Admission in delhi ncr
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Admission in India Admission in India 20152015
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Assessing the InternalAssessing the InternalEnvironment of the FirmEnvironment of the Firm
Chapter Three
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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Learning ObjectivesLearning Objectives
After reading this chapter, you should have a good understanding of:
LO3.1 The benefits and limitations of SWOT analysis in conducting an internal analysis of the firm.
LO3.2 The primary and support activities of a firm’s value chain.
LO3.3 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.
LO3.4 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities.
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Learning Objectives (cont.)Learning Objectives (cont.)
LO 3.5 The four criteria that a firm’s resources must possess to maintain a sustainable advantage and how value created can be appropriated by employees.
LO 3.6 The usefulness of financial ratio analysis, its inherent limitations, and how to make meaningful comparisons of performance across firms.
LO 3.7 The value of the “balanced scorecard” in recognizing how the interests of a variety of stakeholders can be interrelated.
LO 3.8 How firms are using Internet technologies to add value and achieve unique advantages. (Appendix)
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The Limitations of SWOT AnalysisThe Limitations of SWOT Analysis
Strengths may not lead to an advantageSWOT’s focus on the external
environment is too narrowSWOT gives a one-shot view of a moving
targetSWOT overemphasizes a single dimension
of strategy
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Value-Chain AnalysisValue-Chain Analysis
Value-chain analysis ◦a strategic analysis of an organization that uses value
creating activities.Value is the amount that buyers are willing to
pay for what a firm provides them and is measured by total revenue
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Value-Chain AnalysisValue-Chain Analysis
Primary activities ◦contribute to the physical creation of the product or
service, its sale and transfer to the buyer, and its service after the sale.
◦inbound logistics, operations, outbound logistics, marketing and sales, and service
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QUESTIONQUESTION
In assessing its primary activities, an airline would examine: A. Employee training programsB. Baggage handlingC. Criteria for lease versus purchase decisionsD. The effectiveness of its lobbying activities
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Value-Chain AnalysisValue-Chain Analysis
Support activities◦activities of the value chain that 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, and general administration.
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The Value ChainThe Value Chain3-10Exhibit 3.1admission.edhole.com
Primary Activity: Inbound Primary Activity: Inbound LogisticsLogistics
Associated with receiving, storing and distributing inputs to the product◦Location of distribution facilities◦Warehouse layout
and designs
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Primary Activity: OperationsPrimary Activity: Operations
Associated with transforming inputs into the final product form◦Efficient plant operations◦Incorporation of appropriate process technology◦Efficient plant layout and workflow design
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Primary Activity: Outbound Primary Activity: Outbound LogisticsLogistics
Associated with collecting, storing, and distributing the product or service to buyers◦Effective shipping processes to provide quick delivery
and minimize damages◦Shipping of goods in large lot sizes to minimize
transportation costs.
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Primary Activity: Marketing Primary Activity: Marketing and Salesand Sales
Associated with purchases of products and services by end users and the inducements used to get them to make purchases◦Innovative approaches to promotion and advertising◦Proper identification of customer segments and needs
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Primary Activity: ServicePrimary Activity: Service
Associated with providing service to enhance or maintain the value of the product◦Quick response to customer needs and emergencies◦Quality of service
personnel and ongoing training
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Support Activity: ProcurementSupport Activity: Procurement
Function of purchasing inputs used in the firm’s value chain◦Procurement of raw material inputs◦Development of collaborative “win-win” relationships
with suppliers◦Analysis and selection of alternate sources of inputs to
minimize dependence on one supplier
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Support Activity: Support Activity: Human Resource ManagementHuman Resource Management
Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel◦Effective recruiting, development, and retention
mechanisms for employees◦Quality relations with trade unions◦Reward and incentive programs to motivate all
employees
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Support Activity: Support Activity: Technology DevelopmentTechnology Development
Related to a wide range of activities and those embodied in processes and equipment and the product itself ◦Effective R&D activities for process and product
initiatives◦Positive collaborative relationships between R&D and
other departments◦Excellent professional qualifications of personnel
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Support Activity: Support Activity: General AdministrationGeneral Administration
Typically supports the entire value chain and not individual activities◦Effective planning systems◦Excellent relationships with diverse stakeholder
groups◦Effective information technology to integrate value-
creating activities
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Interrelationships among Value-Chain Interrelationships among Value-Chain Activities within and across Activities within and across OrganizationsOrganizations
Interrelationships among activities within the firm
Relationships among activities within the firm and with other organization (e.g., customers and suppliers)
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Two levels
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Value Chains in Service IndustriesValue Chains in Service Industries3-21
Exhibit 3.4
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Resource-Based View of the FirmResource-Based View of the Firm
Resource-based view of the firm◦perspective that firms’ competitive advantages are due
to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute.
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Resource-Based View of the FirmResource-Based View of the Firm
Two perspectives◦The internal analysis of phenomena within a company◦An external analysis of the industry and its competitive
environment
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Types of ResourcesTypes of Resources
Tangible resources◦organizational assets that are relatively easy to
identify, including physical assets, financial resources, organizational resources, and technological resources.
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Types of ResourcesTypes of Resources
Intangible resources 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.
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Types of ResourcesTypes of Resources
Organizational capabilities ◦The competencies and
skills that a firm employs to transform inputs into outputs.
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QUESTIONQUESTION
Gillette combines several technologies to attain unparalleled success in the wet shaving industry. This is an example of their A. Tangible resourcesB. Intangible resourcesC. Organizational capabilitiesD. Strong primary activities
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Firm Resources and Sustainable Firm Resources and Sustainable Competitive AdvantagesCompetitive Advantages
First, the resource must be valuable in the sense that it exploits opportunities and/or neutralizes threats in the firm’s environment.
Second, it must be rare among the firm’s current and potential competitors.
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Firm Resources and Firm Resources and Sustainable Competitive Sustainable Competitive AdvantagesAdvantages
Third, the resource must be difficult for competitors to imitate.
Fourth, the resource must have no strategically equivalent substitutes.
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Sources of InimitabilitySources of Inimitability
Physical uniquenessPath dependencyCausal ambiguitySocial complexity
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The Generation and The Generation and Distribution of a Firm’s ProfitsDistribution of a Firm’s Profits
Employee bargaining powerEmployee replacement costEmployee exit costsManager bargaining power
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Four factors help explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits that they generate
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Evaluating Firm PerformanceEvaluating Firm Performance
Financial ratio analysis◦ Balance sheet◦ Income
statement◦ Historical
comparison◦ Comparison with
industry norms◦ Comparison with
key competitors
Stakeholder perspective◦ Employees◦ Customers◦ Owners
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Financial Ratio AnalysisFinancial Ratio Analysis
Five types of financial ratios◦Short-term solvency or liquidity◦Long-term solvency measures◦Asset management (or turnover)◦Profitability◦Market value
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Financial Ratio AnalysisFinancial Ratio Analysis
Historical comparisonsComparison with industry normsComparison with key competitors
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Five Types of Financial RatiosFive Types of Financial Ratios3-35admission.edhole.com
The Balance ScorecardThe Balance Scorecard
Provides a meaningful integration of many issues that come into evaluating a firm’s performance
Four key perspectives◦How do customers see us? ◦What must we excel at? ◦Can we continue to improve and create value? ◦How do we look to shareholders?
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Customer PerspectiveCustomer Perspective
TimeQualityPerformance and serviceCost
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Internal Business Perspective Internal Business Perspective
ProcessesDecisionsActionsCoordinationResources and
capabilities
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Innovation and Learning Innovation and Learning PerspectivePerspective
Introduction of new products and servicesGreater value for customersIncreased operating efficiencies
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Financial PerspectiveFinancial Perspective
ProfitabilityGrowthShareholder valueIncreased market shareReduced operating expensesHigher asset turnover
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Potential Limitations of the Potential Limitations of the Balanced ScorecardBalanced Scorecard
Lack of a clear strategyLimited or ineffective executive sponsorshipToo much emphasis on financial measures
rather than non-financial measuresPoor data on actual performanceInappropriate links to scorecard measures to
compensationInconsistent or inappropriate terminology
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