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Chapter Three Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability “In preparing for battle I have always found that plans are useless, but planning is indispensable.” Internal Analysis Internal Analysis includes an assessment of: Quantity and quality of a company’s resources and capabilities Ways of building unique skills and company-specific or distinctive competencies Internal Analysis: Strengths and Weaknesses Internal Analysis: A Three-Step Process Understand the process by which companies create value for customers and profit for themselves. Resources Capabilities Distinctive competencies Understand the importance of superiority in creating value and generating high profitability. Efficiency Quality Analyze the sources of the company’s competitive advantage. Strengths – that are driving profitability Weaknesses – opportunities for improvement Competitive Advantage Competitive Advantage A firm’s profitability is greater than the average profitability for all firms in its industry. Sustained Competitive Advantage A firm maintains above average and superior profitability and profit growth for a number of years. Profitability in the Computer Industry, 1998-2003 Strategy, Resources, Capabilities, and Competencies Distinctive Competencies and Role of Resources and Capabilities Distinctive Competencies to Gain Competitive Advantage Competitive Advantage, Value Creation, and Profitability VALUE or UTILITY the customer gets from owning the product PRICE that a company charges for its products COSTS of creating those products Consumer surplus is the “excess” utility a consumer captures beyond the price paid. Value Creation per Unit Value Creation and Pricing Options Comparing Toyota
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