Strategic Management/ Business Policy

Strategic Management/Business Policy

Power Point Set #4:Resources & Capabilities

Resources and CapabilitiesStrategy from a resource-based perspective

How do resources create competitive advantage?

Value-chain analysis

The linkage between organizational learning and capabilities

3-4Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

The Value Chain

Adapted from Exhibit 3.1 The Value Chain: Primary and Support Activities

Source: Adapted with permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter.

General administration

Human resource management

Technology development

Procurement

Inbound logistics

Operations Outbound logistics

Marketing and sales

Service

1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995

Founding ofHonda motor

company

50cc 2-cycle engine

4 cycle engines

405ccmotorcycle

Related products:ground tillers, marineengines, generators,pumps, chainsaws

First product: clip-on engine

for bicycles

The 50ccsuper-cub

N360 minicar

1000ccGoldwingtouring

motor cycle

Acura Cardivision

The Evolution of Honda Motor CompanyThe Evolution of Honda Motor Company

Precision Mechanics

FineOptics

Micro-Electronics

35mm SLR cameraCompact fashion cameraEOS autofocus camera

Digital cameraVideo still camera

Plain-paper copierColor copier

Color laser copier Laser copierBasic fax

Laser faxMask aligners

Excimer laser alignersStepper aligners

Inkjet printerLaser printer

Color video printerCalculator

Notebook computer

Canon: Products and Core Technical CapabilitiesCanon: Products and Core Technical Capabilities

The Role of Strategy In Business - The Linkage Between Strategy, Resources, & Organization

Strategy

Resources& Capabilities Organization

STRATEGYINDUSTRY KEY

SUCCESS FACTORSCOMPETITIVEADVANTAGE

ORGANIZATIONALCAPABILITIES

RESOURCESTANGIBLE INTANGIBLE HUMAN

•Financial•Physical

•Technology•Reputation•Culture

•Skills/know-how•Capacity for communication & collaboration•Motivation

Resources, Capabilities & Competitive Advantage

Appraising ResourcesAppraising ResourcesRESOURCE CHARACTERISTICS INDICATORS

Financial Borrowing capacity Debt/ Equity ratioInternal funds/ generation Credit rating

Tangible Net cash flowResources Physical Plant and equipment: Market value of

size, location, technology fixed assets.flexibility. Scale of plantsLand and buildings. Alternatives for fixedRaw materials. assets

Technology Patents, copyrights, know how No. of patents owned.R&D facilities. Royalty income

Intangible Technical and scientific R&D expenditure.Resources employees R&D staff

Reputation Brands. Customer loyalty. Company Brand equity. Productreputation (with suppliers, customers, price premium.government) Recognition.

Human Training, experience, adaptability, Employee qualifications,Resources commitment and loyability of customers pay rates, turnover.

46

Performance ImplicationsPerformance Implications

Valuab

le?

Valuab

le?

Rare?

Rare?

Costly

to Im

itate?

Costly

to Im

itate?

Nonsub

stitut

able

Nonsub

stitut

able

CompetitiveCompetitiveConsequencesConsequences

PerformancePerformanceImplicationsImplications

NoNo NoNo NoNo NoNoCompetitiveCompetitiveDisadvantageDisadvantage

Below AverageBelow AverageReturnsReturns

YesYes NoNo NoNoYes/Yes/NoNo

CompetitiveCompetitiveParityParity Average ReturnsAverage Returns

YesYes YesYes NoNoYes/Yes/NoNo

Temporary ComTemporary Com--petitivepetitive AdvantageAdvantage

Above Average to Above Average to Average ReturnsAverage Returns

YesYes YesYes YesYes YesYesSustainable ComSustainable Com--petitivepetitive AdvantageAdvantage

Above Average Above Average ReturnsReturns

Scarcity

Relevance

Durability

Mobility

Replicability

Property rights

Relative bargainingpower

Embeddedness ofresources

THE EXTENT OF THE COMPETITIVE ADVANTAGE

ESTABLISHED

SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE

APPROPRIABILITY

THE PROFITEARNING POTENTIALOF A RESOURCE OR

CAPABILITY

The Rent-Earning Potential of Resources and Capabilities

The Rent-Earning Potential of Resources and Capabilities

2/28/2003 Southern Methodist University Slide # 6

Building Competitive AdvantageBuilding Competitive AdvantageResources and Capabilities

Competitive PositioningCompetitive Positioning Defending Defending

Value drivers Cost driversValue drivers Cost drivers Isolating mechanismsIsolating mechanisms

Retain customers Retain customers & Prevent imitation& Prevent imitation

Superior ContributionSuperior Contribution Sustainable PositionSustainable Position

Competitive AdvantageCompetitive Advantage

4/22/2003 Southern Methodist University Slide # 7

Competitive Positioning With Competitive Positioning With CustomersCustomers Economic contributionEconomic contribution

The value customers receives less the The value customers receives less the cost to the firmcost to the firm

Buyer’ surplus

Supplier’s profit

Economic contribution produced by supplier

Product value

Market price

Product cost

© 2005 Mara Lederman, Rotman School of Management

Types of Competitive Advantage

Buyer value generated (willingness to pay)

Costs incurred (including opportunity cost of capital)

Industry average

competitor

Successful differentiated

competitor

Successful low-cost

competitor

Competitor with dual

advantage

$

Value Created

© 2005 Mara Lederman, Rotman School of Management

Competitive Advantage and Activities – Porter’s Value Chain

InboundLogistics

(e.g. Incoming Material Storage, Data Collection,

Service, Customer Access)

Operations

(e.g. Assembly, Component Fabrication,

Branch Operations)

OutboundLogistics

(e.g. Order Processing,

Warehousing, Report

Preparation)

Marketing& Sales

(e.g. Sales Force, Promotion, Advertising,

Trade Shows, Proposal Writing)

After-Sales Service

(e.g. Installation, Customer Support,

Complaint Resolution,

Repair)

Firm Infrastructure(e.g. Financing, Planning, Investor Relations)

Human Resource Management(e.g. Recruiting, Training, Compensation System)

Technology Development(e.g. Product Design, Testing, Process Design, Material Research, Market Research)

Procurement(e.g. Components, Machinery, Advertising, Services)

Margin

Primary Activities

Support Activities

Firms are collections of discrete activities, in which competitive advantage resides

© 1999 Pankaj Ghemawat

Hostess’s Cost Components

0

10

20

30

40

50

60

70

80

Cen

ts p

er u

nit

Profit

Marketing: Promotions

Marketing: Advertising

Outbound logistics

Operations: Manufacturing

Operations: Packaging

Operations: Ingredients

© 1999 Pankaj Ghemawat

Relative Cost Analysis

0

10

20

30

40

50

60

70

80

90

Hostess Little Debbie Ontario Baking Savory Pastries

Cen

ts p

er u

nit

Profit

Marketing: Promotions

Operations: Manufacturing

Operations: Packaging

Operations: Ingredients

Marketing: AdvertisingOutbound logistics

Using Value Chain Analysis to Determine the Sources of Competitive Advantage

Beyond simply using a value chain analysis to “map out” the sequence of activities, we need to ask the following questions:

What is the cost structure of each of these activities?

How do we compare with other competitors in each of these areas?

What are our strengths and weaknesses?

Value Chain Analysis

Outsourcing activities in which it lacks capabilities, the firm can concentrate fully on those areas in which it can create value.

For example, Dell Computer Corporation out-sources most of its manufacturing and customer service activities, so it can concentrate on creating value through its distribution channels.

3-7

Boeing Suppliers (777)Boeing Suppliers (777)

Firm Country PartsAlenia Italy Wing flapsAeroSpaceTechnologies

Australia Rudder

CASA Spain Ailerons

doors, wing sectionFuji Japan Landing gear

GEC Avionics United Kingdom Flight computersKorean Air Korea Flap supportsMenascoAerospace Canada Landing gearsShort Brothers Ireland Landing gear doors

SingaporeAerospace

Singapore Landing gear doors

Value Chain AnalysisOutsourcing activities can have the unintended consequence of damaging the firm’s potential to evaluate continuously its key assumptions, learn, and create new capabilities and core competencies. Therefore, managers should verify that the firm does not outsource activities that stimulate the development of new capabilities and competencies.

Organization and ResourcesIncentive and Reward Systems

Creation of “Knowledge”“Gain-Sharing”

Organization StructureWhere “Knowledge” Is LocatedCross-functional Teams

Recruiting and Training PoliciesSpecificity of Knowledge

Organization ProcessThe Dynamics of Knowledge Creation

Knowledge Creation

• Research

KnowledgeAcquisition

KnowledgeGeneration

(“Exploration”)

• Training• Recruitment• Intellectual property

licensing• Benchmarking

KnowledgeApplication

(“Exploitation”)

KnowledgeIntegration

• New product development

• Operations

KnowledgeSharing

• Strategic planning• Communities of practice

Knowledge Storage &

Organization

Knowledge Replication

• Best practices transfer• On-the-job training

• Databases• Standard operating practices

Knowledge Measurement

• Intellectual capital accounting• Competency modeling

KnowledgeIdentification

• Project reviews• Competency modeling

Knowledge Processes within the Organization

IndividualIndividual OrganizationOrganization

ExplicitExplicit

TacitTacit

InformationFacts

Scientific kn.

DatabasesSystems & procedures

Intellectual property

Skills Organizationalcapabilities

CRAFTENTERPRISES

‘INDUSTRIAL’ ENTERPRISESTypes

ofKnowledge

Typesof

Knowledge

Levels of knowledgeLevels of knowledge

Knowledge Types and Knowledge ConversionKnowledge Types and Knowledge Conversion