help with disc due in 48 hours

due in 48 hours

attached

Week 3 Discussion (GRADED)

Instructions:

Please refer to the Discussion Grading Rubric before starting the assignment. Read the Case Scenario and answer the three questions that follow.  Be careful to address each question posed. Include APA formatted in-text citations and a reference list. (In this class, all applicable citations should contain the page or paragraph numbers. The only exceptions are videos or podcasts.)

Use the lettering system indicated below to post your answers. Your answers should be listed in sections labeled “A” through “C.”

Michael Porter — An Icon of Competitive Strategy and Competitive Advantage

Every business student would be well served by becoming conversant with Porter’s models. Michael E. Porter was (and may still hold the distinction) of being the youngest professor to receive tenure in Harvard University’s history. He has been on the Harvard Business School faculty since 1973. It would not be easy to find an academic article, book, or textbook dealing with competitive strategy and competitive advantage written in the past 50 years that does not mention the impact of Porter’s theories.

In Competitive Strategy (1980), as you learned in week 2, Porter identifies five industry forces that managers must consider in developing market strategies. The five forces Porter’s model identifies are: (1) the threat of new entrants into the market, (2) the bargaining power of customers in the industry, (3) the bargaining power of suppliers in the industry, (4) the threat of substitute products or services entering the market, and (5) the price competition or other forms of rivalry among existing firms in the market. The application of the five forces model recurs throughout the course. 

Porter pursues the theme of global competition in his 1985 book, Competitive Advantage, where he notes that companies must select a strategy of cost leadership (e.g., Costco), which is contingent upon a large market share, or a strategy of differentiation (e.g., Nordstrom), which pursues a smaller market share but has an exclusivity advantage.  It is this part of Porter’s work we will focus on this week.  Porter’s books rank among the best-selling business books.   

Porter, E. M. (1980). Competitive strategy:  Techniques for analyzing industries and competitors.  Free Press.

Porter, E. M. (1985). Competitive advantage: Creating and sustaining superior performance.  Free Press.

Case Scenario:  Smithfield Custom Furniture:

Smithfield Custom Furniture has done extremely well since its founding in 1903.  Smithfield has focused on selling reasonably priced furniture since its inception. Now 2001, the company has been headed by the founder’s granddaughter,  Joan Smithfield (CEO). She has run the company for the past twenty years. Today, the company has 247 retail stores. 220 stores are spread throughout the 50 states, and 27 stores are located in England, France, and Germany. Each country has 9 stores. The company employs 13,000 people.

For the past 20 years, Joan Smithfield has been aware of the financial growth in a large workforce segment, primarily due to more women in the workforce holding full-time and professional occupations. She knows, too, that the reasonably priced furniture market has become saturated with other competitors during this time.  

The company does all its manufacturing in the United States at six facilities, which recently were modernized with the latest equipment.  Although recently modernized, Smithfield’s production plants are not producing at maximum capacity. Joan realizes the plants could produce more and different types of furniture.

The Board of Directors is pressuring Joan to diversify Smithfield’s product line. Everyone on the board, including Joan, agrees diversification is needed. Everyone agrees, too, a new line of furniture needs to be added.

However, the 12-member Board of Directors is evenly divided on whether the new line of furniture should be 1) massed produced, mass-marketed, and sold at the lowest price point possible or 2) whether the new line of furniture should be a very upscale line of furniture, custom-crafted and produced from the most expensive and exotic woods, exclusively marketed to the top 7.5% of world-wide income earners. The Smithfield plants have the capacity and capability to develop and produce either but not both lines of new furniture.   

Joan Smithfield has been a longtime admirer of Michael Porter. She met Porter a few times over the years at various seminars and business functions.   

Your Task for Your Initial Post: 

In your role as a senior strategy analyst at Smithfield Custom Furniture, CEO Joan Smithfield has requested you to provide to her a memorandum that addresses A-C below.  

A. Explain, using the link provided to Porter’s Competitive Advantage Model, how Porter’s Competitive Advantage model applies to the Smithfield’s Board of Directors’ issue of deciding to produce a very exclusive furniture line or a mass-produced, mass-marketed furniture product line. Use in-text citations as appropriate.  

Stages and Types of Strategy

B. Select the best strategy for the Smithfield company to pursue from the two strategies Porter presents in his model and explain why that particular strategy is better than the alternative.   

C. Using this week’s course readings, assuming Joan Smithfield accepts your recommendation, what is the next action she should take to determine if your recommendation is correct? Be specific. Use in-text citations and list references from course readings as required. 

Other Writing Guidelines for this Discussion:

· Use the grading rubric while completing the project to ensure all requirements are met to lead to the highest possible grade.  

· Third-person writing is required. The third person means no words such as “I, me, my, we, or us” (first-person writing).

· Contractions are not often used in business writing, so do not use them here. 

· Paraphrase – do not use direct quotations. This means that you will put the ideas of an author or article into your own words rather than lift them directly from a source document. You may not use more than four consecutive words from a source document (including the case scenario) or change words in a passage as doing so would require direct quotation marks.  Use a passage from a source document by putting it into your own words (paraphrase) and attribute the passage to the source document. Changing words from a passage does not exclude the passage from having to have quotation marks. If direct quotes are presented, they will not be included in the grading.

· Use in-text citations and provide a reference list that contains a reference associated with each in-text citation. 

· Only course materials (from this course’s content) may be used. Sources other than this course’s eBook or the course materials listed under content will not be considered sources of support.

· Provide the page or paragraph number in every in-text citation presented. Refer to this link for more guidance on how to do this: 

 In-Text Citations – Including Page or Paragraph Numbers.

Read and View:

Mastering Strategic Management: (Scroll down to see chapter readings)

· Chapter 4:Managing Firm Resources

·

Introduction to Industry Analysis (13.43 minutes)

SaylorURL: http://www.saylor.org/books Saylor.org
101

Chapter 4

Managing Firm Resources

L E A R N I N G O B J E C T I V E S

After reading this chapter, you should be able to understand and articulate answers to the following

questions:

1. What is resource-based theory, and why is it important to organizations?

2. In what ways can intellectual property serve as a value-added resource for organizations?

3. How should executives use the value chain to maximize the performance of their organizations?

4. What is SWOT analysis and how can it help an organization?

Southwest Airlines: Let Your LUV Flow

Southwest Airlines’ acquisition of AirTran in 2011 may lead the firm into stormy skies.

Chapter 4 from Mastering Strategic Management was adapted by The Saylor Foundation under
a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 license without attribution as requested

by the work’s original creator or licensee. © 2014, The Saylor Foundation.

http://www.saylor.org/site/textbooks/Mastering%20Strategic%20Management

http://creativecommons.org/licenses/by-nc-sa/3.0/

Saylor URL: http://www.saylor.org/books Saylor.org
102

Image courtesy of Stuart Seeger,http://en.wikipedia.org/wiki/File:Southwest_737_At_Burbank

In 1971, an upstart firm named Southwest Airlines opened for business by offering flights between

Houston, San Antonio, and its headquarters at Love Field in Dallas. From its initial fleet of three airplanes

and three destinations, Southwest has grown to operate hundreds of airplanes in scores of cities. Despite

competing in an industry that is infamous for bankruptcies and massive financial losses, Southwest

marked its thirty-eighth profitable year in a row in 2010.

Why has Southwest succeeded while many other airlines have failed? Historically, the firm has differed

from its competitors in a variety of important ways. Most large airlines use a “hub and spoke” system.

This type of system routes travelers through a large hub airport on their way from one city to another.

Many Delta passengers, for example, end a flight in Atlanta and then take a connecting flight to their

actual destination. The inability to travel directly between most pairs of cities adds hours to a traveler’s

itinerary and increases the chances of luggage being lost. In contrast, Southwest does not have a hub

airport; preferring instead to connect cities directly. This helps make flying on Southwest attractive to

many travelers.

Southwest has also been more efficient than its rivals. While most airlines use a variety of different

airplanes, Southwest operates only one type of jet: the Boeing 737. This means that Southwest can service

its fleet much more efficiently than can other airlines. Southwest mechanics need only the know-how to

fix one type of airplane, for example, while their counterparts with other firms need a working knowledge

of multiple planes. Southwest also gains efficiency by not offering seat assignments in advance, unlike its

competitors. This makes the boarding process move more quickly, meaning that Southwest’s jets spend

more time in the air transporting customers (and making money) and less time at the gate relative to its

rivals’ planes.

Organizational culture is the dimension along which Southwest perhaps has differed most from its rivals.

The airline industry as a whole suffers from a reputation for mediocre (or worse) service and indifferent

(sometimes even surly) employees. In contrast, Southwest enjoys strong loyalty and a sense of teamwork

among its employees.

Saylor URL: http://www.saylor.org/books Saylor.org
103

One tangible indicator of this culture is Southwest’s stock ticker symbol. Most companies choose stock

ticker symbols that evoke their names. Ford’s ticker symbol is F, for example, and Walmart’s symbol is

WMT. When Southwest became a publicly traded company in 1977, executives chose LUV as its ticker

symbol. LUV pays a bit of homage to the firm’s humble beginnings at Love Field. More important,

however, LUV represents the love that executives have created among employees, between employees and

the company, and between customers and the company. This “LUV affair” has long been and remains a

huge success. As recently as March 2011, for example, Southwest was ranked fourth

on Fortune magazine’s World’s Most Admired Company list.

In September 2010, Southwest surprised many observers when it announced that it was acquiring

AirTran Airways for $1.4 billion. Southwest and AirTran both emphasized low fares, but they differed in

many ways. AirTran routed most of its passengers through a hub-and-spoke system, and it relied on a

different plane than Southwest, the Boeing 717. The acquisition of AirTran thus raised important

questions about Southwest’s future. [1] How would AirTran’s hub-and-spoke system be integrated with

Southwest’s nonhub approach? Could the airlines’ respective fleets of 737s and 717s be joined without

losing efficiency? Perhaps most important, could Southwest maintain its legendary organizational culture

while taking over a sizable rival and integrating AirTran’s thousands of employees? When the acquisition

was finalized on May 2, 2011, it remained unclear whether Southwest was flying off course or whether

Southwest’s “LUV story” would continue for many years.

[1] Schlangenstein, M., & Hughes, J. 2010, September 28. Southwest risks keep-it-simple focus to spur growth.

Retrieved from http://www.washingtonpost.com/wp-dyn/content/article/2010/09/28/AR2010092801578.html

Saylor URL: http://www.saylor.org/books Saylor.org
104

4.1 Resource-Based Theory

L E A R N I N G O B J E C T I V E S

1. Define the four characteristics of resources that lead to sustained competitive advantage as articulated by

the resource-based theory of the firm.

2. Understand the difference between resources and capabilities.

3. Be able to explain the difference between tangible and intangible resources.

4. Know the elements of the marketing mix.

Four Characteristics of Strategic Resources

Southwest Airlines provides an illustration of resource-based theory in action. Resource-

based theory contends that the possession of strategic resources provides an organization with a golden

opportunity to develop competitive advantages over its rivals. These competitive advantages in turn

can help the organization enjoy strong profits.[1]

A strategic resource is an asset that is valuable, rare, difficult to imitate, and nonsubstitutable. [2] A

resource is valuable to the extent that it helps a firm create strategies that capitalize on opportunities and

ward off threats. Southwest Airlines’ culture fits this standard well. Most airlines struggle to be profitable,

but Southwest makes money virtually every year. One key reason is a legendary organizational culture

that inspires employees to do their very best. This culture is also rare in that strikes, layoffs, and poor

morale are common within the airline industry.

Competitors have a hard time duplicating resources that are difficult to imitate. Some difficult to imitate

resources are protected by various legal means, including trademarks, patents, and copyrights. Other

resources are hard to copy because they evolve over time and they reflect unique aspects of the firm.

Southwest’s culture arose from its very humble beginnings. The airline had so little money that at times it

had to temporarily “borrow” luggage carts from other airlines and put magnets with the Southwest logo

on top of the rivals’ logo. Southwest is a “rags to riches” story that has evolved across several decades.

Other airlines could not replicate Southwest’s culture, regardless of how hard they might try, because of

Southwest’s unusual history.

Saylor URL: http://www.saylor.org/books Saylor.org
105

A resource is nonsubstitutable when competitors cannot find alternative ways to gain the benefits that a

resource provides. A key benefit of Southwest’s culture is that it leads employees to treat customers well,

which in turn creates loyalty to Southwest among passengers. Executives at other airlines would love to

attract the customer loyalty that Southwest enjoys, but they have yet to find ways to inspire the kind of

customer service that the Southwest culture encourages.

Southwest Airlines’ unique culture is reflected in the customization of their aircraft over the years, such as the “Lone Star

One” design.

Image courtesy of planephotoman,http://en.wikipedia.org/wiki/File:Southwest_737_Lonestar_One .

Ideally, a firm will have a culture that embraces the four qualities. If so, these resources can provide

not only a competitive advantage but also a sustained competitive advantage—one that

will endure over time and help the firm stay successful far into the future. Resources that do not

have all four qualities can still be very useful, but they are unlikely to provide long-term advantages.

A resource that is valuable and rare but that can be imitated, for example, might provide an edge in the

short term, but competitors can overcome such an advantage eventually.

Resource-based theory also stresses the merit of an old saying: the whole is greater than the sum of its

parts. Specifically, it is also important to recognize that strategic resources can be created by taking

several strategies and resources that each could be copied and bundling them together in a way that

Saylor URL: http://www.saylor.org/books Saylor.org
106

cannot be copied. For example, Southwest’s culture is complemented by approaches that individually

could be copied—the airline’s emphasis on direct flights, its reliance on one type of plane, and its unique

system for passenger boarding—to create a unique business model whose performance is without peer in

the industry.

Resource-based theory can be confusing because the term resources is used in many different ways within

everyday common language. It is important to distinguish strategic resources from other resources. To

most individuals, cash is an important resource. Tangible goods such as one’s car and home are also vital

resources. When analyzing organizations, however, common resources such as cash and vehicles are not

considered to be strategic resources. Resources such as cash and vehicles are valuable, of course, but an

organization’s competitors can readily acquire them. Thus an organization cannot hope to create an

enduring competitive advantage around common resources.

On occasion, events in the environment can turn a common resource into a strategic resource. Consider,

for example, a very generic commodity: water. Humans simply cannot live without water, so water has

inherent value. Also, water cannot be imitated (at least not on a large scale), and no other substance can

substitute for the life-sustaining properties of water. Despite having three of the four properties of

strategic resources, water in the United States has remained cheap. Yet this may be changing. Major cities

in hot climates such as Las Vegas, Los Angeles, and Atlanta are confronted by dramatically shrinking

water supplies. As water becomes more and more rare, landowners in Maine stand to benefit. Maine has

been described as “the Saudi Arabia of water” because its borders contain so much drinkable water. It is

not hard to imagine a day when companies in Maine make huge profits by sending giant trucks filled with

water south and west or even by building water pipelines to service arid regions.

From Resources to Capabilities

The tangibility of a firm’s resources is an important consideration within resource-based

theory. Tangible resources are resources that can be readily seen, touched, and quantified. Physical assets

such as a firm’s property, plant, and equipment, as well as cash, are considered to be tangible resources.

In contrast, intangible resources are quite difficult to see, to touch, or to quantify. Intangible resources

include, for example, the knowledge and skills of employees, a firm’s reputation, and a firm’s culture. In

Saylor URL: http://www.saylor.org/books Saylor.org
107

comparing the two types of resources, intangible resources are more likely to meet the criteria for

strategic resources (i.e., valuable, rare, difficult to imitate, and nonsubstitutable) than are tangible

resources. Executives who wish to achieve long-term competitive advantages should therefore place a

premium on trying to nurture and develop their firms’ intangible resources.

Capabilities are another key concept within resource-based theory. A good and easy-to-remember way to

distinguish resources and capabilities is this: resources refer to what an organization owns, capabilities

refer to what the organization can do. Capabilities tend to arise over time as a firm takes actions that build on

its strategic resources. Southwest Airlines, for example, has developed the capability of providing excellent

customer service by building on its strong organizational culture. Capabilities are important in part because

they are how organizations capture the potential value that resources offer. Customers do not simply

send money to an organization because it owns strategic resources. Instead, capabilitiesare needed to bundle,

to manage, and otherwise to exploit resources in a manner that provides value added to customers

and creates advantages over competitors.

Some firms develop a dynamic capability. This means that a firm has a unique capability of creating new

capabilities. Said differently, a firm that enjoys a dynamic capability is skilled at continually updating its

array of capabilities to keep pace with changes in its environment. General Electric, for example, buys and

sells firms to maintain its market leadership over time, while Coca-Cola has an uncanny knack for

building new brands and products as the soft-drink market evolves. Not surprisingly, both of these firms

rank among the top thirteen among the “World’s Most Admired Companies” for 2011.

Strategy at the Movies

That Thing You Do!

How can the members of an organization reach success “doing that thing they do”? According to resource-

based theory, one possible road to riches is creating—on purpose or by accident—a unique combination of

resources. In the 1996 movie That Thing You Do!, unwittingly assembling a unique bundle of resources

leads a 1960s band called The Wonders to rise from small-town obscurity to the top of the music charts.

One resource is lead singer Jimmy Mattingly, who possesses immense musical talent. Another is guitarist

Saylor URL: http://www.saylor.org/books Saylor.org
108

Lenny Haise, whose fun attitude reigns in the enigmatic Mattingly. Although not a formal band member,

Mattingly’s girlfriend Faye provides emotional support to the group and even suggests the group’s name.

When the band’s usual drummer has to miss a gig due to injury, the door is opened for charismatic

drummer Guy Patterson, whose energy proves to be the final piece of the puzzle for The Wonders.

Despite Mattingly’s objections, Guy spontaneously adds an up-tempo beat to a sleepy ballad called “That

Thing You Do!” during a local talent contest. When the talent show audience goes crazy in response, it

marks the beginning of a meteoric rise for both the song and the band. Before long, The Wonders perform

on television and “That Thing You Do!” is a top-ten hit record. The band’s magic vanishes as quickly as it

appeared, however. After their bass player joins the Marines, Lenny elopes on a whim, and Jimmy’s diva

attitude runs amok, the band is finished and Guy is left to “wonder” what might have been. That Thing

You Do! illustrates that while bundling resources in a unique way can create immense success, preserving

and managing these resources over time can be very difficult.

Liv Tyler plays Faye Dolan, the love interest of drummer Guy Patterson, in That Thing You Do!

Saylor URL: http://www.saylor.org/books Saylor.org
109

Image courtesy of Daniel Dormann,http://en.wikipedia.org/wiki/File:LivTylerJune08 .

Is Resource-Based Theory Old News?

Resource-based theory has evolved in recent years to provide a way to understand how strategic resources

and capabilities allow firms to enjoy excellent performance. But more than one wry observer has

wondered aloud, “Is resource-based theory just old wine in a new bottle?” This is a question worth

considering because the role of resources in shaping success and failure has been discussed for many

centuries.

Aesop was a Greek storyteller who lived approximately 2,500 years ago. Aesop is known in particular for

having created a series of fables—stories that appear on the surface to be simply children’s tales but that

offer deep lessons for everyone. One of Aesop’s fables focuses on an ass (donkey) and some grasshoppers.

When the ass tries to duplicate the sweet singing of the grasshoppers by copying their diet, he soon dies of

starvation. Attempting to replicate the grasshoppers’ unique singing capability proved to be a fatal

mistake. The fable illustrates a central point of resource-based theory: it is an array of resources and

capabilities that fuels enduring success, not any one resource alone.

In a far more recent example, sociologist Philip Selznick developed the concept

of distinctive competence through a series of books in the 1940s and 1950s.[3] A distinctive competence is

a set of activities that an organization performs especially well. Southwest Airlines, for example, appears

to have a distinctive competency in operations, as evidenced by how quickly it moves its flights in and out

of airports. Further, Selznick suggested that possessing a distinctive competency creates a competitive

advantage for a firm. Certainly, there is plenty of overlap between the concept of distinctive competency,

on the one hand, and capabilities, on the other.

Saylor URL: http://www.saylor.org/books Saylor.org
111

So is resource-based theory in fact old wine in a new bottle? Not really. Resource-based theory builds on

past ideas about resources, but it represents a big improvement on past ideas in at least two ways. First,

resource-based theory offers a complete framework for analyzing organizations, not just snippets of

valuable wisdom like Aesop and Selznick provided. Second, the ideas offered by resource-based theory

have been developed and refined through scores of research studies involving thousands of organizations.

In other words, there is solid evidence backing it up.

The Marketing Mix

Leveraging resources and capabilities to create desirable products and services is important, but

customers must still be convinced to purchase these goods and services. The marketing mix—also known

as the four Ps of marketing—provides important insights into how to make this happen. A master of the

marketing mix was circus impresario P. T. Barnum, who is famous in part for his claim that “there’s a

sucker born every minute.” The real purpose of the marketing mix is not to trick customers but rather to

provide a strong alignment among the four Ps (product, price, place, and promotion) to offer customers a

coherent and persuasive message.

A firm’s product is what it sells to customers. Southwest Airlines sells, of course, airplane flights. The

airline tries to set its flights apart from those of airlines by making flying fun. This can include, for

example, flight attendants offering preflight instructions as a rap. The price of a good or service should

provide a good match with the value offered. Throughout its history, Southwest has usually charged lower

airfares than its rivals. Place can refer to a physical purchase point as well as a distribution channel.

Southwest has generally operated in cities that are not served by many airlines and in secondary airports

in major cities. This has allowed the firm to get favorable lease rates at airports and has helped it create

customer loyalty among passengers who are thankful to have access to good air travel.

Saylor URL: http://www.saylor.org/books Saylor.org
112

Finally, promotion consists of the communications used to market a product, including advertising, public

relations, and other forms of direct and indirect selling. Southwest is known for its clever advertising. In a

recent television advertising campaign, for example, Southwest lampooned the baggage fees charged by

most other airlines while highlighting its more customer-friendly approach to checked luggage. Given the

consistent theme of providing a good value plus an element of fun to passengers that is developed across

the elements of the marketing mix, it is no surprise that Southwest has been so successful within a very

challenging industry.

Saylor URL: http://www.saylor.org/books Saylor.org
113

Few executives in history have had the marketing savvy of P. T. Barnum.

Image courtesy of The Strobridge Litho. Co., Cincinnati & New York,

http://en.wikipedia.org/wiki/File:Barnum_%26_Bailey_clowns_and_geese2 .

K E Y T A K E A W A Y

Resource-based theory suggests that resources that are valuable, rare, difficult to imitate, and

nonsubstitutable best position a firm for long-term success. These strategic resources can provide the

foundation to develop firm capabilities that can lead to superior performance over time. Capabilities are

needed to bundle, to manage, and otherwise to exploit resources in a manner that provides value added

to customers and creates advantages over competitors.

E X E R C I S E S

1. Does your favorite restaurant have the four qualities of resources that lead to success as articulated by

resource-based theory?

2. If you were hired by your college or university to market your athletic department, what element of the

marketing mix would you focus on first and why?

3. What other classic stories or fables could be applied to discuss the importance of firm resources and

superior performance?

[1] Barney, J. B. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120;

Wernerfelt, B. 1984. A resource-based view of the firm. Strategic Management Journal, 5, 171–180.

[2] Barney, J. B. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120;

Chi, T. 1994. Trading in strategic resources: Necessary conditions, transaction cost problems, and choice of

exchange structure. Strategic Management Journal, 15(4), 271–290.

[3] Selznick, P. 1957. Leadership in administration. New York: Harper; Selznick, P. 1952. The organizational weapon.

New York, NY: McGraw-Hill; Selznick, P. 1949. TVA and the grass roots. Berkeley, CA: University of California Press.

Saylor URL: http://www.saylor.org/books Saylor.org
114

4.2 Intellectual Property

L E A R N I N G O B J E C T I V E S

1. Define the four major types of intellectual property.

2. Be able to provide examples of each intellectual property type.

3. Understand how intellectual property can be a valuable resource for firms.

Defining Intellectual Property

The inability of competitors to imitate a strategic resource is a key to leveraging the resource to achieve

long–term competitive advantages. Companies are clever, and effective imitation is often very possible.

But resources that involve intellectual property reduce or even eliminate this risk. As a result, developing

intellectual property is important to many organizations.

Intellectual property refers to creations of the mind, such as inventions, artistic products, and symbols.

The four main types of intellectual property are patents, trademarks, copyrights, and trade secrets.

If a piece of intellectual property is also valuable, rare, and nonsubstitutable, it constitutes

a strategic resource. Even if a piece of intellectual property does not meet all four criteria for serving as a

strategic resource, it can be bundled with other resources and activities to create a resource.

A variety of formal and informal methods are available to protect a firm’s intellectual property from

imitation by rivals. Some forms of intellectual property are best protected by legal means, while defending

others depends on surrounding them in secrecy. This can be contrasted with Southwest Airlines’ well-

known culture, which rivals are free to attempt to copy if they wish. Southwest’s culture thus is not

intellectual property, although some of its complements such as Southwest’s logo and unique color

schemes are.

Patents

Patents are legal decrees that protect inventions from direct imitation for a limited period of time.

Obtaining a patent involves navigating a challenging process. To earn a patent from the US

Saylor URL: http://www.saylor.org/books Saylor.org
115

Patent and Trademark Office, an inventor must demonstrate than an invention is new, nonobvious, and

useful. If the owner of a patent believes that a company or person has infringed on the patent, the owner

can sue for damages. In 2011, for example, a private company named EBSCO alleged that retailer Bass Pro

Shops sold a product that violated EBSCO’s patent on a deer-hunting stand that helps prevent hunters

from falling out of trees. Rather than endure a costly legal fight, the two sides agreed to settle EBSCO’s

complaint out of court.

Patenting an invention is important because patents can fuel enormous profits. Imagine, for example, the

potential for lost profits if the Slinky had not been patented. Shipyard engineer Richard James came up

with the idea for the Slinky by accident in 1943 while he was trying to create springs for use in ship

instruments. When James accidentally tipped over one of his springs, he noticed that it moved downhill in

a captivating way. James spent his free time perfecting the Slinky and then applied for a patent in 1946.

To date, more than three hundred million Slinkys have been sold by the company that Richard James and

his wife Betty created.

Patenting inventions such as the Slinky helps ensure that the invention is protected from imitation.

Image courtesy of Roger McLassus,http://upload.wikimedia.org/wikipedia/commons/f/f3/2006-

02-04_Metal_spiral .

Trademarks

Saylor URL: http://www.saylor.org/books Saylor.org
116

Trademarks are phrases, pictures, names, or symbols used to identify a particular organization.

Trademarks are important because they help an organization stand out and build an identity in the

marketplace. Some trademarks are so iconic that almost all consumers recognize them, including

McDonald’s golden arches, the Nike swoosh, and Apple’s outline of an apple.

Other trademarks help rising companies carve out a unique niche for themselves. For example, French

shoe designer Christian Louboutin has trademarked the signature red sole of his designer shoes. Because

these shoes sell for many hundreds of dollars via upscale retailers such as Neiman Marcus and Saks Fifth

Avenue, competitors would love to copy their look. Thus legally protecting the distinctive red sole from

imitation helps preserve Louboutin’s profits.

Fashionistas instantly recognize the trademark red sole of Christian Louboutin’s high-end shoes.

Image courtesy of

Arroser,http://wikimediafoundation.org/wiki/File:Louboutin_altadama140 .

Trademarks are important to colleges and universities. Schools earn tremendous sums of money through

royalties on T-shirts, sweatshirts, hats, backpacks, and other consumer goods sporting their names and

logos. On any given day, there are probably several students in your class wearing one or more pieces of

clothing featuring your school’s insignia; your school benefits every time items like this are sold.

Schools’ trademarks are easy to counterfeit, however, and the sales of counterfeit goods take money away

from colleges and universities. Not surprisingly, many schools fight to protect their trademarks. In

Saylor URL: http://www.saylor.org/books Saylor.org
117

October 2009, for example, the University of Oklahoma announced that it was teaming with law

enforcement officials to combat the sale of counterfeit goods around its campus. [1] This initiative and

similar ones at other colleges and universities are designed to ensure that schools receive their fair share

of the sales that their names and logos generate.

Figure 4.7 Trademarks

Saylor URL: http://www.saylor.org/books Saylor.org
118

Images courtesy of unknown author, http://en.wikipedia.org/wiki/File:Aspirine-1923 (bottom

left); Wilinckx, http://en.wikipedia.org/wiki/File:Trademark-symbool (top left); Hult Ketchen

International Group, LLC (top right); Helix84,

http://en.wikipedia.org/wiki/File:Burrbery_check.gif

Copyrights

Copyrights provide exclusive rights to the creators of original artistic works such as books, movies, songs,

and screenplays. Sometimes copyrights are sold and licensed. In the late 1960s,

Buick thought it had an agreement in place to license the number one hit “Light My Fire” for a television

advertisement from The Doors until the band’s volatile lead singer Jim Morrison loudly protested what he

saw as mistreating a work of art. Classic rock by The Beatles has been used in television ads in recent

years. After the late pop star Michael Jackson bought the rights to the band’s music catalog, he licensed

songs to Target and other companies. Some devoted music fans consider such ads to be abominations,

perhaps proving the merit of Morrison’s protest decades ago.

He looks calm here, but the licensing of a copyrighted song for a car commercial enraged rock legend Jim Morrison.

Saylor URL: http://www.saylor.org/books Saylor.org
119

Image courtesy of Polfoto/Jan Persson,

http://upload.wikimedia.org/wikipedia/commons/1/15/The_Doors_in_Copenhagen_1968 .

Over time, piracy has become a huge issue for the owners of copyrighted works. In China, millions of

pirated DVDs are sold each year, and music piracy is estimated to account for at least 95 percent of music

sales. This piracy deprives movie studios, record labels, and artists of millions of dollars in royalties. In

response to the damage piracy has caused, the US government has pressed its Chinese counterpart and

other national governments to better enforce copyrights.

Trade Secrets

Trade secrets refer to formulas, practices, and designs that are central to a firm’s business and that remain

unknown to competitors. Trade secrets are protected by laws on theft, but once a secret is revealed,

it cannot be a secret any longer. This leads firms to rely mainly on silence and privacy rather than the

legal system to protect trade secrets.

Some trade secrets have become legendary, perhaps because a mystique arises around the unknown. One

famous example is the blend of eleven herbs and spices used in Kentucky Fried Chicken’s original recipe

chicken. KFC protects this secret by having multiple suppliers each produce a portion of the herb and

spice blend; no one supplier knows the full recipe. The formulation of Coca-Cola is also shrouded in

mystery. In 2006, Pepsi was approached by shady individuals who were offering a chance to buy a stolen

copy of Coca-Cola’s secret recipe. Pepsi wisely refused. An FBI sting was used to bring the thieves to

justice. The soft-drink industry has other secrets too. Dr Pepper’s recipe remains unknown outside the

company. Although Coke’s formula has been the subject of greater speculation, Dr Pepper is actually the

original secret soft drink; it was created a year before Coca-Cola.

Saylor URL: http://www.saylor.org/books Saylor.org
120

The recipe for Dr Pepper is a secret dating back to the 1880s.

Image courtesy of anyjazz65,

K E Y T A K E A W A Y

Intellectual property can serve as a strategic resource for organizations. While some sources of

intellectual property such as patents, trademarks, and copyrights can receive special legal protection,

trade secrets provide competitive advantages by simply staying hidden from competitors.

E X E R C I S E S

1. What designs for your college or university are protected by trademarks?

2. What type of intellectual property provides the most protection for firms?

3. Why would a firm protect a resource through trade secret rather than by a formal patent?

[1] Ward, C. 2009, October 8. OU works to prevent trademark infringement. The Oklahoma Daily. Retrieved

from http://www.oudaily.com/news/2009/oct/08/ou-works-prevent-trademark-infringement

Saylor URL: http://www.saylor.org/books Saylor.org
121

4.3 Value Chain

L E A R N I N G O B J E C T I V E S

1. Define the primary activities of the value chain.

2. Know the different support activities within the value chain.

3. Be able to apply the value chain to an organization of your choosing.

4. Understand the difference between a value chain and supply chain.

Saylor URL: http://www.saylor.org/books Saylor.org
122

Image courtesy of Carol M. Highsmith,

http://commons.wikimedia.org/wiki/File:Randy%27s_donuts1_edit1 .

Elements of the Value Chain

When executives choose strategies, an organization’s resources and capabilities should be examined

alongside consideration of its value chain. A value chain charts the path by which products and services

are created and eventually sold to customers. [1] The term value chain reflects the fact that, as each step of

Saylor URL: http://www.saylor.org/books Saylor.org
123

this path is completed, the product becomes more valuable than it was at the previous step.

Within the lumber business, for example, value is added when a tree is transformed into usable

wooden boards; the boards created from a tree can be sold for more money than the price of the tree.

Adapted from Porter, M. (1985). Competitive Advantage. New York: Free Press. Exhibit is
Creative Commons licensed at http://en.wikipedia.org/wiki/Image:ValueChain.PNG.”

Value chains include both primary and secondary activities. Primary activities are actions that are directly

involved in creating and distributing goods and services. Consider a simple illustrative example: doughnut

shops. Doughnut shops transform basic commodity products such as flour, sugar, butter, and grease into

delectable treats. Value is added through this process because consumers are willing to pay much more for

doughnuts than they would be willing to pay for the underlying ingredients.

There are five primary activities. Inbound logistics refers to the arrival of raw materials. Although

doughnuts are seen by most consumers as notoriously unhealthy, the Doughnut Plant in New York City

http://en.wikipedia.org/wiki/Image:ValueChain.PNG

Saylor URL: http://www.saylor.org/books Saylor.org
124

has carved out a unique niche for itself by obtaining organic ingredients from a local farmer’s

market.Operations refers to the actual production process, while outbound logistics tracks the movement

of a finished product to customers. One of Southwest Airlines’ unique capabilities is moving passengers

more quickly than its rivals. This advantage in operations is based in part on Southwest’s reliance on one

type of airplane (which speeds maintenance) and its avoidance of advance seat assignments (which

accelerates the passenger boarding process).

Attracting potential customers and convincing them to make purchases is the domain

of marketing and sales. For example, people cannot help but notice Randy’s Donuts in Inglewood,

California, because the building has a giant doughnut on top of it. Finally, service refers to the extent to

which a firm provides assistance to their customers. Voodoo Donuts in Portland, Oregon, has developed a

clever website (voodoodoughnut.com) that helps customers understand their uniquely named products,

such as the Voodoo Doll, the Texas Challenge, the Memphis Mafia, and the Dirty Snowball.

Secondary activities are not directly involved in the evolution of a product but instead provide important

underlying support for primary activities. Firm infrastructure refers to how the firm is organized and led

by executives. The effects of this organizing and leadership can be profound. For example, Ron Joyce’s

leadership of Canadian doughnut shop chain Tim Hortons was so successful that Canadians consume

more doughnuts per person than all other countries. In terms of resource-based theory, Joyce’s leadership

was clearly a valuable and rare resource that helped his firm prosper.

Also important is human resource management, which involves the recruitment, training, and

compensation of employees. A recent research study used data from more than twelve thousand

organizations to demonstrate that the knowledge, skills, and abilities of a firm’s employees can act as a

strategic resource and strongly influence the firm’s performance. [2] Certainly, the unique level of

dedication demonstrated by employees at Southwest Airlines has contributed to that firm’s excellent

performance over several decades.

Technology refers to the use of computerization and telecommunications to support primary activities.

Although doughnut making is not a high-tech business, technology plays a variety of roles for doughnut

shops, such as allowing customers to use credit cards. Procurement is the process of negotiating for and

Saylor URL: http://www.saylor.org/books Saylor.org
125

purchasing raw materials. Large doughnut chains such as Dunkin’ Donuts and Krispy Kreme can gain cost

advantages over their smaller rivals by purchasing flour, sugar, and other ingredients in bulk. Meanwhile,

Southwest Airlines has gained an advantage over its rivals by using futures contracts within its

procurement process to minimize the effects of rising fuel prices.

From the Value Chain to Best Value Supply Chains

“Time is money!” warns a famous saying. This simple yet profound statement suggests that organizations

that quickly complete their work will enjoy greater profits, while slower-moving firms will suffer. The

belief that time is money has encouraged the modern emphasis on supply chain management. A

supply chain is a system of people, activities, information, and resources involved in creating a product

and moving it to the customer. A supply chain is a broader concept than a value chain; the latter refers to

activities within one firm, while the former captures the entire process of creating and distributing a

product, often across several firms.

Competition in the twenty-first century requires an approach that considers the supply chain concept in

tandem with the value-creation process within a firm: best value supply chains. These chains do not fixate

on speed or on any other single metric. Instead, relative to their peers, best value supply chains focus on

the total value added to the customer.

Creating best value supply chains requires four components. The first is

strategic supply chain management—the use of supply chains as a means to create competitive advantages

and enhance firm performance. Such an approach contradicts the popular wisdom centered on the need

to maximize speed. Instead, there is recognition that the fastest chain may not satisfy customers’ needs.

Best value supply chains strive to excel along four measures. Speed (or “cycle time”) is the time duration

from initiation to completion of the production and distribution process. Quality refers to the relative

reliability of supply chain activities. Supply chains’ efforts at managing cost involve enhancing value by

either reducing expenses or increasing customer benefits for the same cost level. Flexibility refers to a

supply chain’s responsiveness to changes in customers’ needs. Through balancing these four metrics, best

value supply chains attempt to provide the highest level of total value added.

Saylor URL: http://www.saylor.org/books Saylor.org
126

The value of strategic supply chain management is reflected in how firms such as Walmart have used their

supply chains as competitive weapons to gain advantages over peers. Walmart excels in terms of speed

and cost by locating all domestic stores within one day’s drive of a warehouse while owning a trucking

fleet. This creates distribution speed and economies of scale that competitors simply cannot match. When

Kmart’s executives decided in the late 1990s to compete head-to-head with Walmart on price, Walmart’s

sophisticated logistics system enabled it to easily withstand the price war. Unable to match its rival’s

speed and costs, Kmart soon plunged into bankruptcy. Walmart’s supply chains also possess strong

quality and flexibility. When Hurricane Katrina devastated the Gulf Coast in 2005, Walmart used not only

its warehouses and trucks but also its satellite technology, radio frequency identification (RFID), and

global positioning systems to quickly divert assets to affected areas. The result was that Walmart emerged

as the first responder in many towns and provided essentials such as drinking water faster than local and

federal governments could.

Meanwhile, failing to manage a supply chain effectively causes serious harm. For example, in 2003

Motorola was unable to meet demand for its new camera phones because it did not have enough lenses

available. Also, firms whose supply chains were centered in the Port of Los Angeles collectively lost more

than $2 billion a day during a 2002 workers’ strike. In terms of stock price, firms’ market value erodes by

an average of 10 percent following the announcement of a major supply chain problem.

The second component is agility, the supply chain’s relative capacity to act rapidly in response to dramatic

changes in supply and demand. [3] Agility can be achieved using buffers. Excess capacity, inventory, and

management information systems all provide buffers that better enable a best value supply chain to

service and to be more responsive to its customers. Rapid improvements and decreased costs in deploying

information systems have enabled supply chains in recent years to reduce inventory as a buffer. Much

popular thinking depicts inventory reduction as a goal in and of itself. However, this cannot occur without

corresponding increases in buffer capacity elsewhere in the chain, or performance will suffer. A best value

supply chain seeks to optimize the total costs of all buffers used. The costs of deploying each buffer differs

across industries; therefore, no solution that works for one company can be directly applied to another in

a different industry without adaptation.

Saylor URL: http://www.saylor.org/books Saylor.org
127

Agility in a supply chain can also be improved and achieved by colocating with the customer. This

arrangement creates an information flow that cannot be duplicated through other methods. Daily face-to-

face contact for supply chain personnel enables quicker response times to customer demands due to the

speed at which information can travel back and forth between the parties. Again, this buffer of increased

and improved information flows comes at an expense, so executives seeking to build a best value supply

chain will investigate the opportunity and determine whether this action optimizes total costs.

Adaptability refers to a willingness and capacity to reshape supply chains when necessary. Generally,

creating one supply chain for a customer is desired because this helps minimize costs. Adaptable firms

realize that this is not always a best value solution, however. For example, in the defense industry, the US

Army requires one class of weapon simulators to be repaired within eight hours, while another class of

items can be repaired and returned within one month. To service these varying requirements efficiently

and effectively, Computer Science Corporation (the firm whose supply chains maintain the equipment)

must devise adaptable supply chains. In this case, spare parts inventory is positioned in proximity to the

class of simulators requiring quick turnaround, while the less-time-sensitive devices are sent to a

centralized repair facility. This supply chain configuration allows Computer Science Corporation to satisfy

customer demands while avoiding the excess costs that would be involved in localizing all repair activities.

In situations in which the interests of one firm in the chain and the chain as a whole conflict, most

executives will choose an option that benefits their firm. This creates a need for alignment among chain

members. Alignment refers to creating consistency in the interests of all participants in a supply chain. In

many situations, this can be accomplished through carefully writing incentives into contracts.

Collaborative forecasting with suppliers and customers can also help build alignment. Taking the time to

sit together with participants in the supply chain to agree on anticipated business levels permits shared

understanding and rapid information transfers between parties. This is particularly valuable when

customer demand is uncertain, such as in the retail industry. [4]

K E Y T A K E A W A Y

Saylor URL: http://www.saylor.org/books Saylor.org
128

The value chain provides a useful tool for managers to examine systematically where value may be added

to their organizations. This tool is useful in that it examines key elements in the production of a good or

service, as well as areas in which value may be added in support of those primary activities.

E X E R C I S E S

1. If you were hired as a consultant for your university, what specific element of the value chain would you

seek to improve first?

2. What local business in your town could be improved most dramatically by applying the value chain?

Would improvements of primary or support activities help to improve this firm most? Could knowledge of

strategic supply chain management add further value to this firm?

[1] Porter, M. E. 1985. Competitive advantage: Creating and sustaining superior performance. New York, NY: Free

Press.

[2] Crook, T. R., Todd, S. Y., Combs, J. G., Woehr, D. J., & Ketchen, D. J. 2011. Does human capital matter? A meta-

analysis of the relationship between human capital and firm performance. Journal of Applied Psychology, 96(3),

443–456.

[3] Lee, H. L. 2004, October. The triple-A supply chain. Harvard Business Review, 83, 102–112.

[4] This section of the chapter is adapted from Ketchen, D. J., Rebarick, W., Hult, G. T., & Meyer, D. 2008. Best

value supply chains: A key competitive weapon for the 21st century. Business Horizons, 51, 235–243.

Saylor URL: http://www.saylor.org/books Saylor.org
129

4.4 Beyond Resource-Based Theory: Other Views on Firm
Performance

L E A R N I N G O B J E C T I V E S

1. Be able to discuss other theories about firm success and failure beyond resource-based theory.

2. Be able to apply different theories to help explain competition in different industries.

Although resource-based theory stands as perhaps the most popular explanation of why some

organizations prosper while others do not, several other theories are popular. Enactment treats

executives as the masters of their domains. Enactment contends that an organization can, at least in

part, create an environment for itself that is beneficial to the organization. This is accomplished by

putting strategies in place that reshape competitive conditions in a favorable way.

By the 1990s, Microsoft had been so successful at reshaping the software industry to its benefit that

the firm was the subject of a lengthy antitrust investigation by the federal government. More

recently, Apple has been able to reshape its environment by introducing products such as the iPhone

and the iPad that transcend the traditional boundaries between the cell phone, digital camera, music

player, and computer businesses. No airline has ever been able to enact the environment, however,

perhaps because the airline industry is so fragmented.

Environmental determinism offers a completely opposite view from enactment on why some firms

succeed and others fail. Environmental determinism views organizations much like biological

theories view animals—organizations (and animals) are very limited in their ability to adapt to the

conditions around them. Thus just as harsh environmental changes are believed to have made

dinosaurs extinct, changes in the business environment can destroy organizations regardless of how

clever and insightful executives are.

Until 1978, the federal government regulated the airline industry by dictating what routes each

airline would fly and what prices it would charge. Once these controls were removed, airlines were

subjected to a series of negative environmental trends, including recession, overcapacity in the

Saylor URL: http://www.saylor.org/books Saylor.org
130

industry, new entrants, fierce price competition, and fuel shortages. Perhaps not surprisingly, dozens

of airlines have been crushed by these conditions.

An old saying notes that “imitation is the sincerest form of flattery.” This flattery is the focus

of institutional theory. In particular, institutional theory centers on the extent to which firms copy one

another’s strategies. Consider, for example, fast-food hamburger restaurants. Innovations such as

dollar menus and drive-through windows tend to be introduced by one firm and then duplicated by

the others.

Airlines also seem to follow a “monkey see, monkey do” mentality. To build passenger loyalty,

American Airlines introduced a frequent flyer program called AAdvantage in 1981. After flying a

certain number of miles on American flights, AAdvantage members were rewarded with a free flight.

The idea was to make passengers less likely to shop around for the cheapest ticket. Ironically,

AAdvantage turned out to be not much of an advantage at all. Many of American’s rivals quickly

developed their own frequent-flyer programs, and today most airlines reward frequent passengers.

In recent years, ideas such as charging passengers to check their luggage and eliminating free food

on flights have been copied by one airline after another.

Transaction cost economics is a theory that centers on just one element of business activity: whether it

is cheaper for a firm to make or to buy the products that it needs. This is an important element,

however, because choosing the more efficient option can enhance a firm’s profits. Automakers such

as Ford and General Motors face a wide variety of make-or-buy decisions because so many different

parts are needed to build cars and trucks. Sometimes Ford and GM make these products, and other

times they purchase them from outside suppliers. These firms’ financial situations are improved

when these decisions are made wisely and harmed when they are made poorly.

In contrast, airlines always buy (or rent) their airplanes. Large planes are generally bought from

Boeing or Airbus, while modest-sized airliners are purchased from companies such as Brazil’s

Embraer. It would be simply too costly for an airline to pursue a backward integration strategy and

enter the airplane manufacturing business. Insights such as these are powerful enough that the

Saylor URL: http://www.saylor.org/books Saylor.org
131

creator of transaction cost economics, Professor Oliver Williamson, was awarded a Nobel Prize in

Economic Sciences in 2009.

Each of these theories—enactment, environmental determinism, institutional theory, and

transaction cost economics—is useful for understanding some situations and some important

business decisions. Thus executives should keep these perspectives in mind as they attempt to lead

their firms to greater levels of success. However, one important advantage that resource-based

theory offers over the alternatives is that only resource-based theory does a good job of explaining

firm performance across a wide variety of contexts. Thus resource-based theory offers the point of

view of business that has the strongest value for most executives.

K E Y T A K E A W A Y

Although resource-based theory is the dominant perspective to predict performance in the strategic

management field, other theories exist to explain firm behavior. In some industries, explanations

provided by these theories can be very convincing.

E X E R C I S E S

1. What theory of the firm do you think best explains competition in the fast-food industry?

2. What is an example of an industry in which institutional theory seems to explain the behavior of firms?

Saylor URL: http://www.saylor.org/books Saylor.org
132

4.5 SWOT Analysis

L E A R N I N G O B J E C T I V E S

1. Understand what SWOT analysis is.

2. Learn how SWOT analysis can help organizations and individuals, and its limitations.

Five forces analysis examines the situation faced by the competitors in an industry. Strategic groups

analysis narrows the focus by centering on subsets of these competitors whose strategies are

similar. SWOT analysis takes an even narrower focus by centering on an individual firm. Specifically,

SWOT analysis is a tool that considers a firm’s strengths and weaknesses along with the

opportunities and threats that exist in the firm’s environment.

Executives using SWOT analysis compare these internal and external factors to generate ideas about

how their firm might become more successful. In general, it is wise to focus on ideas that allow a firm

to leverage its strengths, steer clear of or resolve its weaknesses, capitalize on opportunities, and

protect itself against threats. For example, untapped overseas markets have presented potentially

lucrative opportunities to Subway and other restaurant chains such as McDonald’s and Kentucky

Fried Chicken. Meanwhile, Subway’s strengths include a well-established brand name and a simple

business format that can easily be adapted to other cultures. In considering the opportunities offered

by overseas markets and Subway’s strengths, it is not surprising that entering and expanding in

different countries has been a key element of Subway’s strategy in recent years. Indeed, Subway

currently has operations in nearly 100 nations.

SWOT analysis is helpful to executives, and it is used within most organizations. Important cautions

need to be offered about SWOT analysis, however. First, in laying out each of the four elements of

SWOT, internal and external factors should not be confused with each other. It is important not to

list strengths as opportunities, for example, if executives are to succeed at matching internal and

external concerns during the idea generation process. Second, opportunities should not be confused

with strategic moves designed to capitalize on these opportunities. In the case of Subway, it would be

a mistake to list “entering new countries” as an opportunity. Instead, untapped markets are the

opportunity presented to Subway, and entering those markets is a way for Subway to exploit the

Saylor URL: http://www.saylor.org/books Saylor.org
133

opportunity. Finally, and perhaps most important, the results of SWOT analysis should not be

overemphasized. SWOT analysis is a relatively simple tool for understanding a firm’s situation. As a

result, SWOT is best viewed as a brainstorming technique for generating creative ideas, not as a

rigorous method for selecting strategies. Thus the ideas produced by SWOT analysis offer a starting

point for executives’ efforts to craft strategies for their organization, not an ending point.

In addition to organizations, individuals can benefit from applying SWOT analysis to their personal

situation. A college student who is approaching graduation, for example, could lay out her main

strengths and weaknesses and the opportunities and threats presented by the environment. Suppose,

for instance, that this person enjoys and is good at helping others (a strength) but also has a rather

short attention span (a weakness). Meanwhile, opportunities to work at a rehabilitation center or to

pursue an advanced degree are available. Our hypothetical student might be wise to pursue a job at

the rehabilitation center (where her strength at helping others would be a powerful asset) rather than

entering graduate school (where a lot of reading is required and her short attention span could

undermine her studies).

K E Y T A K E A W A Y

Executives using SWOT analysis compare internal strengths and weaknesses with external opportunities

and threats to generate ideas about how their firm might become more successful. Ideas that allow a firm

to leverage its strengths, steer clear of or resolve its weaknesses, capitalize on opportunities, and protect

itself against threats are particularly helpful.

E X E R C I S E S

1. What do each of the letters in SWOT represent?

2. What are your key strengths, and how might you build your own personal strategies for success around

them?

Saylor URL: http://www.saylor.org/books Saylor.org
134

4.6 Conclusion

This chapter explains key issues that executives face in managing resources to keep their firms

competitive. Resource-based theory argues that firms will perform better when they assemble

resources that are valuable, rare, difficult to imitate, and nonsubstitutable. When executives can

successfully bundle organizational resources into unique capabilities, the firm is more likely to enjoy

lasting success. Different forms of intellectual property—which include patents, trademarks,

copyrights, and trade secrets—may also serve as strategic resources for firms. Examining a firm’s

resources can be aided by the value chain, a tool that systematically examines primary and secondary

activities in the creation of a good or service and by a knowledge of supply chain management that

examines the value added of multiple firms working together. While resource-based theory provides

a dominant view for examining the determinants of firm success, other perspectives provide insight

for understanding specific behaviors of firms within an industry. Finally, SWOT analysis is a simple

but powerful technique for examining the interactions between factors internal and external to the

firm.

E X E R C I S E S

1. Divide your class into four or eight groups, depending on the size of the class. Each group should search

for a patent tied to a successful product, as well as a patent associated with a product that was not a

commercial hit. Were there resources tied to the successful organization that the poor performer did not

seem to attain?

2. This chapter discussed Southwest Airlines. Based on your reading of the chapter, how well has Southwest

done in bundling together the resources recommended by resource-based theory? What theoretical

perspective best explains the competitive actions of most firms in the airline industry?

3. Conduct a SWOT analysis of your college or university. Based on your analysis, what one strategic move

should your school make first, and why?