Chapter 4 Internal Analysis Resources Capabilities and Core

Chapter 4 Internal Analysis: Resources, Capabilities, and Core Competencies

The AFI Strategy Framework Jump to Appendix 1 long image description ©Mc. Graw-Hill Education. Jump to Appendix 1 long image description

Chapter 4 Outline 4. 1 Core Competencies 4. 2 The Resource-Based View – Two Critical Assumptions – The VRIO Framework – Isolating Mechanisms: How to Sustain a Competitive Advantage 4. 3 The Dynamic Capabilities Perspective 4. 4 The Value Chain Analysis 4. 5 Implications for the Strategist – ©Mc. Graw-Hill Education. Using SWOT Analysis to Generate Insights from External and Internal Analysis

Learning Objectives (1 of 2) LO 4 -1 Differentiate among a firm’s core competencies, resources, capabilities, and activities. LO 4 -2 Compare and contrast tangible and intangible resources. LO 4 -3 Evaluate the two critical assumptions behind the resource-based view. LO 4 -4 Apply the VRIO framework to assess the competitive implications of a firm’s resources. ©Mc. Graw-Hill Education.

Learning Objectives (2 of 2) LO 4 -5 Evaluate different conditions that allow a firm to sustain a competitive advantage. LO 4 -6 Outline how dynamic capabilities can enable a firm to sustain a competitive advantage. LO 4 -7 Apply a value chain analysis to understand which of the firm’s activities in the process of transforming inputs into outputs generate differentiation and which drive costs. LO 4 -8 Conduct a SWOT analysis to generate insights from external and internal analysis and derive strategic implications. ©Mc. Graw-Hill Education.

Core Competencies ©Mc. Graw-Hill Education.

What Are Competencies? • Unique strengths • Embedded deep within a firm • Allow a firm to differentiate its products and services from those of its rivals • Results in: – Creating higher value for the customer or – Offering products and services at lower cost ©Mc. Graw-Hill Education.

Exhibit 4. 1 Competitive Advantage based on Core Competencies, Resources, Capabilities Jump to Appendix 2 long image description ©Mc. Graw-Hill Education.

Examples of Core Competencies • IKEA – Superior in designing modern functional home furnishings at low cost • Beats Electronics – Superior marketing: perception of coolness • Facebook – Superior algorithms to offer targeted online ads • General Electric – Superior expertise in industrial engineering, designing and implementing efficient management processes, and developing and training leaders ©Mc. Graw-Hill Education.

Resources, Capabilities and Activities Help Deliver Core Competencies • Resources: – Any assets that a firm can draw on • Capabilities: – Organizational and managerial skills • Activities: – Distinct and fine-grained business processes ©Mc. Graw-Hill Education.

Exhibit 4. 3 Links to Competitive Advantage and Superior Firm Performance Jump to Appendix 3 long image description ©Mc. Graw-Hill Education.

The Resource-Based View ©Mc. Graw-Hill Education.

What is the Resource Based View (RBV)? • A model that sees certain types of resources (VRIO) as key to superior firm performance – Valuable – Rare – Costly to Imitate – Organized to Capture Value • Resources fall into two categories: – Tangible – Intangible ©Mc. Graw-Hill Education.

Exhibit 4. 4 Tangible and Intangible Resources Jump to Appendix 4 long image description ©Mc. Graw-Hill Education.

Example Google Headquarters • Tangible Resource – Googleplex: land + futuristic building • Intangible Resource – Location: heart of Silicon Valley • Large & computer savvy workforce • Largest concentration of venture capitalists in the U. S. ©Mc. Graw-Hill Education.

Two Critical Assumptions of the RBV • Resource Heterogeneity – A firm is bundle of resources and capabilities that differ across firms • Resource Immobility – A firm has resources that tend to be “sticky” and that do not move easily from firm to firm ©Mc. Graw-Hill Education.

Exhibit 4. 5 The VRIO Decision Tree Jump to Appendix 5 long image description ©Mc. Graw-Hill Education.

A Resource is Valuable If… • It enables the firm to exploit an opportunity. • It enables the firm to offset a threat. • It enables a firm to increase its economic value creation (V – C). • Example: Beats Electronics: – Design and marketing of premium headphones • Production = ~$15 • Retail = $150 - $450 ©Mc. Graw-Hill Education.

A Resource is Rare If… • Only one or a few firms possess it • Example: Beats Electronics: – Product placement – Vast celebrity endorsement ©Mc. Graw-Hill Education.

A Resource Is Costly to Imitate If… • Firms that do not possess the resource are unable to develop or buy the resource at a reasonable price. • Example: Beats Electronics: – Dr. Dre relies on gut instinct in making decisions rather than market research. – The social capital of Dr. Dre and Jimmy Lovine might be impossible to replicate. ©Mc. Graw-Hill Education.

A Resource Is Organized to Capture Value If… • It has an effective organizational structure. • It has coordinating systems. • Example: Xerox Palo Alto Research Center: – Developed the first word-processing application Graphical User Interface (GUI), Ethernet, Mouse, Personal Computer – These innovations did not fit within the Xerox focus. – Management was busy pursuing innovations in the photocopier business. ©Mc. Graw-Hill Education.

Strategy Highlight 4. 1 The Rise and Fall of Groupon • A daily-deal website, offering group coupons • Grew quickly – 260 million subscribers, 500, 000 merchants – $6 billion buyout offer (Google 2011), was declined • It was valuable, and rare, but not costly to imitate. – More specialized local startups began ©Mc. Graw-Hill Education.

Isolating Mechanisms • Barriers to imitation • Protect resources, capabilities, or competencies that underlie a firm’s competitive advantage. • How: 1. Better expectations of future resource value 2. Path dependence 3. Causal ambiguity 4. Social complexity 5. Intellectual property (IP) protection ©Mc. Graw-Hill Education.

The Dynamic Capabilities Perspective ©Mc. Graw-Hill Education.

Dynamic Capabilities • A firm’s ability to: – Create, deploy, modify, reconfigure, upgrade, and leverage its resources over time • Helps prevent a core rigidity – A former core competency that turned into a liability as the environment changed ©Mc. Graw-Hill Education.

Strategy Highlight 4. 2 (1 of 2) Dynamic Capabilities at IBM • IBM is a solutions company – Solves data-based problems for clients – The data / the problems change over time • Has successfully transformed itself several times over its 100 -year history ©Mc. Graw-Hill Education.

Strategy Highlight 4. 2 (2 of 2) Dynamic Capabilities at IBM • Current disruptions: – Cloud computing – Systems of engagement – Big data and analytics ©Mc. Graw-Hill Education.

The Dynamic Capabilities Perspective • A model that emphasizes a firm’s ability to: – Modify and leverage its resource base – Gain and sustain competitive advantage in a constantly changing environment ©Mc. Graw-Hill Education.

Resource Stocks and Flows • Resource stocks – The firm’s current level of intangible resources • Resource flows – The firm’s level of investments to maintain or build a resource ©Mc. Graw-Hill Education.

Exhibit 4. 7 The Bathtub Metaphor Jump to Appendix 6 long image description ©Mc. Graw-Hill Education. SOURCE: Figure based on metaphor used in I. Dierickx and K. Cool (1989), “Asset stock accumulation and sustainability of competitive advantage, ” Management Science 35: 1504– 1513.

The Value Chain Analysis ©Mc. Graw-Hill Education.

What Is the Value Chain? • Internal activities a firm engages in when transforming inputs into outputs • Each activity adds incremental value – Primary activities directly add value – Support activities add value indirectly • Example: Beats Electronics: – Headphones designed by Dr. Dre – Packaging: premium unboxing experience – Superb displays in Apple stores ©Mc. Graw-Hill Education.

Exhibit 4. 8 The Value Chain Jump to Appendix 7 long image description ©Mc. Graw-Hill Education.

Primary Activities • Firm activities that add value directly • Transform inputs into outputs as the firm moves a product or service horizontally along the internal value chain. • Examples: – Supply chain management – Operations – Distribution – Marketing and sales – After-sales service ©Mc. Graw-Hill Education.

Support Activities • Firm activities that add value indirectly • Necessary to sustain primary activities – Research and development (R&D) – Information systems – Human resources – Accounting and finance – Firm infrastructure including processes, policies, and procedures ©Mc. Graw-Hill Education.

Implications for the Strategist ©Mc. Graw-Hill Education.

How to Generate Additional Insights • SWOT analysis combines external and internal analysis: – External analysis: Covered in Chapter 3 – Internal analysis: Covered in Chapter 4 • Purpose: – Leverage internal strengths to exploit external opportunities – Mitigate internal weaknesses and external threats ©Mc. Graw-Hill Education.

SWOT Analysis • A framework that allows managers to synthesize insights obtained from an internal and external analysis to derive strategic implications • Internal Analysis – Strengths – Weaknesses • External Analysis – Opportunities – Threats ©Mc. Graw-Hill Education.

Strategic SWOT Questions • How can the firm use strengths to take advantage of opportunities? • How can the firm use strengths to reduce the likelihood and impact of threats? • How can the firm overcome weaknesses that prevent the firm from taking advantage of opportunities? • How can the firm overcome weaknesses that will make threats a reality? ©Mc. Graw-Hill Education.

The Final Step… • Evaluate the pros and cons of each strategic alternative. • Select one or more alternatives to implement. • Carefully explain decision rationale. – Including why other strategic alternatives were rejected ©Mc. Graw-Hill Education.

A Word of Caution • A strength can also be a weakness. • An opportunity can also be a threat. • Example: – Google is located in Silicon Valley. • Strength: near Universities • Weakness: high cost of living ©Mc. Graw-Hill Education.

Chapter 4 Summary ©Mc. Graw-Hill Education.

Take Away Concepts (1 of 8) LO 4 -1 Differentiate among a firm’s core competencies, resources, capabilities, and activities. • Core competencies are unique, deeply embedded, firm-specific strengths that allow companies to differentiate their products and services and thus create more value for customers than their rivals, or offer products and services of acceptable value at lower cost. • Resources are any assets that a company can draw on when crafting and executing strategy. • Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources to deploy them strategically. • Activities are distinct and fine-grained business processes that enable firms to add incremental value by transforming input into goods and services. ©Mc. Graw-Hill Education.

Take Away Concepts (2 of 8) LO 4 -2 Compare and contrast tangible and intangible resources. • Tangible resources have physical attributes and are visible. • Intangible resources have no physical attributes and are invisible. • Competitive advantage is more likely to be based on intangible resources. ©Mc. Graw-Hill Education.

Take Away Concepts (3 of 8) LO 4 -3 Evaluate the two critical assumptions behind the resource-based view. • The first critical assumption—resource heterogeneity—is that bundles of resources, capabilities, and competencies differ across firms. The resource bundles of firms competing in the same industry (or even the same strategic group) are unique to some extent and thus differ from one another. • The second critical assumption—resource immobility—is that resources tend to be “sticky” and don’t move easily from firm to firm. Because of that stickiness, the resource differences that exist between firms are difficult to replicate and, therefore, can last for a long time. ©Mc. Graw-Hill Education.

Take Away Concepts (4 of 8) LO 4 -4 Apply the VRIO framework to assess the competitive implications of a firm’s resources. • For a firm’s resource to be the basis of a competitive advantage, it must have VRIO attributes: valuable (V), rare (R), and costly to imitate (I). The firm must also be able to organize (O) in order to capture the value of the resource. • A resource is valuable (V) if it allows the firm to take advantage of an external opportunity and/or neutralize an external threat. A valuable resource enables a firm to increase its economic value creation (V – C). • A resource is rare (R) if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition. • A resource is costly to imitate (I) if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost. • The firm is organized (O) to capture the value of the resource if it has an effective organizational structure, processes, and systems in place to fully exploit the competitive potential. ©Mc. Graw-Hill Education.

Take Away Concepts (5 of 8) LO 4 -5 Evaluate different conditions that allow a firm to sustain a competitive advantage. • Several conditions make it costly for competitors to imitate the resources, capabilities, or competencies that underlie a firm’s competitive advantage: (1) better expectations of future resource value (or simply luck), (2) path dependence, (3) causal ambiguity, and (4) social complexity. • These barriers to imitation are isolating mechanisms because they prevent rivals from competing away the advantage a firm may enjoy. ©Mc. Graw-Hill Education.

Take Away Concepts (6 of 8) LO 4 -6 Outline how dynamic capabilities can enable a firm to sustain a competitive advantage. • To sustain a competitive advantage, any fit between a firm’s internal strengths and the external environment must be dynamic. • Dynamic capabilities allow a firm to create, deploy, modify, reconfigure, or upgrade its resource base to gain and sustain competitive advantage in a constantly changing environment. ©Mc. Graw-Hill Education.

Take Away Concepts (7 of 8) LO 4 -7 Apply a value chain analysis to understand which of the firm’s activities in the process of transforming inputs into outputs generate differentiation and which drive costs. • The value chain describes the internal activities a firm engages in when transforming inputs into outputs. • Each activity the firm performs along the horizontal chain adds incremental value and incremental costs. • A careful analysis of the value chain allows managers to obtain a more detailed and fine-grained understanding of how the firm’s economic value created breaks down into a distinct set of activities that helps determine perceived value and the costs to create it. • When a firm’s set of distinct activities is able to generate value greater than the costs to create it, the firm obtains a profit margin (assuming the market price the firm is able to command exceeds the costs of value creation). ©Mc. Graw-Hill Education.

Take Away Concepts (8 of 8) LO 4 -8 Conduct a SWOT analysis to generate insights from external and internal analysis and derive strategic implications. • Formulating a strategy that increases the chances of gaining and sustaining a competitive advantage is based on synthesizing insights obtained from an internal analysis of the company’s strengths (S) and weaknesses (W) with those from an analysis of external opportunities (O) and threats (T). • The strategic implications of a SWOT analysis should help the firm to leverage its internal strengths to exploit external opportunities, while mitigating internal weaknesses and external threats. ©Mc. Graw-Hill Education.

Key Terms • Activities   • Rare resource • Capabilities • Resource-based view • Causal ambiguity   • Resource flows • Core competencies • Resource heterogeneity • Core rigidity • Resource immobility • Costly-to-imitate resource • Resource stocks • Dynamic capabilities • Resources   • Dynamic capabilities perspective • Social complexity • Intangible resources • Support activities • Intellectual property (IP) protection • SWOT analysis • Isolating mechanisms   • Tangible resources • Organized to capture value • Valuable resource • Path dependence • Value chain • Primary activities   • VRIO framework ©Mc. Graw-Hill Education.

Chapter 4 Cases & Exercises ©Mc. Graw-Hill Education.

Chapter Case 4: Consider This… (1 of 2) • Did Apple purchase Beats for its talent? – Talents of Beats co-founders (Iovine & Dr. Dre) • They have creative talent. • They have a successful track record. • They have deep & far reaching networks. – Apple has lacked visionary leadership since Jobs’ death. • Both Iovine and Dr. Dre are taking on leadership roles at Apple. – Bringing in flashy celebrities might have been unthinkable for Jobs. ©Mc. Graw-Hill Education.

Chapter Case 4: Consider This… (2 of 2) • Do you agree that Beats Electronics’ core competencies are its marketing savvy and Dr. Dre’s coolness factor? • What are the potential downsides of this multibillion- dollar “acqui-hire? ” • Do you think these competencies will remain as valuable under Apple? • Why do you think Apple purchased Beats? ©Mc. Graw-Hill Education.

My Strategy Exercise What Is My Competitive Advantage? • What are your strengths and weaknesses? • What are you doing to ensure your capabilities are dynamic? – Skill upgrades, behavior modifications, etc. • Are some of your strengths valuable, rare, and costly to imitate? • How could you persuade your boss that you could be a vital source of sustainable competitive advantage? ©Mc. Graw-Hill Education.

Small Group Exercise #1 • Brand valuation: can be a key intangible resource • Develop two or three examples: – Products being called the brand name vs. the product type • Does such brand valuation give the leading brand a competitive advantage? – Or does it produce confusion in the market for all products or services in that category? • Provide advice to the leading brand. ©Mc. Graw-Hill Education.

Small Group Exercise #2 (1 of 2) • Groupon: – Vision: to be a global leader in local commerce – Core Competency: local market making • Low barriers to entry • Easily imitated ©Mc. Graw-Hill Education.

Small Group Exercise #2 (2 of 2) • How might Groupon reinvest or upgrade its technology and sales skills so it builds a global customer base? • Brainstorm ways that Groupon might add value for its customers. ©Mc. Graw-Hill Education.

End of Chapter 4 ©Mc. Graw-Hill Education.

Strategy Smart Videos ©Mc. Graw-Hill Education.

Strategy Smart Videos (1 of 6) • Jay Barney • Resource Based View of the Firm • Link: – https: //www. youtube. com/watch? v=-KN 81_o. Yl 1 s • 4: 23 Minutes ©Mc. Graw-Hill Education.

Strategy Smart Videos (2 of 6) • Honda: The Power of Dreams • Competencies are honed over long periods of time through learning from failure • Link: – http: //www. youtube. com/watch? v=1 b. Pz. CZCm. Mf. Q • 8: 22 Minutes ©Mc. Graw-Hill Education.

Strategy Smart Videos (3 of 6) • Steve Jobs and Bill Gates • 2007 Interview, Core Competencies discussed • Link: – https: //www. youtube. com/watch? v=85 PMSYAgu. Z 8 • 15: 05 Minutes ©Mc. Graw-Hill Education.

Strategy Smart Videos (4 of 6) • Steve Jobs • Rare footage from 1980, discussing Competitive Advantage and Capabilities • Link: – https: //www. youtube. com/watch? v=0 lv. Mg. Mr. NDlg • 22: 54 Minutes ©Mc. Graw-Hill Education.

Strategy Smart Videos (5 of 6) • Beats Electronics by Dr. Dre • Commercial: Hear What You Want • Link: – https: //www. youtube. com/watch? v=4 Ttsx 5 squ. Wg • 2: 47 minutes ©Mc. Graw-Hill Education.

Strategy Smart Videos (6 of 6) • Caroline Cummings, VP of Business Development at Palo Alto Software • What is a SWOT Analysis? • Link: – https: //www. youtube. com/watch? v=4 a. FB 9 xrkdi. U • 3: 43 minutes ©Mc. Graw-Hill Education.

Chapter Case 4 ©Mc. Graw-Hill Education.

Chapter Case 4: Beats by Dr. Dre (1 of 2) • Dr. Dre (Andrew Young) – First hip-hop billionaire – Successful music producer, rapper, and entrepreneur – Strong work ethic, expects perfection – One of the best-connected businesspeople in music – Founded Beats Electronics: premium headphones • Apple acquired Beats Electronics for $3 billion – Largest acquisition in Apple’s history – Hoping that some of Beats’ coolness will spill over to its brand ©Mc. Graw-Hill Education.

Chapter Case 4: Beats by Dr. Dre (2 of 2) • Beats Coolness Factor – Celebrity endorsements • Music celebrities wore them in their music videos. • Famous athletes wear them in public. – Custom Beats created for stars • Disruption in Content Delivery – Changing from downloads to streaming – Apple is lagging behind Pandora • i. Tunes radio was created in 2013, has been falling flat ©Mc. Graw-Hill Education.

Appendix 1 The AFI Strategy Framework The important inside circle is titled "Gaining and Sustaining a Competitive Advantage" that is at the very center of the image, with five different circles on on the outside of it. Arrows go back and forth from the center circle to each of the five outer circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy, (4) Formulation, Corporate Strategy, and (5) Implementation. Each of these outer five circles have a brief description beside them to explain what the circle means: Under the first outer circle titled "Getting Started", it says: Part 1, Strategy Analysis, "What is Strategy (Chapter 1)" and "Strategic Leadership: Managing the Strategy Process (Chapter 2)". Under the second outer circle titled "External and Internal Analysis", it says: Part 1, Strategy Analysis, "External Analysis: Industry Structure, Competitive Forces and Strategic Groups (Chapter 3)", "Internal Analysis: Resources, Capabilities and Core Competencies (Chapter 4)", and "Competitive Advantage, Firm Performance, and Business Models (Chapter 5)". Under the third outer circle titled "Formulation: Business Strategy", it says: Part 2, Strategy Formulation, "Business Strategy: Differentiation, Cost Leadership and Integration (Chapter 6)" and "Business Strategy, Innovation and Entrepreneurship (Chapter 7)". Under the fourth outer circle titled "Formulation: Corporate Strategy", it says: Part 2, Strategy Formulation, "Corporate Strategy: Vertical Integration and Diversification (Chapter 8)", "Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter 9)", and "Global Strategy: Competing Around the World (Chapter 10)". Under the fifth outer circle titled "Implementation", it says: Part 3, Strategy Implementation, "Organizational Design: Structure, Culture and Control (Chapter 11)", and "Corporate Governance and Business Ethics (Chapter 12)". Return to slide ©Mc. Graw-Hill Education.

Appendix 2 Exhibit 4. 1 Competitive Advantage based on Core Competencies, Resources, Capabilities This image shows circles within several circles. The center-most circle is titled "Firm". That circle is contained within another circle titled, "Strategic Group. " That circle is contained within another circle titled, "Industry. " That circle is contained within another circle titled, "External Environment. " The External Environment circle contains six arrows pointing inward, and they are titled: Economic, Sociocultural, Technological, Ecological, Legal and Political. The focus in this picture is on the center circle, titled "Inside the Firm, Core Competencies, Resources, and Capabilities" Return to slide ©Mc. Graw-Hill Education.

Appendix 3 Exhibit 4. 3 Links to Competitive Advantage and Superior Firm Performance The first box is titled "Resources" and has an arrow pointing towards the second box titled "Core Competencies". The third box is titled "Capabilities" and has an arrow pointing towards the second box titled "Core Competencies". The second box titled "Core Competencies" has an arrow pointing towards a fourth box titled "Activities". The fourth "Activities" box has an arrow pointing towards a fifth box titled "Competitive Advantage". The fifth box titled "Competitive Advantage" has an arrow pointing towards a sixth box titled "Superior Firm Performance. " The sixth box titled "Superior Firm Performance has two arrows coming out of it, one pointing towards the first box titled "Resources", and one pointing towards the third box titled "Capabilities. " Labels along these arrow lines are titled "Reinvest, Hone, and Upgrade. " Return to slide ©Mc. Graw-Hill Education.

Appendix 4 Exhibit 4. 4 Tangible and Intangible Resources This image shows a box, titled "Resources" that points to two boxes, one titled "Tangible" and the other titled "Intangible. " Tangible resources include visible, physical attributes such as labor, capital, land, buildings, plant, equipment, and supplies. Intangible resources include invisible, non-physical attributes such as culture, knowledge, brand equity, reputation, and intellectual property such as patents, designs, copyrights, trademarks and trade secrets. Return to slide ©Mc. Graw-Hill Education.

Appendix 5 Exhibit 4. 5 The VRIO Decision Tree It is a decision tree to decide if the resource, capability, or competency under consideration fulfills the VRIO requirements. Each of the attributes accumulate. Only if a firm’s managers are able to answer “yes” four times to the attributes listed in the decision tree is the resource in question a core competency that underpins a firm’s sustainable competitive advantage. Is the Resource Capability or Competency Valuable? If no, then there is a Competitive Disadvantage. If yes. . . Is the Resource Capability or Competency Rare? If no, then there is a Competitive Parity. If yes. . . Is the Resource Capability or Costly to Imitate? If no, then there is a Temporary Competitive Advantage. If yes. . . Is the Resource Capability or Competency Organized to Capture Value? If no, then there is a Temporary Competitive Advantage. If yes, then there is a Sustainable Competitive Advantage. Return to slide ©Mc. Graw-Hill Education.

Appendix 6 Exhibit 4. 7 The Bathtub Metaphor This image shows a bathtub that is being filled with water. The amount of water in the bathtub indicates a company’s level of a specific intangible resource stock—such as its dynamic capabilities, new product development, engineering expertise, innovation capability, reputation for quality, and so on. Intangible resource stocks are built through investments over time. These resource flows are represented in the drawing by the different faucets, from which water flows into the tub. These faucets indicate investments the firm can make in different intangible resources. Investments in building an innovation capability, for example, differ from investments made in marketing expertise. Each investment flow would be represented by a different faucet. How fast the bathtub fills, however, also depends on how much water leaks out of the tub. The outflows represent a reduction in the firm’s intangible resource stocks. Resource leak-age might occur through employee turnover, especially if key employees leave. Significant re-source leakage can erode a firm’s competitive advantage. A reduction in resource stocks can occur if a firm does not engage in a specific activity for some time and forgets how to do this activity well. Return to slide ©Mc. Graw-Hill Education.

Appendix 7 Exhibit 4. 8 The Value Chain The primary activities add value directly as the firm transforms inputs into outputs— from raw materials through production phases to sales and marketing and finally customer service, specifically: • Supply chain management. • Operations. • Distribution. • Marketing and sales. • After-sales service Other activities, called support activities, add value indirectly. These activities include: • Research and development (R&D). • Information systems. • Human resources. • Accounting and finance. • Firm infrastructure including processes, policies, and procedures Return to slide ©Mc. Graw-Hill Education.