CORPORATE STRATEGY

Session N°3

Audencia Bachelor in Management – GBT – ABM2

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TEACHER
Guillaume Poussy
[email protected]

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 SESSION N°3

STRATEGIC ANALYSIS
INTERNAL ANALYSIS / RESOURCES AND CAPABILITIES

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WHAT IN YOUR OPINION CAN BE THE ANSWER TO:

What is a Competitive Advantage?

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COMPETITIVE ADVANTAGE EVALUATION PROCESS
When a business is just starting out, it may be worthwhile to perform a comprehensive
evaluation of the business’ goals and how it might fit into the market.

• Evaluate Resources:
The basis for a competitive advantage often lies in the resources and abilities that are
already available, even though the resources may not initially be recognized.
Begin by taking a critical look at the existing resources and product/service offerings.
What does the company have that could be used as an advantage?
Reading through the potential options for competitive advantage above, which of these
resources are already available and which does the company need to obtain in order to
focus one or more of the strategies?

• Clarify Goals:
Has a clear idea of what the company seeks to accomplish been established? Businesses
with specific and achievable goals tend to have better and more consistent growth.
Challenging, but realistic goals should be written out to help clarify what the business will
do for itself and its customers in the future. These goals will become benchmarks for
success and will help maintain focus among all involved parties.
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COMPETITIVE ADVANTAGE EVALUATION PROCESS
• Define Customers:
Determining the products and services customers want and cannot get from the competition is a first
step toward defining the business’ potential customers.
Once the needs and wants of the potential customers have been established, the characteristics of
those customers can be examined in an effort to identify commonalities.
When developing a hypothesis about what potential customers will buy, speaking to potential
customers will provide an understanding of their needs. This may help the company to learn about
what features customers need and what they will pay for and provides an opportunity to ask them for
additional suggestions.

• Examine Competitors:
With an understanding of what customers want and an idea of how this can be provided, it is
important to take a look at other companies that might be targeting the same market.
First, look at the direct competition. Once the competition has been identified, compare the
strengths and weaknesses of the competition to the strengths and weaknesses of the company.
This will provide more insight as to where the company’s competitive advantage lies.

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 WHAT IN YOUR OPINION CAN BE THE ANSWER TO:

From previous class, what information do we need to have

clear to move forward into the internal analysis?

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HOW TO ADD VALUE?
• Product Features and Benefits:
What makes the product unique and desired? Consider product characteristics such as style, handling,
taste, quality ingredients, comfort, production methods (such as natural or organic), certification and so
on. Are the product characteristics significantly different from those of currently available products?
Can the company provide these features or benefits effectively?

• Location(s):
What about the company’s location is a draw to customers? The office or store location is often a very
important factor, particularly for companies selling directly to the public. Location should be chosen
with care, preferably in an area near customer traffic. Being tied to an existing location will directly
influence other decisions, such as marketing, product distribution, and even product selection. If this is
the case, would it be possible for the company to partner with someone who has a better location, if the
one provided is not as attractive?

• Staff:
Consider the factors which ensure that front and managerial staff produce a good product and provide
a positive customer experience. Does the company’s personnel follow these factors? Do they act
professionally? Do they have expertise with the product, on which customers can rely?

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HOW TO ADD VALUE?
• Operating Procedures: What policies, processes, and standards could be employed to smooth
operations, create value, and offer a positive customer experience?

• Price: What fundamental cost advantage does the company have which would justify permanently low
prices? Most companies operating in the same industry in a location will tend to have pretty much the
same cost structure, meaning that when one competitor cuts price, others usually follow, thus erasing
whatever advantage the first competitor gained by reducing prices.
Ways to achieve a fundamental cost advantage might be through lower overhead or shipping costs
(perhaps through geographic closeness to markets), cheaper labor, and/or low-priced raw materials
(perhaps through long-term purchase agreements).

• Customer Incentive Programs: Does the company employ programs to attract new and repeat
customers through efforts such as giveaways, coupons, sales, promotions, and/or volume discounts?

• Guarantees and Warranties If the company is conveying to customers that it provides a quality product,
is that perception reinforced with guarantees and warranties?

• Brand Name Recognition A carefully conceived and executed marketing plan with a focus on the
customer is a major contribution to business success.

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 LCAG model, choice and deployment (Harvard first SWOT)
1. External Diagnostics 2. Internal Diagnostics
Environmental Analysis Company Analysis

General Image and notoriety

Environment Product portfolio BCG Portfolio Matrix Today’s
Resources and competencies VRIO session
Competition Competitive advantages Porter’s Value Chain
3. STRATEGIC DIAGNOSIS

Opportunities and Threats SWOT Strengths and Weaknesses

(Environment challenges) (Company capacities)

4. Felling and Evaluation of the

possible actions:
Texte • Inconvenience vs advantages
• Possible result
• Feasibility with company
Texte
5. Integration of environmental
6. Integration of management values
values
General objectives and corporate culture
Corporate Social Responsibility 7. Strategic
11 Choice
Definition of Objectives
Choice of means and
Resource allocation

Sources: “Business Policy, Text and Cases” 1969 version by Learned, Christensen, Andrews and Guth

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BCG GROWTH SHARE MATRIX

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INTERNAL DIAGNOSTIC:
• Portfolio Matrixes: BCG Growth Share Matrix (Boston Consulting Group)
• Objective: to model the allocation of resources

Growth of the
market

STAR QUESTION MARK

+ FINANCIAL NEEDS -
Financial flow= 0 Financial flow= - -

Life cycle

COW PET
Financial flow= + + Financial flow= 0

+ PROFITABILITY - Market Share

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INTERNAL DIAGNOSTIC:
• Product life cycle:
Increase in sales
Profits increasing Declining sales
Competition increasing Declining profits
Low competition
Low sales
High investments
Low competition Max Sales
Max Profits
Stable competition

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INTERNAL DIAGNOSTIC:
• Balanced product portfolio in the BCG matrix:

SALES
Product A Product B Product C

TIME

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IF YOU HAVE INHERITED THIS CAR, WHAT ARE YOUR OPTIONS?

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WHAT IN YOUR OPINION CAN BE THE ANSWER TO:

WHAT ARE CAPABILITIES?

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RESOURCES VERSUS CAPABILITIES:

1. The resources and capabilities of an organization contribute to

its long-term survival and potentially to competitive advantage

2. Distinctive resources and capabilities are required to achieve

competitive advantage.

3. Hamel and C.K. Prahalad argue that distinctive capabilities or

competences typically remain unique because they comprise
a bundle of constituent skills and technologies rather than a
single, discrete skill or technology,
They call this Core Competencies.

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CAPABILITIES VERSUS DYNAMIC CAPABILITIES:
1. Dynamic capability is :
“the firm’s ability to integrate, build, and reconfigure internal and
external competences to address rapidly changing environments”
(David J. Teece, Gary Pisano, and Amy Shuen).

1. Dynamic capabilities can be distinguished from operational or “ordinary”

capabilities, which pertain to the current operations of an organization.
Dynamic capabilities, by contrast, refer to “the capacity of an organization
to purposefully create, extend, or modify its resource base” (Helfat et al.,
2007).

2. The basic assumption of the dynamic capabilities' framework is that core

competencies should be used to modify short-term competitive positions
that can be used to build longer-term competitive advantage.

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INTERNAL DIAGNOSTIC:

• Internal Diagnostic of the company:

• Critical evaluation of the internal components of the design,

production and marketing process to determine its capacity for action.

• Analysis of the company's resources and competencies in order to

highlight its strengths and weaknesses to make strategic decisions.

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INTERNAL DIAGNOSTIC:
• To summarize:

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THE IMPORTANCE OF THE RESOURCE BASE VIEW (RBV)
EDITH PENROSE(1959), AUTHOR OF “THE THEORY OF THE GROWTH OF THE FIRM” MADE A GREAT CONTRIBUTION TO THE RBV THEORY

Edith Penrose shows that a company has two types of resources: Strengths Weaknesses

Material Resources (Equipment, machinery, stocks)

Tangible Resources Financial Resources (Cash Flow, Treasury, Debt)

Human resources (Number of employees, Qualification, Expertise)

Reputational (Branding, notoriety)

Intangible Resources Technological (know-how, patents)

Organizational (Information systems, Dashboards, Procedures)

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THE IMPORTANCE OF THE RESOURCE BASE VIEW (RBV)

For Michael Porter, key assets provide a competitive advantage.

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COMPETENCIES ANALYSIS
Competencies: knowledge, skills and know-how that will enable the exploitation of
resources to create value.

The objective is to distinguish between technical, commercial, organizational and

managerial skills.

Competencies Strengths Weaknesses

Technical

Commercial

Managerial

Organizational

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VRIO MODEL

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JAY BARNEY AND THE VRIN/VRIO MODEL
 According to the work of Coimbatore K. Prahalad and Gary Hamel, "The core
competency" provides a competitive advantage.
(e.g. Volvo – Security, Amazon – Logistics, Apple – Design / Innovation)

« Professor Jay BARNEY increase the popularity of

“The Resource-based view Theory” of the firm thanks to its research:
Firm Resources and Sustained Competitive Advantage, 1991 and
to the development of the VRIO model»

(VALUE / RARENESS / INIMITABILITY / ORGANIZATIONAL SUPPORT)

• Which are the distinctive resources and competencies that provide a

sustainable competitive advantage?
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JAY BARNEY AND THE VRIN/VRIO MODEL
 The table below explains the implementation of the VRIO method by four questions:

Are your company's resources and skills sufficient to make the most of opportunities
or neutralize market threats?
V Value
In other words, do these resources and skills contribute to the creation of value for clients?
If the answer is yes, they are value-generating (V)

How many competing companies already have the resources and skills to generate value?
R Rarity
If the answer is very little, they are constitutive of competitive advantage (V+R).
Are companies that do not possess these resources and skills have a cost disadvantage
in seeking to obtain or develop them?
• If the answer is yes, the possession of these value-generating and scarce resources and skills
I Inimitability
(V+R+I) is a source of sustainable and defensible competitive advantage.
• If the answer is no, value-generating and scarce (V+R) resources and skills
only provide a temporary competitive advantage.
Is your company well organized to take full advantage of
Organizational the competitive potential of resources and skills?
O Support • If the answer is yes, the resources and skills (V+R+I+O) that create value, which are rare and
difficult to imitate, constitute long-lasting distinctive competence for your company.
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JAY BARNEY AND THE VRIN/VRIO MODEL
 Example: Starbucks
Resources & Expensive to Actionable by the Competitive
Value Rarity
Competencies Imitate Organization Advantage
Coffee Brewing X
Shop fittings X
Wi-Fi access X
High perceived quality X X
Good Locations X X
Staff Motivation X X X
Number of stores X X X
Capacity for innovation X X X X Yes
Customer Experience X X X X Yes
Brand awareness X X X X Yes
Core competencies

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PORTER’S VALUE CHAIN

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PORTER’S VALUE CHAIN
• The Value Chain (Michael Porter – 1985)

Identify internal sources of value creation and competitive advantages

Maximizing value while minimizing associated costs (margin)

Value translates into the price the consumer is willing to pay.

Principle of Value Chain Analysis:

Break down into key phases to understand how each activity:

• is a source of cost
• or a source of differentiation.

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PORTER’S VALUE CHAIN
Firm's infrastructure (CFO, Jurid., CIO, Planning)
Support activities

Human Resources Management

Technological Developments R&D

Margin
Supplies / Procurement

Inbound Production / Outbound Services

Marketing & Sales
logistics Operations Logistics

Main activities

 Seeking optimization of each link in the value chain.

 Focus efforts on activities and connections that strengthen competitive advantage.

 The identification of activities that strongly generate competitive advantages will push the company
to integrate them.
 The identification of activities that generate little value will push the company to outsource them.

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PORTER’S VALUE CHAIN
Example: Apple
Firm's infrastructure (CFO, legal, CIO, Planning)
Support activities

Human Resources Management

R&D: state-of-the-art and highly innovative, high-quality design

Margin
Supplies: In a dozen countries

Marketing Marketing & Sales:

Upstream logistics: Production:
Communication: Multi-channel distribution:
Dispatch of the different Strongly relocated to
100% compatible products: www.apple.com Services:
elements of the iphone China
computers, music, telephony Itunes efficient Aftersales
between the manufacturers Perfect control of
Unique communication strategy Apple stores
production quality
Notoriety and brand image Qualified personnel

Main activities

 Focus efforts on activities and connections that generate value and strengthen competitive
advantage.

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 LCAG model, choice and deployment (Harvard first SWOT)
1. External Diagnostics 2. Internal Diagnostics
Environmental Analysis Company Analysis

General Image and notoriety

PESTEL
Environment
Product portfolio BCG Growth Matrix
PORTER’s 5 Forces
Resources and skills VRIO
Competition Competitive
Mapping Competitive advantages Porter’s Value
3. STRATEGIC DIAGNOSIS Chain
SWOT Strengths and Weaknesses
Opportunities and Threats KSF
(Environment challenges) (Company capacities)

4. Felling and Evaluation of the

possible actions:
Texte
5. Integration of environmental
• Inconvenience vs advantages
• Possible result
6. Integration of management values
• Feasibility with company
values
TexteCorporate Social Responsibility General objectives and corporate culture

7. Strategic
34 Choice
Definition of Objectives
Choice of means and
Resource allocation

Sources: “Business Policy, Text and Cases” 1969 version by Learned, Christensen, Andrews and Guth

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INTERNAL DIAGNOSTICS
EXERCISE

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never stop daring.
EXTERNAL DIAGNOSTIC EXERCISE
• Constitute groups of 5 team members

• Sources:
https://en.wikipedia.org/wiki/Netflix

• Please make the internal Diagnostic of NETFLIX company

• Which are the sources of Added Value?

• On which factors relies Netflix’s competitive advantage?

• Make a synthesis in terms of Strength and Weaknesses.

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Thank you for your attention

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