Lecture 03 — Internal Analysis

Strategy: The Big Picture

From diagnosis to action

• Industry / environment
• Firm / internal analysis
• SWOT
• Strategic recommendations

Review: Industry Analysis

Five Forces

• Threat of new entrants
• Supplier power
• Buyer power
• Threat of substitutes
• Rivalry

Team Exercise 1: Changes in Competitive Dynamics

Based on firms presented in prior sessions, take 10 minutes to discuss the following questions. Appoint one spokesperson to deliver a 2-minute verbal briefing (3–5 bullets; please be specific (e.g., which firm, use what strategies).

• Team 1 Identify three concrete strategies firms used to reduce buyer power
• Team 2 Identify three concrete strategies firms used to reduce supplier power
• Team 3 Identify three concrete strategies firms used to raise entry barriers.
• Team 4 Identify two examples where a single strategy reshaped multiple forces in the same direction, all favoring the focal firm.
• Team 5 Identify two examples where a single strategy reshaped multiple forces in opposing directions for the focal firm.
• Team 6 Identify two strategies that was at first favorable for the focal firm, but become fragile once competitors respond.

Internal Analysis: Overview

Internal analysis asks:

• Where does the commercial value come from?
• What can we do with to create and capture the value?
• What resources do we have to acquire?

Internal Analysis: Theories and Frameworks

• Value Capture Theory (Brandenburger & Stuart (1996))
• Value Creation Activities
• VRIN(O) Test (Penrose, 1959;Barney,1991)

Value Creation & Capture

Value Creation & Capture Breakdown

Team Exercise 2: The “Nebula-X” Tech Launch

In your groups, take 10 minutes to act as the Financial Strategy team for a new product launch. Calculate the value distribution based on this scenario:

The Scenario: You are launching the “Nebula-X” Pro Tablet. Die-hard fans are willing to pay $500 to get their hands on one. You decide to retail the tablet for $350. It costs you $200 in parts and labor (input price) to build each unit. Your component supplier is giving you a deal, but they are walking away from $150 they could have made selling to a rival (opportunity cost).

Which of the following is True?

• A. Consumer surplus is $150
• B. Supplier profits are $100
• C. Total economic contribution is $300

Answer: Breaking Down the “Value Pie”

The Correct Answer is A. Here is how the value is distributed:

• Consumer Surplus = WTP - Product Price 500 - 350 = 150
• Firm’s Profit = Product Price - Input Price 350−200 = 150
• Supplier’s Surplus = Input Price - Supplier’s Opportunity Cost 200−150=50
• Total Economic Contribution = 150 + 150 + 50 = 350

Value Chain Analysis

RBV Value Creation Logic

Resources → Activities → Capabilities → Value → Performance

Analytic Steps:

• Audit revenue & cost structures (Value Pie)
• Decompose the value chain activities
• Diagnose how specific activities impact SOC, WTP, and margin.
• Catalog the firm’s core resources and capabilities.
• Apply the VRIN Test on firm resources and capabilities

Uber Cost Breakdown

Uber Revenue Breakdown

Value Chain Activities

Uber Value Chain Activities

Primary activities

• R&D: Platform matching, pricing, routing algorithms
• Operation & Support: Customer support and dispute resolution
• Sales and marketing: Users acquisition, promotions

Support activities

• Sales and marketing: Brand management
• General and Administrative (G&A): Regulatory strategy and lobbying (in addition to general administrative tasks such HR etc.)
• R&D: Internal efficiency improvement (e.g., data analytics), future oriented (AI, autonomous driving)
• Operation & Support: Payments and trust systems

Uber Value Chain Activities and Firm Value Creation

Resources

Inputs into the production process that do not create value alone.

Capabilities

Capabilities: Result from bundling resources, enable firms to perform tasks, often tacit and collective.

Core Competencies: Capabilities that distinguish the firm, create customer value, difficult to replicate, shape organizational identity

The VRIN Test

Uber Resources and Capabilities

Key resources

• Global merchant and driver network
• Brand recognition and installed user base
• Technical infrastructure and algorithm
• Real-time mobility and demand data
• Regulatory experience across markets

Key capabilities

• Multi-sided platform coordination
• R&D
• Scaling local operations globally
• Regulatory navigation

Uber Capabilities VRIN Test

Uber Internal Analysis Summary / Conclusion

Uber’s internal analysis shows that its competitive position is driven less by network effects from its platform orchestration capabilities.

• Value is created through network scale, data, and algorithms
• Profitability depends on cross-services selling (e.g., rides, Eats,) and reducing incentives without losing demand
• The most defensible advantage lies in regulatory capability and platform coordination, not technology alone
• Uber’s near-term performance hinges on managing tradeoffs between growth, regulation (esp. labor condition requirements), and margins
• Uber’s long-term potential for renewed exponential growth depends in part on successful bets in autonomous driving technologies

Key takeaways

• Value Capture Theory: A firm has a competitive advantage when it creates a larger wedge between willingness to pay (WTP) and supplier opportunity cost (SOC) than its rivals.

• VRIN Framework: Competitive advantage is sustained when a firm’s resources and capabilities are valuable, rare, difficult to imitate, and non-substitutable, allowing the value wedge to persist over time.

Next Session

Capsim Competition