Chapter 5 ORGANIZATIONAL ANALYSIS AND COMPETITIVE ADVANTAGE

Chapter 5
ORGANIZATIONAL ANALYSIS AND

COMPETITIVE ADVANTAGE
CORE AND DISTINCTIVE COMPETENCIES
• Resources are an organization’s assets and are thus the basic building
blocks of the organization. They include tangible assets (such as its
plant, equipment, finances, and location), human assets (the number
of employees, their skills, and motivation), and intangible assets (such
as its technology [patents and copyrights], culture, and reputation).
• Capabilities refer to a corporation’s ability to exploit its resources.
They consist of business processes and routines that manage the
interaction among resources to turn inputs into outputs
CORE AND DISTINCTIVE COMPETENCIES
• A core competency is a collection of competencies that

crosses divisional boundaries, is widespread within the
corporation, and is something that the corporation can
do exceedingly well.
• When unique resources and/or core competencies are

superior to those of the competition, they are called
distinctive competencies
VRIO FRAMEWORK
1. Valuable: Does it provide customer value and competitive advantage?

2. Rareness: Does only one other competitor or preferably do no possess it at
relatively the same level?
3. Imitability: Do the competitors have the financial ability (viewed in the
widest sense) to imitate?
4. Organization: Is the firm organized to exploit the resource?
Imitability
• is the rate at which a firm’s underlying resources, capabilities, or

core competencies can be duplicated by others. To the extent that
a firm’s distinctive competency gives it competitive advantage in
the marketplace, competitors will do what they can to learn and
imitate that set of skills and capabilities. Competitors’ efforts may
range from reverse engineering (which involves taking apart a
competitor’s product in order to find out how it works), to hiring
employees from the competitor, to outright patent infringement. A
core competency can be easily imitated to the extent that it is
transparent, transferable, and replicable.
Transparency
• is the speed with which other firms can

understand the relationship of resources and
capabilities supporting a successful firm’s
strategy.
Transferability
• is the ability of competitors to gather the resources and

capabilities necessary to support a competitive
challenge.
Replicability
• is the ability of competitors to use

duplicated resources and capabilities to
imitate the other firm’s success.
• It is relatively easy to learn and imitate another company’s
core competency or capability if it comes from explicit
knowledge—that is, knowledge that can be easily articulated
and communicated. This is the type of knowledge that
competitive intelligence activities can quickly identify and
communicate. Tacit knowledge, in contrast, is knowledge
that is not easily communicated because it is deeply rooted
in employee experience or in a corporation’s culture
BUSINESS MODEL
A business model is a company’s method for making money in the

current business environment. It includes the key structural and operational
characteristics of a firm—how it earns revenue and makes a profit. A business
model is usually composed of five elements:
■ Who it serves
■ What it provides
■ How it makes money
■ How it differentiates and sustains competitive advantage
■ How it provides its product/service
The simplest business model is to provide a good or service that can
be sold such that revenues exceed costs and all expenses
BUSINESS MODEL
■ Customer solutions model ■ Entrepreneurial model

■ Profit pyramid model ■ De facto industry standard model
■ Multicomponent system/installed base model
■ Advertising model
■ Switchboard model
■ Time model
■ Efficiency model
■ Blockbuster model
Profit multiplier mode
Value Chain Analysis
A value chain is a linked set of value-creating activities that begin

with basic raw materials coming from suppliers, moving on to a series
of value-added activities involved in producing and marketing a
product or service, and ending with distributors getting the final
goods into the hands of the ultimate consumer. Value-chain analysis
works for every type of business regardless of whether they provide a
service or manufacture a product. The focus of value-chain analysis is
to examine the corporation in the context of the overall chain of
value-creating activities, of which the firm may be only a small part.
Value Chain Analysis
PRIMARY
RAW MATERISLS FABRICATION DISTRIBUTOR RAW MATERISLS
MANUFACTURING
CORPORATE VALUE CHAIN ANALYSIS
1. Examine each product line’s value chain in terms of the various

activities involved in producing that product or service.
2. Examine the “linkages” within each p
roduct line’s value chain.
3. Examine the potential synergies among the value chains of
different product lines or business units
BASIC ORGANIZATIONAL STRUCTURE
■ Simple structure has no functional or product categories and is appropriate

for a small, entrepreneur-dominated company with one or two product lines
that operates in a reasonably small, easily identifiable market niche.
■ Functional structure is appropriate for a medium-sized firm with several
product lines in one industry.
■ Divisional structure is appropriate for a large corporation with many product
lines in several related industries.
■ Strategic business units (SBUs) are a modification of the divisional structure.
■ Conglomerate structure is appropriate for a large corporation with many
product lines in several unrelated industries.
Corporate Culture
• is the collection of beliefs, expectations, and values

learned and shared by corporation’s members and
transmitted from one generation of employees to another.
The corporate culture generally reflects the values of the
founder(s) and the mission of the firm.
Corporate Culture
Cultural Intensity is the degree to which members of a unit

accept the norms, values, or other cultural content
associated with the unit.
Cultural Integration is the extent to which units throughout
an organization share a common culture. This is the culture’s
breadth. s
Market Position and Segmentation
Market position deals with the question, “Who are our customers?”
It refers to the selection of specific areas for marketing
concentration and can be expressed in terms of market, product,
and geographic locations. Through market research, corporations
are able to practice market segmentation with various products or
services so that managers can discover what niches to seek, which
new types of products to develop, and how to ensure that a
company’s many products do not directly compete with one
another.
Marketing Mix
Marketing mix refers to the particular

combination of key variables under a
corporation’s control that can be used to
affect demand and to gain comp
Corporate Reputation
• A corporate reputation is a widely held

perception of a company by the general
public. It consists of two attributes: (1)
stakeholders’ perceptions of a corporation’s
ability to produce quality goods and (2) a
corporation’s prominence in the minds of
stakeholders.
Brand
• A brand is a name given to a company’s product which embodies

all of the characteristics of that item in the mind of the consumer.
Over time and with effective advertising and execution, a brand
connotes various characteristics in the consumers’ minds.
• The concept of financial leverage (the ratio of total debt to total
assets) is helpful in describing how debt is used to increase the
earnings available to common shareholders.
• Capital budgeting is the analyzing and ranking of possible
investments in fixed assets such as land, buildings, and equipment
in terms of the additional outlays and additional receipts that will
result from each investment.
• A conceptual framework that many large corporations have used
successfully is the experience curve (originally called the learning
curve). The experience curve suggests that unit production costs
decline by some fixed percentage (commonly 20%–30%) each time
the total accumulated volume of production in units doubles.
• Supply chain management is the forming of networks for sourcing
raw materials, manufacturing products or creating services,
storing and distributing the goods, and delivering them to
customers and consumers.

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Chapter 5

ORGANIZATIONAL ANALYSIS AND

• A core competency is a collection of competencies that

• When unique resources and/or core competencies are

1. Valuable: Does it provide customer value and competitive advantage?

• is the rate at which a firm’s underlying resources, capabilities, or

• is the speed with which other firms can

• is the ability of competitors to gather the resources and

• is the ability of competitors to use

A business model is a company’s method for making money in the

■ Customer solutions model ■ Entrepreneurial model

A value chain is a linked set of value-creating activities that begin

1. Examine each product line’s value chain in terms of the various

■ Simple structure has no functional or product categories and is appropriate

• is the collection of beliefs, expectations, and values

Cultural Intensity is the degree to which members of a unit

Marketing mix refers to the particular

• A corporate reputation is a widely held

• A brand is a name given to a company’s product which embodies

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