Activity Mapping a. Are Walmarts distinctive competencies VRIN? Why? b. Are Targets distinctive competencies VRIN? Why? c. Are Walgreens distinctive competencies VRIN? Why?

Slide 2 Activity mapping involves six steps. First, strategic customers within the industry are identified and described - A strategic customer is a customer who a company targets. Second, the strategic customers critical success factors are listed. - Critical success factors are those characteristics of the product or services that are most important to a strategic customer. Without these characteristics, a product or service is much less appealing. Third, the internal activities that a company must take in order to successfully offer the critical success factors are listed. - These important internal activities are the activities that are necessary for a company to perform in order to offer those characteristics of the product or services that are most important to a strategic customer. Fourth, a companys distinctive competencies are listed. - We ask, What activities does a company perform particularly well? Fifth, is there a match? - Do the distinctive competencies match the important internal activities? Sixth, if there is a match, are the distinctive competencies valuable, rare, difficult to imitate, and nonsubstitutable? - In this step, we will focus on imitation how difficult would it be for a competitor or new industry entrant to imitate the distinctive competencies? Activity mapping analysis can help organizations identify: - what they are doing well to serve their most important customers - what new activities they should take to better serve their customers - what activities they perform that may not be aligned with what their customers want - whether organizations activities could be easily copied Slide 3 In Step 1, we begin by identifying the strategic customers within an industry. In some industry, there may be a great deal of diversity in types of customers. For example, in the hotel industry, there are many types of strategic customers business travelers who stay at hotels for extended periods of times, families on vacation who are passing through an area, and many more types of customers. In other industries, there may be fewer types of customers. For example, in the nuclear power plant industry (companies that design and build nuclear power plants), there are fewer customers. In our example of the US General Household Retail industry, there are many types of customers. To keep this presentation short, I describe three types of strategic customers. These descriptions are really stereotypes and are designed only to provide examples that will allow me to conduct an activity mapping exercise. They are not meant to represent real people. For the first strategic customer, I imagine a single mother of around 30 years old. She has three children. Her annual income is relatively low. She works full-time at a job that pays ten percent more than the state required minimum wage; and she and her children recently moved to a 3-bedroom apartment that she rents. For the second strategic customer, I imagine a 40-year-old woman who is married and has one child. She and her spouse both work full-time. Together their household income places them in the 80th percentile of household incomes in the region where they live. They own a 4-bedroom, 2-1/2 bath suburban home (with a mortgage). For the third strategic customer, I imagine a 75-year old man who has been widowed for five years. He is a retired engineer, and his five children no longer live at home. Four years ago he downsized to a 2- bedroom bungalow in an old, established city neighborhood. His primary sources of financial income are his pension and social security payments. He walks regularly around this neighborhood, goes to a gym in the morning, and is active in a few social organizations. Note that I have identified only three types of strategic customers. If we were to perform this analysis for a real general household retailer, we might identify many more types of customers. Slide 4 In Step 2, we list the strategic customers critical success factors those characteristics of the products or services that are most important to a strategic customer. In this example, the products are general household products. So, what characteristics related to household products (or the purchase of household products) do the strategic customers care-about? For the first strategic customer, I believe that many factors affect her purchasing decisions. But, to be brief, I am going to assume that the two most important factors are low price and large product selection. When she shops for household products, she is influenced most by the price and how many similar products she can choose-from. For the second strategic customer similarly I believe there are many factors that affect her purchasing decisions. But, I assume that the two most important factors are quality (in her eyes) and that her shopping experience is pleasant. For the third strategic customer, I assume the two most important factors are convenience and customer service. I think he values being able to easily and comfortably enter a store, find and purchase items, and leave the store. Slide 5 To facilitate this exercise, I will focus on just one of each strategic customers critical success factors. For the single mother, I will focus on low price. For the 40-year old married woman, I will focus on perceived quality, and for the widower, I will focus on convenience. Slide 6 In Step 3, we list the internal activities that an organization must take in order to successfully offer the critical success factors that are most important to a strategic customer. In this step, organization members should strive to not think about their own activities what their organization currently does relative to the critical success factors. Instead, in this step, they should focus on a hypothetical company. For example, if a new company were to enter the industry and wanted to focus on a particular critical success factor, what activities would that companys members have to perform to be successful? In the example of the US general household retail industry, I have listed three critical success factors low price, perceived quality, and convenience. I will take them in order. First, what would a general household retailer need to do well to offer low prices? ............ The company would have to reduce costs. Generally, for a company to offer low prices, it has to have low costs in particular, costs that are lower than its competitors costs. But, what does reducing costs mean for general household retailers? Cost is a broad category. I want to be much more specific. I want to identify specific activities that will help a company reduce costs. - Therefore, I want to identify the largest sources of costs for general household retailers (the cost drivers). For general household retailers, the costs drivers are supply, labor, distribution, and maintenance costs. That is, the greatest costs are the costs associated with (a) purchasing goods from manufacturers and wholesalers, (b) paying employees, (c) moving and storing goods, and (d) maintaining facilities. To drill down more, I might focus on one of these cost categories for example, labor costs and ask, How can labor costs in a general household retailer be reduced? To reduce labor costs, a company could pay employees low wages, offer little benefits, and attempt to reduce the number of warehouse employees via automation. To drill down even more, I might focus on one of these cost-cutting moves and attempt to identify specific activities that would allow a company to for example, reduce the number of warehouse employees via automation. To do so, a company could (a) research warehouse automation technology and (b) perform cost-benefit analyses of investing in warehouse automation. This is what I should do in order to identify ACTIVITIES. But, again, to keep this presentation short, I will stay at the level of cost categories. Second, what would a general household retailer need to do well to offer products and a shopping experience that have a high level of quality (in the eyes of our 40-year old married woman)? ............ Unfortunately, I am not a 40-year old married woman. Therefore, I am not sure what constitutes a high level of quality for her. But, I will guess. I think she might associate trendy or desirable brand names with high quality. Moreover, she might associate bright, warm lighting, spacious aisles, and well-dressed, knowledgeable employees with a high quality shopping experience. Again, to identify activities that a general household retailer needs to take, I should drill down into each of these categories. For example, what would a company need to DO to offer trendy or desirable brand names? I promised I would try to be brief (and it might be too late), so I will stop at this level of analysis. Third, what would a general household retailer need to do well to offer convenience in the eyes of the widower? Again, it is difficult to put myself in this gentlemans shoes. I am not a 75-year-old widower. But, my guess is that for him, convenience means smaller stores, not having to drive or walk far to a store, and not having to choose from many similar products. A company that wants to appeal to his view of convenience, therefore, would need to build small, neighborhood stores with ample parking that are easy to quickly enter, shop, and exit. You can drill-down on your own into these items and imagine what activities a company would need to take. Slide 7 In Step 4, we switch our focus from strategic customers and a hypothetical company to an actual company or companies. If we were analyzing the operations of a company, we would identify the distinctive competencies of that company the activities that the company performs particularly well. Moreover, activity mapping can also be performed on competing companies to understand what other companies do to try to appeal to strategic customers. If competitors are analyzed, their distinctive competencies would then be listed. In the current example, I have chosen to combine the two approaches. I have identified three companies in the US General Household Retail industry. They are Walmart, Target, and Walgreens. Moreover, I have listed them above particular strategic customers. I do not mean to imply that these companies strive to appeal to only these types of customers. In fact, in this step, I do not want to think about the strategic customers, their critical success factors, or the activities that a company would need to satisfy these critical success factors. That is why I crossed-out the first three rows. In Step 4, we focus on the target company and identify its distinctive competencies. In this example, what do Walmart, Target, and Walgreens do well internally? Or, what are they known for doing well? For Walmart, I think the company is known for doing a great job of cutting costs labor costs, maintenance costs, distribution costs, and the prices they pay their suppliers. For Target, I think the company is known for: - offering fairly desirable brands (particularly clothing brands), - having well-lit stores with clean, spacious aisles, and - employing happy people (in red shirts and khaki pants) who are easy to find and who will show you where products are located For Walgreens, I think the company is known for having small stores located at busy intersections, with drive-thru pharmacies, plentiful parking, and uniform store layouts that allow customers to get-in and get-out quickly. Slide 8 In Step 5, we ask, Is there a match? Do the companys distinctive competencies match the internal activities that a hypothetical company would need to capitalize on the strategic customers critical success factors? In the example described so far, there is a match a perfect match between the third and fourth rows. But, in a real analysis, there would likely not be a perfect match. There would be important internal activities that a company does not currently perform; and there would be distinctive competencies (things a company does well) that are not aligned with the important internal activities. To illustrate this point, on the next slide ... Slide 9 ... consider how well Walmarts distinctive competencies match the important internal activities associated with the different critical success factors of the three different strategic customer types in the current example. Note that for this example, I selected only one critical success factor for each strategic customer, and I listed what I thought were Walmarts distinctive competencies based on my general impressions of the company. I may be wrong about both the critical success factors and Walmarts distinctive competencies. To perform this analysis well, one should conduct market research studies with representatives of the strategic customer types, and you should ask analysts of the general household retail industry to identify a companys distinctive competencies. Putting this issues aside, however, the analysis based on my impressions suggests that Walmarts distinctive competencies do not match the important internal activities needed to appeal to the 40-yearold woman and to the widower. Slide 10 If there is a match in Step 5 between the distinctive competencies and important internal activities, in Step 6 we ask, Are the companys distinctive competencies valuable, rare, difficult to imitate, and nonsubstitutable? In particular, we focus on whether a competitor or hypothetical new company entering the industry could imitate the companys distinctive competencies. In the current example, because there is a match between: - Walmarts, Targets, and Walgreens distinctive competencies, and - the important internal activities a company would need to perform in order to offer low price, high perceived quality, and convenience, respectively, I would ask whether the companies distinctive competencies are valuable, rare, difficult to imitate, and non-substitutable. If I can answer yes to each of these VRIN criteria, then I would expect that the companys distinctive competency is a STRATEGIC RESOURCE that will allow the company to continue to enjoy an advantage over its competitors, at least relative to the strategic customer type. So ... do you think Walmarts capabilities related to reducing labor, maintenance, supply, distribution, and other costs are: - Valuable, in order to offer low prices? - Rare, among companies? - Difficult to imitate, for competitors and potential new entrants? - Nonsubstitutable, i.e., there are not other activities that could be undertaken that would have similar cost reduction effects? Do you think Targets capabilities related to offering desirable brand names (especially in clothing), good lighting, spacious aisles, and employing helpful employees is valuable, rare, difficult to imitate, and nonsubstitutable? Do you think Walgreens capabilities related to building and locating small stores in busy areas with plentiful parking is valuable, rare, difficult to imitate, and nonsubstitutable? Of these three companies distinctive competencies, which would be the most difficult to imitate for a competitor or new entrant with unlimited resources? You will see more information about imitation in later modules; and there will be more discussion of the general household retail industry in the next module.