Rural Management in Pepsi

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					Today: Internal Analysis
  Administrative issues
  Current Events
  Chapter 4: Internal Scanning
  Value Chain Analysis
  RCA Records Case Analysis
  Team Assignment

WEBSITE:
www.sba.pdx.edu/faculty/stephens/ss.html
Resources & Capabilities
 Strategy From Resource-based Perspective

 How do resources create competitive
 advantage?

 Value-Chain Analysis
    Strategic Analysis -Where Do
    We Stand?
 Resources
& Capabilities                                              Industry
                                                            Analysis
                 Strengths &              Opportunities
                 Weaknesses                & Threats



 Internal                      Strategy                   External
 Factors                                                  Factors


                  Values Of                Values Of
                 Management               Stakeholders
The Role of Strategy In Business - The Linkage
Between Strategy, Resources, & Organization



                         Position




         Resources
                                    Organization
        & Capabilities
The Challenges Of Resource-
Based Strategy
 What Resources Do We Have?
 Are They Fully Exploited?
 How Else Could We Exploit Our Resources?
 What Resources & Capabilities Are We Going To
 Need In The Future?
 How Do We Build Those Resources &
 Capabilities?
Resource-Based View
 Two Basic assumptions of RBV:

   Resource heterogeneity:
    • Firms possess different bundles of resources


   Resource immobility:
    • Resources are sticky- they are difficult to imitate
     and don’t move quickly between firms
Resource-Based View
Core competencies = company strengths that
competitors cannot easily match or imitate
  sources of competitive advantage.
Core competencies arise from:
   Resources = financial, physical, human,
  technological, and organizational assets of the firm;
  tangible resources (land, buildings, plant and
  equipment); intangible resources (brand names,
  reputation, patents, and technological or marketing
  know-how)
   Capabilities = company's skills at coordinating
  resources and putting them to productive use; reside
  in organizational routines (internal processes,
  structure, culture)
Some Terminology

Resources
• Assets
• Inanimate Objects
• “Nouns,” “Things”

Capabilities
• Skills, Aptitudes
• Activities
• “Verbs,” “Doing
   Things”
Different Types Of Resources
 Physical Assets
   Plant, Equipment, & Real Estate
 Financial Assets
   Cash & Leverage
 Human Assets
   Individual Skills & Capabilities
 Intangible Assets
   Brand Names, Technology, Reputation
 Organizational Assets
   Organizational Routines & Team-Embodied Skills
Example: Walmart

Resources
   superior store locations
    •   located in rural or semi-rural areas with little or no direct competition.
   strong brand reputation
    •   customers know that prices are extremely low and quality is acceptable.
   employee loyalty
    •   lower turnover and thus lower labor costs than competitors.



Capabilities
 supply chain management
 ability to motivate workers with a minimum of supervision and
controls
                       Core Competencies

Resources
• Inputs to a firm’s                                  Core Competence
  production process                                  • A strategic capability


                                             Does the capability satisfy
                                             the criteria of sustainable      YES
   The source of       Capability            competitive advantage?
                       • Integration of a
                         team of resources                                    NO


                                                      Capability
                                                      • A nonstrategic team
                                                        of resources
Core competence
 What are the core competencies of these firms?

   McDonald’s

   Ford Motor

   Intel

   Coke
How Do Resources and Capabilities Lead To
Competitive Advantage? (VRIO Framework)

  Valuable
    Does it create “value” for the customer
  Rare
    Do other firms have similar resources
  Difficult to Imitate
    Unique Historical Conditions (Southwest Airlines)
    Special environmental forces
  Organization
    Are you organized to take advantage of your resources
    Appropriable: ability of stakeholders to bargain profits
    away
 Profit-Earning Potential Of
 Resources & Capabilities

                                  Rareness
                  Magnitude
                 of Advantage     Value



Profit-Earning
  Potential

                                   Imitability
                 Sustainability
                 Of Advantage
                                    Organization
    But beware!

   The harder you make it to imitate a resource, the
    more likely it is someone will find a substitute for it.

   Dell pioneered direct mail/internet based marketing
    for PCs because it was locked out of the normal
    distribution channels.

   Canon built highly reliable copiers to neutralize
    Xerox’s advantage of servicing capabilities
Inertia & Inflexibility -
The Darkside of the Resource-based Approach

 The Problem of Inertia
    Isolating mechanisms are almost never permanent.
    Changes in technology or consumer demand can make
    them obsolete
    Unexpected technological developments or changes in
    demand allow entrepreneurs to create new competencies


 Overcoming These Obstacles
    Experimentation & Renewal
Core Competencies -- Cautions and
Reminders
Never take for granted that core competencies will continue to
provide a source of competitive advantage
All core competencies have the potential to become Core
Rigidities
Core Rigidities are former core competencies that sow the
seeds of organizational inertia and prevent the firm from
responding appropriately to changes in the external
environment
Strategic myopia and inflexibility can strangle the firm’s ability
to grow and adapt to environmental change or competitive
threats
    A core rigidities story

   Through WWII, Coke was it. It had a
    beautiful product design—the 7oz. Bottle.

   Pepsi turned this into a disadvantage—by
    selling 12 oz. Pepsi—for the same price as
    Coke.

 Coke’s  design cost it market share, as “cheap
    consumers” bought the “better value”
Vertical Chain of Production in (Branded) Soft Drink Production


     Corn Syrup Production
          (e.g.ADM)

                                                                  Container Production
    Concentrate Production                                      (e.g. Crown Cork & Seal)
          (PEPSI)



                                        Bottling
                             (independent franchise bottlers)


                                       Distribution                            Marketing
                             (Independent franchise bottlers)                   (Pepsi)



      Fountain Outlets                   Retail
      (e.g. Taco Bell)
                                  (e.g. Walmart,7-11)
Identifying A Firm’s Resources & Capabilities
Through Value Chain Analysis

 What Sequence of Activities Are Involved
 In Creating Value?
 Firm Infrastructure
 Human Resource Management




                                                            MARGIN
  Technology & Product Development

 Purchasing Production   Distribution Marketing   Service
 & Inbound                            & Sales
 Logistics
The Value Chain

Primary activities = involved in the physical
creation of the product, its marketing and
delivery to consumers, and after-sales service
and support.

Support activities = provide the inputs that
allow the primary activities to take place.
Using Value Chain Analysis To Determine
The Sources of Competitive Advantage
Beyond simply using a value chain analysis to “map
out” the sequence of activities, we need to do the
following:

  What is the cost structure of each of these activities?

  How do we compare with other competitors in each of
  these areas? What are our strengths and weaknesses?
Value Chain Analysis
Step 1. Disaggregate the firm into separate activities.

Step 2. Identify the resources and capabilities
associated with each activity.

Step 3. Assess resources and capabilities in terms of
their contributions to strategy.

Step 4. Assess linkages across activities.

Step 5. Determine what incremental or revolutionary
changes are needed.
  The Value Chain
To gain a competitive advantage over its rivals, a
  company must either
   (1)perform value-creation functions at a lower cost or
   (2)perform them in a way that leads to differentiation and a
      premium price.
Cost Advantage
      • Technology
      • Manufacturing
      • Organization & Culture
Differentiation Advantage
      • Marketing, Sales & Service
      • Brand Name Capital
      • Product Development Organization
Value Chain Analysis
 What Sequence of Activities Are Involved
 In Creating Value for an organization?
 Firm Infrastructure
 Human Resource Management




                                                            MARGIN
  Technology & Product Development

 Purchasing Production   Distribution Marketing   Service
 & Inbound                            & Sales
 Logistics
Value Chain Analysis of
activities
 What are the primary activities?
 What are the support activities?
 What are company’s core competencies?
 How should a company reconfigure the value
 chain to gain a competitive advantage?
   Determine the boundaries of the firm (in-house,
   outsource, or partnership)
   Vertical and horizontal integration
   Geographical location of activities
 Develop coordination where linkages are critical.
 Coherence.
   SWOT Analysis
A simple tool for positioning analysis
Internal Factors
Strengths
Weaknesses

Let’s apply this to what we know about Southwest Airlines.
External Factors
Opportunities
Threats

Is it okay to have weaknesses? How can a
  company mitigate threats?
Dangers of this tool
 Static vs. Trends
 Strategic fit
 Distinct competence vs. competitive
 advantage
The Internal Environment
The Strengths and Weakness of the Firm

 A Firm’s Tangible & Intangible Resources
 combine with Firm’s Capabilities to create
 Distinctive Competencies

 Distinctive Competencies – those activities
 that a firm performs better than any
 competing firm
The Internal Environment
The Strengths and Weakness of the Firm

 Sustained Competitive Advantage – firms that
 possess and exploit costly to imitate, rare, and
 valuable resources & capabilities in choosing
 and implementing their strategies may enjoy a
 period of sustained competitive advantage and
 above normal economic profit.
The Internal Environment
The Strengths and Weakness of the Firm

Tangible Resources:
manufacturing firm’s property & equipment,
R & D firm’s patents,
telephone company’s network of wire, cable,
 and satellites, …
The Internal Environment
The Strengths and Weakness of the Firm

Intangible Resources:
 well-known and trusted brand names,
 firm’s good reputation,
 knowledgeable and creative workforce,
 unifying corporate culture,
 international firm’s experience with national
   governments,
 visionary leader with strong motivation and
   communications skills,…
The Internal Environment
The Strengths and Weakness of the Firm


  Capabilities
Emerge over time through complex interaction
between and among tangible and intangible resources.
Become stronger and more valuable strategically
through repetition and practice.
Skills and knowledge of firm’s employees, including
functional expertise (human capital)
The Internal Environment
The Strengths and Weakness of the Firm

     Capabilities

     Examples:
     • Just-in-time (JIT) delivery and well-trained
       inventory specialists
     • Database management systems and effective
       market research efforts
The Internal Environment
The Strengths and Weakness of the Firm
             Value Chain Analysis
Primary Activities         Secondary Activities
Inbound Logistics         Firm Infrastructure
Operations                Human Resource
Outbound Logistics          Management
Marketing and Sales       Technology Development
Customer Service          Procurement
The Internal Environment
      Life Expectancy of Sustained Competitive
                    Advantage
Length of Innovation Cycle the faster the cycle, the easier it is
to take away competitive advantage
 Example: New generation of cameras born about every 10
 months

Number of Dimensions of Customer Value the more
dimensions, the easier it is for competitors to find ways of
eroding competitive advantage
Example: An I-beam is an I-beam, but an automobile comes in
many shapes, sizes, etc.
The Internal Environment
     Life Expectancy of Sustained Competitive
                     Advantage

Switching Costs Between Rivals: the easier it is to switch, the
  easier it is to take away competitive advantage
Example: Difficulty in switching between office systems
  management service providers versus ease of switching between
  office supplies provider.
Questions for RCA Records
 How are industry changes affecting
 traditional record companies, new entrants,
 artists, and retailers?
 Describe RCA’s business strategy.
 Where do you envision the music industry
 in three to five years?
 What, if anything, should RCA do
 differently?
Next Time: Strategic Coherence
 Read Chapter 5
 Handout on Strategic Coherence
 Team Time
 Assign American Airlines Case




WEBSITE:
 www.sba.pdx.edu/faculty/stephens/ss.html

				
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