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

Case Scenario : 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 the above Case Scenario) Which of the following best describes ERPI?

In the airline industry, frequent-flyer programs, ticket kiosks, and e-ticketing are all examples of capabilities that are ____ but no longer ____.

Describe a value chain analysis. How does a value chain analysis help a firm gain competitive advantage?

Gamma, Inc., has struggled for industry dominance with Ardent, Inc., its main competitor, for years. Gamma has gathered and analyzed large amounts of competitive intelligence about Ardent. It has observed as much of the firm's internal functioning and technology as it can legally, yet Gamma cannot understand why Ardent has a competitive advantage over it. The source of Ardent's success is

What are the differences between tangible and intangible resources? Which category of resources is more valuable to the firm?

Which of the following is a true statement about capabilities?

Case Scenario : 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 the above Case Scenario) How valuable, rare, costly to imitate, and nonsubstitutable are ERPI's capabilities?

Which of the following is NOT a reputational resource?

The key to maintaining competitive advantage and earning above-average returns over the long run is to effectively manage current core competencies

____ is/are the source of a firm's ____, which is/are the source of the firm's ____.

Creating customer value is the source of the firm's potential to earn above-average returns.

Because capabilities are often client-specific and/or based on the firm's human capital,

Define capabilities and how they affect the firm's strategic success.

By emphasizing core competencies when formulating strategies, companies learn to compete primarily on the basis of

Case Scenario : 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 the above Case Scenario) Why might an outsourcing arrangement with EdFex be attractive to Heartsong?

The need to meet quarterly earnings numbers disciplines managers to accurately examine the firm's internal organization.

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

Internal analysis enables a firm to determine what the firm

Several months ago, a restaurant developed a new appetizer that is a hit with customers. Many customers go to the restaurant just for the appetizer and it was at the center of a recent highly positive review by a food critic. Preparation involves common ingredients and average culinary skills levels, but requires a very high oven temperature which significantly increases utility costs. Several competing restaurants have since added their own version of the appetizer to their menu. Which criteria for assessing capabilities/core competencies is met?

A company can earn above-average returns only when the value it creates is less than the costs incurred to create that value.