of filling customers’ orders at
industry-leading speed is a capability at the heart of what makes McDonald’s
successful. Speedy customer service involves several steps: procuring
customer orders accurately and quickly, communicating the orders to the
cooks, cooking the food, packaging it, and delivering it to the customer. This
process is repeated hundreds of times a day at all 34,000 individual store
locations, leading to high store-level capability for order turnaround.
Dynamic Capabilities at
Disney
Disney makes every effort to safeguard its property. In 1988, Disney led a
group of Hollywood studios, music labels, and other content owners in the
entertainment business to successfully lobby Congress to extend the copyright
protection on Mickey Mouse, and other characters. The rise of YouTube and
other user-generated content (UGC) sites has presented yet another challenge
in the copyright wars. Users can upload content to these sites without rights or
permission to the material. Disney recognized this threat early and realized the
resulting legal battle would be global, long-running, and very, very expensive.
Rather than threaten YouTube and other technology providers, Disney agreed
not to sue UGC sites as long as those sites worked to remove copyrighted
content on their own.
Other Examples of Firm’s Capabilities

Company Capabilities
Walmart Effective use of logistics management
techniques; effective and efficient
control of inventories through point of
purchase data collection methods
Zara Ability to envision the future of clothing
Apple Ability to offer innovative combinations
of proven technologies; Excellent
customer service in its retail stores
Microsoft Motivating, empowering and retaining
employees
Sony Product and Design Quality
The Rise and Fall of
Groupon
Groupon is an example of a firm that has suffered because rivals have been
able to imitate its strategy rather easily. Groupon, which offers online
coupons for bargains at local shops and restaurants, created a new market.
Although it was initially a boon to consumers, it offers no lasting “first-mover”
advantage. Its business model is not patentable and is easy to replicate. Not
surprisingly, there are many copycats.
Core Competencies

• Core competencies are capabilities that serve as a source of competitive advantage for
a firm over its rivals

• A capability is a core competence if it is Valuable, Rare, costly to Imitate, and

Organised to exploit profits (VRIO)

• Valuable capabilities allow a firm to exploit opportunities or neutralise threats in its

external environment. A resource or capability creates value if its contributions allows a
company to produce a product or a service that is of worth to end users

• Rare or unique resources create competitive advantage through scarcity

• If a competitor or a potential competitor possesses the same valuable resource, it is
not a source of competitive advantage

• Costly to imitate capabilities are those that the other firms cannot easily develop

• If a company is organised to exploit profits that resource create realise sustained

competitive advantage
WHAT BRINGS INIMITABILITY?

Path Dependence - the process through which a resource

or capability came into being may make it difficult for competitors to
imitate. Path dependence helps to block imitation when resources or
capabilities follow a sequential development path—for example,
when previous investments enable later ones, or when
significant learning underlies the resource or capability

Boeing’s path dependence has a military

origin. During WWII, the British focused
on building fighters and the US on
bombs (like the B-17). Those bombers
gave Boeing the technical know how to
build commercial aircraft and a lead over
the British in creating safe jet travel.
British companies were not as far along
the learning curve on designing or
building large aircrafts that could safely
fly passengers.
WHAT BRINGS INIMITABILITY?

Tacit Knowledge - For many processes, the actions needed to imitate the
sequence can be codified, or written down, and easily learned by others. Such
easy-to-codify-and-learn knowledge is referred to as explicit knowledge. Tacit
knowledge is just the opposite. The skills based on tacit knowledge are difficult,
maybe even impossible, to learn, teach, or coach. Tacit knowledge is sticky,
or immobile, and difficult to imitate by competitors

Steve Jobs’s ability

to spot great design
in a product, can’t be
learned easily, if they
can be learned at all!
 WHAT BRINGS INIMITABILITY?

Causal Ambiguity - a characteristic of a firm’s resources that is costly to

imitate because a competitor cannot determine what the resource is
and/or how it can be re-created.

General Motors tried to imitate Toyota’s production

methods—the Toyota Production System—to
produce cars at the same cost and quality. But
even after its engineers spent weeks and months
watching Toyota build cars in a joint-venture plant,
GM still wasn’t able to achieve equal productivity.
The cause of Toyota’s productivity was not easy to
determine because it was spread throughout the
organization, including hiring and training systems,
the layout of its plants, and fundamental priorities
and culture of the company
The VRIO Model

• Firms that cannot create value for their stakeholders experience competitive
failure

• A combination of value and uniqueness creates short run competitive advantage.

• Overtime, if competitors imitate resources, the firm has only competitive parity

• To create competitive advantage in the long run, a firm must create barriers to
imitation

• Moving from a durable to a sustainable competitive advantage requires a good

organisational structure and design that captures value
• Companies that realise sustained competitive advantage combine the legal
elements, administrative elements, and cultural elements in a way that allows
them to capture high profits that come from their valuable, rare and Inimitable
resources and capabilities
VRIO Diagram
Walmart’s Core Competencies - VRIO
Core Competence Valuable? Rare? Inimitable? Organised?
Core
LargeCompetence
and Global Valuable? Rare? Inimitable? Organised?
Supply Chain
Large and Global Yes Yes Yes Yes Sustained
Network
Supply Chain Competitive
Network Advantage

One of the leading strengths and a core source of competitive

advantage for Walmart is its large and global supply chain. As a retailer
and warehouse club operator Walmart utilizes a large and global supply
chain that includes more than 100,000 suppliers located in various
corners of the globe. This provides the company access to a very large
range of merchandise which is not available with any of its competitors.
Its large and global supply chain is a source of sustainable competitive
advantage for the brand.
Walmart’s Core Competencies - VRIO
Core Competence Valuable? Rare? Inimitable? Organised?
Strong Bargaining
Power leading to
Price Advantage

Core Competence Valuable? Rare? Inimitable? Organised?

Strong Bargaining Yes Yes Yes Yes Sustained
Power leading to Competitive
Price Advantage Advantage

Walmart is the leading retailer of the United States with strong

purchasing power. It buys from its suppliers globally in bulk. As a large
buyer of merchandise, the company holds very strong bargaining power
which allows it to buy products in bulk at very low costs from its suppliers
and then pass the price advantage to customers globally. This core
competency is also a source of sustainable competitive advantage for
the brand.
Walmart’s Core Competencies - VRIO
Core Competence Valuable? Rare? Inimitable? Organised?
Efficient Inventory
Management

Core Competence Valuable? Rare? Inimitable? Organised?

Efficient Inventory Yes Yes Yes Yes Sustained
Management Competitive
Advantage

Walmart has always been a leader in terms of supply chain and

inventory management. Its network of global suppliers, warehouses, and
retail stores behaves like a single firm. The company has also used
several more tactics for efficient inventory management including cross-
docking and use of technology to manage the right inventory levels.
Effective inventory management has also helped Walmart build
sustainable competitive advantage and retain its price leadership in the
retail industry.
Walmart’s Core Competencies - VRIO
Core Competence Valuable? Rare? Inimitable? Organised?
Brand Equity

Core Competence Valuable? Rare? Inimitable? Organised?

Brand Equity Yes Yes Yes Yes Sustained
Competitive
Advantage

As the leading retail brand of the United States, Walmart enjoys stronger
brand equity than all other players in the US retail industry. The strong
brand equity of Walmart is based upon several pillars including lower
prices, customer service, and customer engagement. All these factors
have translated into superior customer experience as well as higher
brand recognition and overall popularity. Its brand equity is a source of
sustainable competitive advantage for the brand.
Walmart’s Core Competencies - VRIO
Core Competence Valuable? Rare? Inimitable? Organised?
Technological
Innovation

Core Competence Valuable? Rare? Inimitable? Organised?

Technological Yes No No No Competitive
Innovation Parity

Walmart is investing in several areas to improve customer experience

including inventory management, delivery, merchandising, e-commerce,
and other areas. Customers are now utilizing omnichannel shopping and
apart from in-store purchases, they are also buying products online.
Investing in technology has helped Walmart reduce friction for its
customers as well as grow customer and employee engagement apart
from expanding market share in several key markets. While technology
is a valuable resource, it is not rare or inimitable.
Walmart’s Core Competencies - VRIO
Core Competence Valuable? Rare? Inimitable? Organised?
Technological
Innovation

Core Competence Valuable? Rare? Inimitable? Organised?

Technological Yes No No Yes Competitive
Innovation Parity

Walmart is investing in several areas to improve customer experience

including inventory management, delivery, merchandising, e-commerce,
and other areas. Customers are now utilizing omnichannel shopping and
apart from in-store purchases, they are also buying products online.
Investing in technology has helped Walmart reduce friction for its
customers as well as grow customer and employee engagement apart
from expanding market share in several key markets. While technology
is a valuable resource, it is not rare or inimitable.
Why are GoAir, Air Asia and other LCCs able to offer such low
fares?

How do strategies of LCCs and Full Service Airlines differ?

What is the Strategic Positioning of LCCs and

Legacy Carriers?
Strategic Positioning of Low Cost Carriers

Targets Leisure Point to Point

Low Cost Short Haul
Travellers Service

Single Aircraft Domestic Limited

Lowest Prices
Type Operations Destinations

Little
No Frills High Traffic Start-ups /
Consolidation
Services Destinations Entrepreneurs
or Partnerships

Flexible
 Strategic Positioning of Low Cost Carriers

How will we obtain our Economic

Low Cost
returns? Logic

Targets
Single Domestic
Leisure
Aircraft Type Operations
Travellers
Where will we be active? Arenas
Point to
Limited
Point Short Haul
Destinations
Service

No Frills High Traffic Differentiators

Lowest Prices How will we win?
Services Destinations

Little
Start-ups / Consolidation How will we get there? Vehicles
Entrepreneurs or
Partnerships

What will be our speed /

Flexible Staging
sequence?
Strategic Positioning of Full Service Carriers

Premium Business Hub and

Long Haul
Prices Travellers Spoke

International Many Service

Diversified
Operations Destinations Excellence

Strong Quality Premium

Alliances / JVs Acquisitions
/ Brands Times / Slots

Legacy
Agreements
 Strategic Positioning of Full Service Airlines

Premium How will we obtain our Economic

Prices returns? Logic

Business Hub and

Long Haul
Travellers Spoke
Where will we be active? Arenas
Diversified International Many
Aircrafts Operations Destinations

Service Strong Quality Premium How will we win? Differentiators

Excellence Brands Times / Slots

Alliances / How will we get there? Vehicles

Acquisitions
JVs

Legacy What will be our speed /

Staging
Agreements sequence?
Hambrick and Fredrickson
Strategy Model
Professors Donald Hambrick and James Fredrickson
developed their Strategy Diamond to give
organizations a clear overview of the essential
elements of strategy. When the five elements are
aligned and mutually reinforcing, your organization will
be in a position to perform extremely well.
Hambrick and Fredrickson Strategy Model
In Summary …

• The basic positioning of offering low fares for LCCs and offering a
differentiated service for Legacy carriers implies a focus on lowering costs for
the former and increasing revenues for the latter

• This does not mean that LCCs do not look for ways to increase revenues or
that Legacy carriers do not seek to reduce costs

• Only, their priorities are conditioned by their Strategic Positioning

What are the primary sources of competitive advantage that
Singapore Airlines has leveraged overtime?

The Rise of Singapore Airlines Singapore Airlines Balancing Act

• The activity system map was developed by the strategist Michael Porter in
1985. It is used to show how a small set of core competencies of an
organization, along with specific management and policies that are in support
of those competencies, come together to create a favorable strategic
positioning.

• Let us create an activity map for Singapore Airlines…

What are the primary sources of competitive advantage that
Singapore Airlines has leveraged overtime?

Low Fewer
Youngest
Maintenance Cancellation &
Fleet
Cost Delays

Competitive Benchmarking
Intelligence, against Best in Team Concept
Spy Flights Class

Extensive Performance
In-flight
Feedback related Award
Surveys
Mechanism System

Developing
Crew SIA Training
the Singapore
Feedback Programme
Girl
What are the primary sources of competitive advantage that
Singapore Airlines has leveraged overtime?
Performance
Youngest related Award
Fleet Cost Effective System
Low
Maintenance
Cost
Fewer Innovation Team Concept
Cancellation &
Competitive Delays
Intelligence, Strategic
Spy Flights Synergies
Extensive Staff
Feedback Development
Benchmarking
Mechanism
against Best in
Class Service
Excellence SIA Training
Programme
Crew
Rigorous Developing
Feedback In-flight Service the Singapore
Surveys Design Girl