Strategic management 3 Resource analysis, competences, value chain, and strategic position

Strategic management 3
Resource analysis, competences,
value chain, and strategic position
Analysing strategic capability
Resource audit
Competences
In separate activities
Through linking activities
Value chain analysis
Comparisons
Historical
Industry norms
Benchmarking
Identifying key issues
SWOT analysis
Critical success factors
Understanding strategic
capability
Resources, competences, and value chain analysis
Resource Audit
Value chain
analysis
Identify core resources
Audit Competences
Identify core competences
Strategic capabilities
Comparisons
Historical basis
Industry Norms
Identifying key issues
SWOT Analysis
Benchmarking
Resources audit
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Physical resources: Machines, buildings,
production capacity
Technological resources: Pc, equipments,
networks
Financial resources: Capital, cash,
debtors/creditors, suppliers of money
(shareholders, bankers etc)
Human resources: Number and mix of people,
skills, competences and knowledge
Intellectual capital: Patents, brands, business
systems, customer databases,
Intangible resources: reputation, “goodwill”
Appraising Resources
RESOURCE
CHARACTERISTICS
Financial
Tangible
Resources
Plant and equipment:
Debt/ Equity ratio
Credit rating
Net cash flow
Market value of
size, location, technology
flexibility.
Land and buildings.
Raw materials.
fixed assets.
Scale of plants
Alternative uses for
fixed assets
Technology
Patents, copyrights, know how
R&D facilities.
Technical and scientific
employees
No. of patents owned
Royalty income
R&D expenditure
R&D staff
Reputation
Brands. Customer loyalty. Company
reputation (with suppliers, customers,
government)
Brand equity
Customer retention
Supplier loyalty
Training, experience, adaptability,
commitment and loyalty of employees
Employee qualifications,
pay rates, turnover.
Physical
Intangible
Resources
Human
Resources
Borrowing capacity
Internal funds generation
INDICATORS
Audit resources- core resources 1.
The resource audit identifies the resources „available” to an organisation in supporting
its strategies both from within and outside the organisation
Resources can be grouped
Physical resources
•
• Material assets
• Immobility
• Machines
• Others
• Current assets
• Inventory
• Nature of assets
• age
• condition
• location
Human resources
Financial resources
Intangibles
• Number of employees
• Skills
• Education
• Experience
• Loyalty
•Corporate culture
• Equity
• Debt
• Credibility
• Relationship with
• Suppliers
• Investors
• Bankers
• Managing cash
• Goodwill
• Loyalty of consumers
• Brand name
• Good contacts with
• Politicians
• CEOs
• Corporate image
Audit resources- core resources 2.
Define core resources
Resources
Easy to
imitate
Difficult to
imitate
Necessary
Resources
Unique
Resources
Same as
competitors
Better than
competitors
Core resources
Competences
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How an organisation employs and
deploys its resources
Efficiency and effectiveness of
physical, financial, human and
intellectual resources
• How they are managed
• Cooperation between people
• Adaptability
• Innovation
• Customer and supplier relationships
• Learning
The differences between resources and
competences
Resources
Competences
Tangible
Intangible
Measureble
Mostly difficult to
measure
Difficult to identify
the „owners”
You can acquire by
„learnind by doing”
Easy to identify the
„owners”
You can buy and sell
Analysing competences and core competences 1.
The competence undertake the activities of the organisation. It shows how to link the
different activities together and how to deploy resources to sustain excellent performance
Bases of
competences
Cost efficiency
Value added
Managing linkages
Robustness
Economies of scale: offers the ability in mass consumer advertising,
Supply costs: well managed input costs, with IT or personal networks
Experience: the cumulative experience decrease the R+D and unit costs
How well are matched the products/services to the identified needs of the
chosen customers. Value added activity must be done from the viewpoint
of the customer or user of the production or service.
Competences are likely to be more robust and difficult to imitate if there
are linkages within the organisation’s value chain and linkages into the
supply and distribution channels.
The strategic importance of an organisation’s competences relates to how
easy or difficult they are to imitate.
Unique Resources and
Core Competences
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Unique resources
• Critically underpin competitive
advantage and cannot be imitated or
obtained by others
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Core competences
• Activities and processes through which
resources are deployed such as to
achieve competitive advantages in ways
which others cannot imitate or obtain
How core competences change over time: the world automobile industry
Market access
Global network
Overseas plants
Quality/Reliability
Production processes
Supplier management
Product features
(at low volume)
Life-style niche marketing
'Agile' production
??
Strategic Capability (1)
Strategic capability is the adequacy and suitability
of the resources and competences of an
organisation for it to survive and prosper
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Resources
• Tangible resources – physical assets of
an organisation
• Intangible resources – non-physical
assets of an organisation
Strategic Capability (2)
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Competences
• The activities and processes through
which an organisation deploys its
resources effectively
Identifying Organizational Capabilities:
A Functional Classification
FUNCTION
Corporate
Management
CAPABILITY
Financial management
Strategic control
Coordinating business units
Managing acquisitions
EXEMPLARS
ExxonMobil, GE
IBM, Samsung
BP, P&G
Citigroup, Cisco
MIS
Speed and responsiveness through
rapid information transfer
Wal-Mart, Dell
Capital One
R&D
Research capability
Development of innovative new products
Merck, IBM
Apple, 3M
Manufacturing
Efficient volume manufacturing
Continuous Improvement
Flexibility
Briggs & Stratton
Nucor, Harley-D
Zara, Four Seasons
Design
Design Capability
Apple, Nokia
Marketing
Brand Management
Quality reputation
Responsiveness to market trends
P&G, LVMH
Johnson & Johnson
MTV, L’Oreal
Sales, Distribution
& Service
Sales Responsiveness
Efficiency and speed of distribution
Customer Service
PepsiCo, Pfizer
LL Bean, Dell
Singapore Airlines
Caterpillar
Value Chain and Value Network
The value chain describes the activities within
and around an organisation which together
create a product or service
The main roles of the value chain
analysis:
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To diagnose strategic capability
To understand how value is created or lost
in terms of the activities undertaken
Value Chain Analysis
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Identifies clusters of activities providing
particular benefit to customers
Highlights activities which are less
efficient and which might be deemphasised or outsourced
Requires managers to think about the
role of such activities
Can be used to identify the cost and
value of activities
The value system of an industry
Supplier
value chains
Channel
value chains
Organisation's
value chain
Customer
value chains
The Porter’s Value Chain modell
Exhibit 3.6
Main areas of primarry activitions
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Inbound logistics: concerned with receiving,
storing, and distributing inputs,
Operations: trnasformation the inputs into final
products and services,
Outbound logistics: moving the product ti buyer
(including warehousing and distributinon) ,
Marketind and sales: bringing the product to
buyers and inducing them to buy and use it,
Services: activities to enhence or maintain the
value of product and service (installing, repairing,
maintenace, training, and other services)
Main areas of supporting activitions
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Procurement: process for acquiring
resources and input,
Technology development: covering
product, process and raw material
development and „know how”,
Human resource management:
recruitment, training, motivating,
development, and rewards
Management infrastructure: strategic, and
operational decision-making problemsolving, financial planning, leading
The Value Network – Key Questions (1)
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Where are cost and value created?
Which activities are vital to an organisation?
• Retain direct control of core capabilities
• Outsource less important activities
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Where are the profit pools?
• Potential profits at different parts of the value
network
• Availability of competences to compete in these
areas
Vertical Segmentation & Industry Profit Pools
—The US Auto Industry
25
%
20
Service & repair
Leasing
15
Warranty
Auto
manufacturing
New car
dealers
10
5
0
0
Auto
loans
Used car dealers
Auto
insurance
Gasoline
Share of industry revenue
Aftermarket
parts
Auto
rental
100%
The Value Network – Key Questions (2)
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Make or buy?
• Outsourcing
• Develop competence in influencing performance
of other organisations
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Who are the best partners?
• What kind of relationships are required?
Benchmarking Strategic Capability
• Historical – performance compared to
previous years
• Industry/sector – comparative performance of
other organisations (strategic groups)
• Best in class – wider search for best practice
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Increased expectations due to improved
performance in another sector
Breaking the frame about performance standards to
be achieved
Spot opportunities to outperform incumbents in
other markets – stretch core competences
SWOT (1)
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Summarise of the strategic position of
the organizations
Made by providing analysis of
• Business environment
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Opportunities and threats
• Strategic capabilities
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Strengths and weaknesses
Used for comparison with competitors
Focuses on future choices and
capability of organisation to support
them
The SWOT analysis (2)
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Strengths: internal resources in which you
have advantage to competitors,
Weaknesses: internal resources in which
you have disadvantages to comeptitors,
Opportunities: environmental factors
which favorable for your organization,
Threats: environmental factors which
unfavorable for your organization
Simple SWOT matrix (3)
STRENGHTS
List:
WEAKNESSES
(Resource factors)
List:
OPPORTUNITIES
(Factors of the
environments):
List:
THREATS
Factors of the
environments):
List:
(Resource factors)
Extended SWOT matrix (4)
Strenghts
Weaknesses
1,
2,
3,
1,
2,
3,
Opportunities SO
1,
2,
3,
strategic
projects:
1,
2,
Threats
ST
1,
2,
3,
strategic
projects:
1,
2,
WO
strategic
projects:
1,
2,
SWOT (5)
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Problems of SWOT analysis
• Can generate long lists: need to focus on
key issues
• Danger of over-generalisation: not a
substitute for rigorous strategic analysis
• It create illusion: we have a strategy
Stretching and Adding Capabilities
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Extending best practices
Adding and changing activities
Stretching competences
Building on apparent “weaknesses”
Ceasing activities
Trade-offs
External capability development
Building Dynamic Capabilities
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Promote a learning organisation
• Recognise intuition of people
• Accept conflicting ideas
• Experimentation as the norm
Add activities to support learning, e.g.
“venturing” business units
Manage organisational knowledge
• Need right culture and structure
Develop spiral of interaction between tacit and
explicit knowledge
Question core rigidities
Strategic Capability – Key Points (1)
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Competitive advantage derives from strategic
capabilities
Strategic capability comprises tangible and
intangible resources deployed via competences
Continual improvement of cost efficiency is vital
For sustainable competitive advantage strategic
capabilities must be valuable, rare, robust or
non-substitutable
Dynamic capabilities are needed in a changing
environment
Value chain/value network/activity mapping to
understand cost and value creation
Strategic Capability – Key Points (2)
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Benchmarking establishes relative
performance and challenges assumptions
Management of strategic capabilities
involves stretching capabilities and building
dynamic capabilities
Strategic Capability - Outline
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Resources, competences and dynamic
capabilities
Continual improvement in cost efficiency
Strategic capabilities and competitive
advantage
Organisational knowledge and strategic
capability
Diagnosing strategic capability: value chain,
value networks, activity maps,
benchmarking
Developing strategic capabilities