Sebastian Perrier

A good way to analyze and classify the company’s resources and capabilities is by using the value chain analysis (note: different from the supply chain analysis).

Primary Activities:

inbound->operations->outbound->marketing and sales->post sell service

Support Activities:

Infrastructure
Human Resources
Information Technology
Administration

Value Chain Activities

Organization exist or dissapear according to the resources available in the environment; like in nature, they are subject to selection and if they do not compete and adapt successfuly they can die.

There are six issues to consider when analyzing the broad environment (PESTEL):

1. Political (rules, taxes, etc)
2. Economic (GDP, inflation, etc)
3. Social (demographics, trends, etc)
4. Technological (know-how, required equipment, etc)
5. Ecological (sustainable development, energy sources, etc)
6. Legal (patents, copyrights, etc)

A firm profitability derives from: i) broad enviroment (PESTEL); ii) the industry (Porter 5 Forces) and iii) its competitive advantages. Considering that nowadays both the broad environment and the industry are essentially comples and unstable, the firm’s primary source of profitability is its competitive advantages (80% or more).

What is a competitive advantage?

To have a competitive advantage is to be able to create value to customers and then capture more value than competitors. Trying to define a company’s competitive advantages from the attribures of its products or services is not recomended because this attributes and their value to customers can change rapidly with the appearance of new technologies, new business models and changes in customer’s trends. The way to determine the firms’ competitive advantages is through the Resource Based View (RBV).

RESOURCE BASED VIEW (RBV)

According to the RBV of the firm, a company’s competitive advantage derives from its resources and capabilities. Resources are those assests (tangible, intangible and human) owned by the company. However, the resources are not productive on their own. So the competitive advantages also derive from the company’s capabilities, i.e. its ability to organize the resources in order to deploy the desired results.

How to use RBV

The first objective of the RBV is to understand the company’s competitive advantages and thus create value to customers and thus be profitable. Second, select a strategy to exploit them (see B-C framework). Third, determine the value of your resources and capabilities. Finally, pay attention to continuously develop your resources and capabilities.

Appraisal of resources and capabilitiets

How to determine the potential of your resources and capabilities:

1. Scarcity and Relevance (can they create value?)
2. Durability, Transferability and Replicability (can you capture value?)
3. Property rights, Relative bargaing power and Embeddedness (can you own them or hold them?)

Porter's 4 Generic Strategies

The Marco Environment (PESTEL) impacts the firm through ist influence on the industry in which it operates. The objective here is to understand the industry’s structure and level of attractiveness because this has a direct impact on the overall profitability of the company (about 20% of the profitability of the company might be due to the attractiveness or not of its industry).

The framework to analyze the industry is Porter’s 5 Forces + 1:

1. Threat of substitute products/services
2. Barriers to the entry of new competitors
3. Internal Rivalry between established competitors
4. Bargaing power of suppliers
5. Bargaing power of buyers
6. Relevance of complement products/services

When defining a business, there are 3 things to consider: i) what are the customer’s needs and wants, what problem is our business solving; ii) who are those customers, who are we specifically helping and; iii) what technology are we using to solve those issues.

The Mission & Vision are the foundations for the company’s strategy; are the guidelines, the framework, the ground rules established to achieve the company’s goals.

MISSION (why are we here for?)

Is the main ideology of the organization, is the bedrock containing the purpose (reason for being) and the values (ideas, atitudes, thoughts, beliefs etc).

VISION (what do you want to achieve?)

The vision is a challenging aspiration of what you want to be when you grow up. It’s objective is to inspire the organization to work towards a goal in the long-term which is currently beyond their expectations. What are you really passionate about? What can you be best in the world?

OBJECTIVES

Set your vision into objectives. There are eight  objectives that every organization should have:

1. Market Standing
2. Innovation
3. Productivity
4. Financial Resources
5. Profitability
6. Management performance and development
7. Employees performance and attitudes
8. Public Responsability

To be successful you have to do something well, but this is not enough to be profitable.

The key to profitability is to CREATE VALUE (and more value than your competitors).

How to meassure the value created?

Value created is customer’s willigness to pay for that product (the perceived benefit that that product has meassures in monetary terms – note that this value can vary among different market segments) minus the product unit cost.

• Total Value created: Benefits to customers (B) – product unit cost (C)
• Value captured: Benefits to customers – price charged (P)

Why is Strategy important?

It is important to have strategies in order to align decision making in the business.

Strategy is about making choices: WHAT to do and what not to. It is also about HOW to do it, how are you going to make it differently. Strategy is about how resources should be allocated to accomplish the goals.

Two levels:

1. Corporate Level Strategy: WHERE (vertical integration / geography / product diversification)
2. Business Level Strategy: HOW to compete in that industry (determine your competitive advantages)