Internal Analysis

Question 1

Core Competency’s Tree Analogy

Answer 1

Trunk & Major limbs - core products
Leaves - end products
Roots - core competence –> provide the sustenance and stability

Question 2

Core Competency Examples

Answer 2

Honda’s CC is to design and manufacture small but powerful and highly reliable engines - but the biz model is to find places to put its engine

Apple’s CC is innovation, developing unique and innovative technology products

Question 3

Importance of Core Competencies

Answer 3

A firm’s ability to gain and sustain competitive advantage is partly driven by core competencies - strengths deep within a firm - differentiate its products from competitors and create higher value or at a lower cost

In order to formulate and implement a strategy that enhances firm’s ability to sustain competitive advantage, firm must possess certain resources & capabilities to form core competencies

Question 4

How do you create core competencies

Answer 4

Developed through an interplay of resources & capabilities

• Through resources & capabilities (create ‘invisible’ core competencies), streamline both resources and capabilities into ‘value chain activities’ - if it generates sufficient value for prolonged periods, firm enjoys competitive advantage & superior firm performance
• Since CA is driven by both industry and firm effects, by driving down on resources & capabilities, and enhancing core competencies, firms are able to differentiate themselves from competitors and drive superior activities, thereby generating value for consumers

Question 5

Explain VRIO

Answer 5

Framework that underpin competitive advantage, only with all attributes being fulfilled then the core competency is able to drive sustainable competitive advantage

Valuable:

• enables firm to exploit an external opportunity or offset an external threat - able firm to increase value creation either by increasing perceived value or reducing costs
• superior/ naturally occurring or self constructed?

Rare:

• One to few firms possessing the resource
• How durable/ long lasting is this (eg. oil)

Costly to Imitate: (copy & substitute)

• Given if the resource is not available, it would be expensive to develop or procure at reasonable costs - intangible resources are harder to imitate
• Ways to defend against substitutes & direct imitation
• Better expectation of future resource value (buy now at a cheaper price for greater price appreciation)
• Path dependence: process in which options available to one are limited by decisions made in the past - time-compression diseconomies, some things cannot be rushed and future ramifications may be irreversible
• Causal Ambiguity: unable to comprehend what are the key drivers towards Apple’s sustained superior performance - hard for managers & other management to replicate
• Social complexity: situation where social & business systems interact - combination of two systems create a more complex system making it hard for managers to copy
• IP Protection: patents, designs, copyrights and trade marks

Organized to capture value:
Dependent on firm’s internal structure, there must be an efficient organisational structure and coordinating system to recognise that the resource contributes to its core competency, and actively utilises it in order to drive superior performance

Question 6

What is a value chain

Answer 6

Internal activities that a firm engages in when transforming inputs into outputs

• Every activity contributes along the horizontal chain, with each adding incremental value until the end product is produced
• Incremental costs is also included

Firm’s core competency is deployed through its activities hence are one of the key internal drivers of performance differences across firms (they way firms conduct themselves)

Primary activities add value directly while support activities add value indirectly, either by adding incremental value to product or lowering relative costs

Value Chain allows managers to see how competitive advantage flows from firm’s distinct set of activities
- Which activity contributes the most values and the ones with the least value but most costly

Question 7

What are the primary and secondary activities

Answer 7

Primary: Inbound logistics, operations, outbound logistics, marketing and sales, after sales service

Secondary/ Support: Firm Infrastructure, HR management, Tech & Development, Procurement