Exam 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages

Primary activities in the value chain create value, whereas support activities in the value chain generate costs.

From a customer's point of view, for an organization's capability to be a core competence it must be

Trademarks and copyrights are examples of a firm's tangible resources.

A firm should always outsource primary and support activities for which its resources and capabilities are not a source of competitive advantage

Case Scenario 1: Heartsong LLC. Heartsong LLC is a designer and manufacturer of replacement heart valves based in Peoria, Illinois. While a relatively small company in the medical devices field, it has established a worldwide reputation as the provider of choice high-quality, leading-edge artificial heart valves. Most of its products are sold to large regional hospital systems and research hospitals. Specialty heart centers are another emerging, but fast-growing, market for its valves. While Heartsong would like to grow quickly, its growth is constrained by the need to finance larger production runs and then carry this additional inventory. For products like those of Heartsong, vendors typically do not collect payment until the unit is actually used in surgery. Moreover, heart valves are usually required on short notice which means that they must be either onsite, or inventoried at a nearby location. If nearby, then transport of the unit to a hospital or heart center occurs within a matter of hours, and sometimes minutes. For this reason, accelerated growth would require Heartsong to both finance increased production of its heart valves, along with carrying increased levels of inventory that are in fact sitting on their customers' shelves. In fact, inventory-carrying cost is its single largest cost outside of research and development. While profitable growth is necessary if Heartsong is to continue extending its competitive advantage through increasingly greater investments in basic heart valve R&D, it is not clear that the company can internally support all these increased financial commitments (R&D, manufacturing, and inventory). Doc Watson, the CEO of Heartsong, is considering an outside contractor, EdFex, to handle the inventorying, warehousing, and delivery of its valves. EdFex has secure, high-tech warehouses in most major population centers around the country, and can ensure delivery of a product to these markets from its warehouses in less than one hour. -(Refer to Case Scenario 1) What value-chain activities appear to underlie Heartsong's competitive advantage?

Given enough time, any firm's competitive advantage can be imitated by its competitors.

A veterinary practice has added a pet boarding and grooming facility. Most of the practice's competitors also provide these services. The veterinary practice is gaining competitive

Outsourcing can add value to the product provided to the customers.

Capabilities of an organization emerge spontaneously through the interaction of tangible and intangible resources.

Capabilities may be costly to imitate if they are causally ambiguous or socially complex.

A useful rule for evaluating whether a capability is a core competence is its historical ability to provide sustainable competitive advantage for the firm.

Case Scenario 2: ERP Inc. ERPI is a leading provider of enterprise integration software (EIS). EIS allows a firm to connect and integrate processes across all aspects of its business, regardless of where they are located around the world. ERPI is a product-focused company, whereas most competitors in its market space, like Oracle, operate as "solutions companies." Oracle and Microsoft have begun to devote considerable resources to the development of and acquisition of products to compete in the EIS space. Despite these recent threats, one benefit of its product-focused strategy is that ERPI's proprietary product is generally recognized as being 200% to 300% better than competitors' software. ERPI estimates it will take 2 to 3 years for competitors to develop the capabilities needed to bring a competing product to market. ERPI invests a considerable percentage of its profits in basic R&D to support its core products. As evidence of this, among its competitors the firm maintains the largest in-house programming staff dedicated solely to the development of advanced enterprise integration software. Installation and related consulting for EIS typically cost between $100 and $200 million, with the ERPI software component accounting for about 20% of the installed cost (the remaining 80% is spent on the actual installation, not counting the value of the customer's time). ERPI's target market consists of the world's largest manufacturing and industrial firms and it currently enjoys a 60 percent market share. -(Refer to Case Scenario 2) If the time for the competitor to produce a product similar to ERPI's were 2-3 months instead of 2-3 years, which portion of your assessment of ERPI's capabilities would change?

Based on the strategic focus in Chapter 3, which of Hyundai's capabilities appears LEAST aligned with the value customers seek?

A firm with a unique organizational culture and proprietary processes developed over a long period of time

Describe the importance of internal analysis to the strategic success of the firm.

Leslie Wexner's comment that "Success begets failure" refers to the fact that as time passes, successful firms become complacent about the strength of their core competencies.

Firms that achieve competitive parity can expect to

Which of the following is NOT a reputational resource?

Case Scenario 3: B.B. Mangler. B.B. Mangler is a top U.S. business-to-business distributor of maintenance, repair, and service equipment, components, and supplies such as compressors, motors, signs, lighting and welding equipment, and hand and power tools. Customers include contractors, service and maintenance shops, manufacturers, hotels, government, and health care and educational facilities. Mangler's industry is typically referred to as MRO, which is an acronym for maintenance, repair, and supplies. Mangler states its strategy as having the "capacity to quickly offer an unmatched breadth of lowest total cost MRO solutions to business." Mangler's GoMRO sourcing center for indirect spot buys locates products through its unique database of 8,000 suppliers and 5 million products. Mangler also dominates the North American market in terms of its sheer local physical presence. It has 388 physical branches in the U.S. largest cities, including Puerto Rico (90% of sales), 184 in Canada, and five in Mexico. This physical presence also has garnered them a reputation for excellent, dependable service in their target markets, which in turn translates into a vast and loyal clientele. -(Refer to Case Scenario 3) Mangler's physical locations are best an example of

Compared to tangible resources, intangible resources are an inferior source of core competencies.