Ch 04 - Strategic Management - Internal Analysis - Part 3

Main Ideas, Concepts, and Lessons

Imitation After Innovation

• Imitation is common after innovation.
  • When a firm introduces a novel product or business model (e.g., Groupon, Apple/iPhone), other firms often copy and replicate once customers respond positively.
• As a result, innovators try to build barriers to imitation to sustain competitive advantage.

Five Mechanisms That Protect Innovators (Intentionally or Naturally)

1. Expectations of Future Resource Value

   • Innovators anticipate market changes and future demand for certain resources and capabilities.
   • Example: Google’s founders acquired domains similar to google.com early, but some were missed. Later, Google had to buy them at much higher prices because others had acquired/used them.

2. Path Dependence

   • Strategic moves take time, so leaders may enjoy an early advantage.
   • Example: When Apple introduced smartphones, competitors needed years to catch up due to lagging software/ecosystem readiness.
   • Example: Samsung could manufacture similar hardware, but initially lacked strong software capabilities; Android later helped.
   • Example: Toyota vs. GM in hybrid/electric cars—early market entry created time-based advantage, and later decisions influenced long-term outcomes.

3. Causal Ambiguity

   • Competitors struggle to identify the exact reasons for another firm’s success.
   • Example: In the 1970s–80s, the “Big Three” auto firms (Ford, GM, Chrysler) didn’t immediately understand why Toyota succeeded (e.g., capabilities like TQM and lean manufacturing).

4. Social Complexity

   • Some resources are rooted in culture, norms, and social systems, making them hard to replicate.
   • Example: “O.J.” Walmart vs. “Ali” (as referenced in the notes—context suggests “Ali/Ali(baba)” or related firms). Cultural differences can aid market success and are difficult for rivals to copy.
   • Example: Google’s unique culture is not easily reproduced by other firms.

5. Intellectual Property (IP) / Patents

   • Legal protection prevents others from using key innovations for a period.
   • Example: Amazon patented “one-click” buying; others can’t replicate it for years.
   • Example: Pharmaceutical patents help explain higher prices of branded drugs vs. generics.

From Strategy to Market Staying Power: Dynamic Capabilities

• Competitive environments change; firms must adapt by improving and reconfiguring resources.
• Dynamic capabilities are the ability to create, deploy, modify, reconfigure, upgrade, and leverage resources over time.
• Warning: firms can become rigid when they assume a unique resource will work forever. Competitors with better alternatives may take market share.

Internal Analysis via Porter’s Value Chain

Michael Porter’s framework divides firm activities into:

• Primary (direct) activities
• Support activities

Purpose: Analyze each activity to determine whether it:

• Creates unique customer value (differentiation), or
• Reduces business costs compared to rivals (cost leadership).

Value Creation vs. Cost Savings (Examples)

• Apple / Beats
  • Design and packaging/unboxing create perceived value, enabling premium pricing (even if costly and not strictly necessary).
• Alibaba / Walmart
  • Supply chain capabilities focus more on cost reduction, enabling lower prices.

Value Chain Components (10 elements)

• Support activities (examples listed)
  • Research & Development
  • Information Systems
  • Human Resources
  • Accounting
  • Appointments (wording unclear in subtitles; likely “procurement/appointments” or related infrastructure functions)
  • Firm infrastructure (policies, procedures, processes)
• Primary activities (examples listed)
  • Supply chain
  • Operations
  • Distribution
  • Marketing and sales
  • After-sales services

Connecting Internal and External Analysis: SWOT

• SWOT links analysis across two dimensions:
  • Internal analysis → Strengths and Weaknesses
  • External analysis → Opportunities and Threats
• The goal is not just listing factors, but using interactions between them to generate strategy.

SWOT Is Incomplete Without Insights and Strategies

• A table alone isn’t enough. Content must be translated into:
  • Insights (from interactions among S/W/O/T)
  • Strategic choices
• The video references “four SWOT questions” in addition to building the table (details not fully listed in the subtitles).

SWOT Strategy Logic and Example: PepsiCo

• Strength: soda/drinks with relatively large U.S. market share (2nd largest).
• Weakness: focus on unhealthy foods/drinks.
• Threat: consumer shift away from unhealthy options.
• Opportunity: sell healthier food.

Strategic actions described:

• Sold off brands like KFC and Taco Bell
• Used resources to acquire companies producing healthier products (examples given: Quaker, Tropicana)
• Shifted portfolio toward healthier offerings to reduce the threat from changing consumer preferences

Opportunities and Threats Can Be Subjective

• The same external trend can be:
  • an opportunity for one firm, and a threat for another—depending on response.
• Example: sugar reduction / healthier eating
  • Threat to makers of unhealthy drinks
  • PepsiCo treated it as an opportunity to gain market share from rivals (including Coca-Cola, described as responding less successfully)

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Methodologies / Instructions

A) Build Barriers to Imitation (Conceptual Steps)

1. Identify an innovation/product model others may copy.
2. Assume imitation is more likely when customers love the offering.
3. Use protective mechanisms:
   • Plan for future resource value (acquire key resources early when possible).
   • Exploit path dependence (benefit from time lag while competitors catch up).
   • Leverage causal ambiguity (keep the “why we win” hard to decode).
   • Rely on social complexity (cultivate culture/systems difficult to replicate).
   • Secure intellectual property (patents/protections where applicable).

B) Apply Porter’s Value Chain for Internal Analysis

• Break the organization into:
  • Primary activities
  • Support activities
• For each activity, evaluate:
  • Does it create unique value for customers?
  • Or does it mainly reduce costs vs. competitors?
• Use results to guide:
  • Differentiation strategy (unique value)
  • Cost leadership strategy (cost reduction)
• Compare activities against competitors to identify where the firm is truly distinct.

C) Use SWOT to Generate Strategies (Not Just a Table)

1. Build a SWOT table:
   • Strengths / Weaknesses (internal)
   • Opportunities / Threats (external)
2. Go beyond listing:
   • Use interactions among factors to develop strategy options.
3. When options are formed:
   • Compare them and choose the ones that fit the business best.
4. Treat opportunity/threat as relative:
   • Reframe trends based on the firm’s capabilities and responses.

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Speakers / Sources Featured

• Michael Porter (Value Chain framework)
• Larry Page (Google co-founder, referenced in the domain/resource example)
• PepsiCo (company example in SWOT)
• Toyota and GM (General Motors) (hybrid/electric and path dependence examples)
• Ford and Chrysler (causal ambiguity example context)
• Amazon (one-click patent example)
• Google (culture/resources and domain example)
• Apple (smartphones and design/packaging value example)
• Walmart and Ali (Alibaba/related “Ali” referenced in subtitles) (culture/value chain examples, as stated)
• Coca-Cola (rival example in the subjective opportunity/threat discussion)