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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
C. Recognizing the Difficulty in Activity-Based Cost Accounting
1. It is important to note that existing financial management and accounting systems
a) Likewise, in virtually all firms, the information requirements to support
b) The time and energy to change to an activity-based approach can be
c) Challenges dealing with a cost-based use of VCA have not deterred use of
2. Identify the Activities That Differentiate the Firm
a) Scrutinizing a firm’s value chain may not only reveal cost advantages or
b) Exhibit 6.6, Possible Factors for Assessing Sources of Differentiation in
3. Examine the Value Chain
a) Once the value chain has been documented, managers need to identify the
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
(1) First, the company’s basic mission needs to influence managers’ choice
(2) Second, the nature of value chains and the relative importance of the
(3) Third, the relative importance of value activities can vary by a
d) It is important that mangers take into account their level of vertical
(1) Comparing a fully integrated rival with a partially integrated one
(2) It also suggests the need for examining costs associated with activities
(3) Said another way, one company’s comparative cost disadvantage (or
III. Competitive Advantage via Customer Value: Three Circles Analysis
A. Three circles analysis is an internal analysis technique wherein strategists examine
B. Exhibit 6.7, Three Circles Analysis, visually describes how strategists should use this
tool.
IV. Resourced-Based View of the Firm
A. The Toyota-Ford situation provides a useful illustration for understanding several
concepts central to the resource-based view (RBV) of the firm.
1. The RBV is a method of analyzing and identifying a firm’s strategic advantages
2. The RBV’s underlying premise is that firms differ in fundamental ways because
3. Each firm develops competencies from these resources, and, when developed
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
4. A core competence is a capability or skill that a firm emphasizes and excels in
B. Three Basic Resources: Tangible Assets, Intangible Assets, and Organizational
Capabilities
1. The RBV’s ability to create a more focused, measurable approach to internal
2. Tangible assets are the easiest “resources” to identify and are often found on a
firm’s balance sheet.
a) They include production facilities, raw materials, financial resources, real
b) Tangible assets are the physical and financial means a company uses to
3. Intangible assets are “resources” such as brand names, company reputation,
a) While they are not assets that you can touch or see, they are very often
4. Organizational capabilities are not specific “inputs” like tangible or intangible
C. What Makes a Resource Valuable?
1. Once managers identify their firm’s tangible assets, intangible assets, and
organizational capabilities, the RBV applies a set of guidelines to determine which
when they
(1) Are critical to being able to meet a customer’s need better than other
alternatives.
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
2. RBV Guideline1: Is the resource or skill critical to fulfilling a customer’s need
better than that of the firm’s competitors?
a) Two restaurants offer similar food, at similar prices, but one has a location
b) The tangible asset, location, helps fulfill daytime workers’ lunch-eating
3. RBV Guideline 2: Is the resource scarce? Is it in short supply or not easily
substituted for or imitated?
a) Short Supply
(1) When a resource is scarce, it is more valuable.
(2) When a firm possesses a resource and few if any others do, and it is
(3) Literal physical scarcity is perhaps the most obvious way a resource
(4) Very limited natural resources, a unique location, skills that are truly
b) Availability of Substitutes
(1) We discussed the threat of substitute products in Chapter 3 as part of the
(2) This basic idea can be taken further and used to gauge the scarcity-
c) Imitation
(1) A resource that competitors can readily copy can only generate
temporary value.
d) The scarcity that comes with an absence of imitation seldom lasts forever.
(1) Physically unique resources are virtually impossible to imitate.
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
e) While we may be inclined to think of the ability to imitate a resource as a
4. RBV Guideline 3: Appropriability: Who actually gets the profit created by a
resource?
a) Sports teams, investment services, and consulting businesses are examples of
5. RBV Guideline 4: Durability: How rapidly will the resource depreciate?
a) The slower a resource depreciates, the more valuable it is.
b) Tangible assets, such as commodities or capital, can have their depletion
measured.
D. Using the Resource-Based View in Internal Analysis
1. To use the RBV in internal analysis, a firm must first identify and evaluate its
resources to find those that provide the basis for future competitive advantage. It
is helpful to:
a) Disaggregate resources – break them down into more specific
b) Utilize a functional perspective. Looking at different functional areas of the
c) Look at organizational processes and combinations of resources and not only
d) Use the value chain approach to uncover organizational capabilities,
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
2. Once the resources are identified, managers apply the four RBV guidelines for
uncovering “valuable” resources.
a) The objective for managers at this point is to identify resources and
3. If a resource creates the ability to meet a unique customer need, it has value.
a) But if it is not scarce, or if it is easily imitated, it would be unwise to build a
b) If a resource provided the basis for meeting a unique need, was scarce, was
4. The key point here is that applying RBV analysis should focus on identifying
resources that contain all sources of value identified in our four guidelines.
a) Consider the diagram in Exhibit 6.11, Applying the Resource-Based View
to Identify the Best Sources of Competitive Advantage.
5. By using RBV, value chain analysis, and SWOT analysis, firms are virtually
a) Central to the success of each technique is the strategists’ ability to make
IV. Internal Analysis: Making Meaningful Comparisons
A. Managers need objective standards to use when examining internal resources and value-
building activities.
B. Comparison with Past Performance
1. Strategists use the firm’s historical experience as a basis for evaluating internal
factors.
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
2. Managers are most familiar with the internal capabilities and problems of their
3. Not surprisingly, a manager’s assessment of whether a certain internal factor—
4. Although historical experience can provide a relevant evaluation framework,
C. Benchmarking: Comparison with Competitors
1. A major focus in determining a firm’s resources and competencies is comparison
with existing (and potential) competitors.
a) Firms in the same industry often have different marketing skills, financial
b) These different internal resources can become relative strengths (or
c) In choosing a strategy, managers should compare the firm’s key internal
2. Benchmarking, or comparing the way “our” company performs a specific activity
a) Particularly as the value chain framework has taken hold in structuring
internal analysis, managers seek to systematically benchmark the costs and
b) The ultimate objective in benchmarking is to identify the “best practices” in
c) Companies committed to benchmarking attempt to isolate and identify where
D. Comparison with Success Factors in the Industry
1. Industry analysis (see Chapter 4) involves identifying the factors associated with
successful participation in a given industry.
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
2. As was true for the evaluation methods discussed earlier, the key determinants of
3. By scrutinizing industry competitors as well as customer needs, vertical industry
4. The discussion in Chapter 4 provides a useful framework—five industry forces—
E. Product Life Cycle
1. Product life cycle (PLC) is one way to identify success factors against which
2. As seen in Exhibit 6.14, Illustration of the Product Life Cycle, there are four
3. Core competencies associated with success are thought to vary across different