Competitive Dynamics, Business-Level Strategy & Internal Organization

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Part 1
1. Why is it important for a firm to study and understand its internal organization?
Studying and understanding one's internal organization is important in that such study and understanding leads to less conflict and politicking within the firm specially in implementing decisions, which adversely affects departments in general and employees in particular. Moreover, the knowledge that results from this study and understanding can lead a more efficient and effective re-structuring or adaptation of the company's organizational structure if the changing business environment demands it.

2. What is value? Why is it critical for the firm to create value? How does it do so?
The value of a firm is the total wealth that it adds to its shareholders' wealth. This value is represented by the firm's market capitalization. For profit business entities are actually created to create value for their owners. In other words, value creation is the aim of the firm. A firm creates value by funding and executing projects that are expected to provide positive net present values—net present value is computed by discounting the annual cash flows of these projects using the company's required rate of return.

3. What are the differences between tangible and intangible resources? Why is it important for decision makers to understand these differences? Are tangible resources more valuable for creating capabilities than are intangible resources, or is the reverse true? Why?
Tangible assets are physical assets such as plant and equipment while intangible resources are those which are not seen or touched such as goodwill, copyright, and patents. Knowing the differences of these assets is important in that they have different uses. Tangible assets can be used to physically produce products while intangible assets are needed to protect these products from copycats. These means that these two types of assets serve to complement each other and they each type is not necessarily more valuable than the other.

4. What are capabilities? How do firms create capabilities?
Capabilities pertain to the abilities of a firm in manufacturing products or providing services. Firms can create capabilities in several ways including:
1. create these capabilities through internal training
2. acquire these capabilities by purchasing companies that already have them. This is usually the preferred method for large corporations. One notable example is the AOL purchase of Time Warner.
3. outsource these capabilities to companies who have them. This method is perhaps one of the most popular specially for capabilities that don't directly add value to the manufacture products or production services.
4. acquire these capabilities by merging with another company that has those capabilities. This is another preferred method for large corporations.

5. What four criteria must capabilities satisfy for them to become core competencies? Why is it important for firms to use these criteria to evaluate their capabilities value-creating potential?
The four criteria that capabilities must satisfy to become core competencies are:
1. they should be valuable
2. they should be rare
3. the should be inimitable
4. they should be non-substitutable
It is important for firms to use these four criteria to ensure that their core competencies are difficult to copy and reproduced by their competitors. Otherwise, these firms will go bankrupt in no time.

6. What is value chain analysis? What does the firm ...