Assessing

the Internal
Environment
of the Firm
chapter 3

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Education

Value-Chain Analysis
3-2

Value-chain analysis looks at the

sequential process of value-creating
activities

Value is the amount buyers are willing to pay

for what a firm provides
How is value created within the organization?
How is value created for other organizations
in the overall supply chain or distribution
channel?
The value received must exceed the costs of
production

Value-Chain Analysis
3-3

Primary activities contribute to the

physical creation of the product or
service; the sale & transfer to the buyer;
and service after the sale:

Inbound logistics
Operations
Outbound logistics
Marketing & sales
Service

Value-Chain Analysis
3-4

Support activities either add value by

themselves or add value through
important relationships with both
primary activities & other support
activities:

Procurement
Technology development
Human resource management
General administration

The Value Chain

3-5

Exhibit 3.1 The Value Chain: Primary and Support Activities

Source: Reprinted with permission of The Free Press, a division of Simon & Schuster Inc., from Competitive
Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright 1985, 1998 by The
Free Press. All rights reserved.

Support Activity: General

Administration

3-6

General administration involves

Effective planning systems to attain overall

goals & objectives
Excellent relations with diverse stakeholder
groups
Effective information technology to
coordinate & integrate value-creating
activities across the value chain
Ability of top management to anticipate &
act on key environmental trends & events,
create strong values, culture & reputation

3-7

The Value Chain in Service

Organizations

Exhibit 3.4 Some Examples of Value Chains in Service

Industries

Resource-Based View of the

Firm

3-8

The resource-based view of the firm

(RBV)

Combines an internal analysis of phenomena

within a company
With an external analysis of the industry & its
competitive environment

Resources can lead to a competitive

advantage

If they are valuable, rare, hard to duplicate

When tangible resources, intangible resources, &
organizational capabilities are combined

Types of Firm Resources

3-9

Tangible resources are assets that are

relatively easy to identify:

Physical assets: plant & facilities,

location, machinery & equipment
Financial assets: cash & cash equivalents,
borrowing capacity, capacity to raise equity
Technological resources: trade secrets,
patents, copyrights, trademarks, innovative
production processes
Organizational resources: effective
planning processes & control systems

Types of Firm Resources

3-10

Intangible resources are difficult for

competitors to account for or imitate are
embedded in unique routines & practices:

Human resources: trust, experience &

capabilities of employees; managerial skills &
effectiveness of work teams
Innovation resources: technical & scientific
expertise & ideas; innovation capabilities
Reputation resources: brand names,
reputation for fairness with suppliers;
reliability & product quality with customers

Types of Firm Resources

3-11

Organizational capabilities are

competencies or skills that a firm employs
to transform inputs into outputs; the
capacity to combine tangible & intangible
resources to attain desired ends

Outstanding customer service

Excellent product development capabilities
Superb innovation processes & flexibility in
manufacturing processes
Ability to hire, motivate, & retain human capital

Firm Resources and Sustainable

Competitive Advantages
3-12

Strategic resources have four attributes:

Valuable in formulating & implementing
strategies to improve efficiency or
effectiveness
Rare or uncommon; difficult to exploit
Difficult to imitate or copy due to
physical uniqueness, path dependency,
causal ambiguity, or social complexity
Difficult to substitute with strategically
equivalent resources or capabilities

3-13

Five Types of Financial

Ratios

Exhibit 3.9
A Summary
of Five
Types of
Financial
Ratios

The Balanced Scorecard

3-14

A meaningful integration of many issues

that come into evaluating performance
Four key perspectives:

How do customers see us? (customer

perspective)
What must we excel at? (internal perspective)
Can we continue to improve and create
value? (innovation & learning perspective)
How do we look to shareholders? (financial
perspective)