Strategic Inputs

The External Environment Strategic Intent Strategic Mission The Internal Environment

The Internal Environment: Resources, Capabilities and Core Competence

The Strategic Management Process

Strategy Implementation
Corporate Governance Organizational Structure and Controls

Strategy Formulation
Strategic Actions Business-Level BusinessStrategy Competitive Rivalry and Competitive Dynamics CorporateCorporate Level Strategy

Acquisition and Restructuring Strategies

International Strategy

Cooperative Strategy

Strategic Leadership

Strategic Entrepreneurship

Strategic Outcomes

Strategic Competitiveness AboveAbove -Average Returns

Feedback

Sustainability of a Competitive Advantage

Sustainability of a competitive advantage is a function of:
the rate of corecore-competence obsolescence due to environmental changes the availability of substitutes for the core competence the imitability of the core competence

External and Internal Analyses

Environment Sociocultural Industry Environment

By studying the external environment, firms identify what they might choose to do

Opportunities and threats

Competitor Environment Technological General

External and Internal Analyses

By studying the internal environment, firms identify what they can do Unique resources, capabilities, and core competencies (sustainable competitive advantage)

Challenge of Internal Analysis

How do we effectively manage current core competencies while simultaneously developing new ones? How do we assemble bundles of resources, capabilities and core competencies to create value for customers? How do we learn to change rapidly?

Three Conditions Affecting Managerial Decisions About Resources, Capabilities, and Core Competencies
Uncertainty regarding characteristics of the
general and the industry environments, competitors actions, and customers preferences

Components of Internal Analysis

Core Competencies Capabilities Resources Tangible Intangible Four Criteria of Sustainable Advantages Discovering Core Competencies

Strategic Competitiveness Competitive Advantage

Complexity regarding the interrelated causes

shaping a firms environments and perceptions of the environments

Intraorganizational Conflicts among people making managerial decisions and those affected by them

Value Chain Analysis

Valuable Rare Costly to Imitate Nonsubstitutable

Outsource

Discovering Core Competencies

Discovering Core Competencies

Resources Tangible Intangible

Resources Tangible Intangible

Resources are what a firm has to work with-with--its its assets-assets-including its people and the value of its brand name

Resources represent inputs into a firms production process... such as capital equipment, skills of employees, brand names, finances and talented managers

Tangible Resources Financial Physical Technological Organizational

Intangible Resources Human Resource Innovation Reputation

Discovering Core Competencies

Discovering Core Competencies

Capabilities

Capabilities

Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage

Capabilities are what a firm does, and represent the firms capacity or ability to integrate individual firm resources to achieve a desired objective

Discovering Core Competencies

Discovering Core Competencies Four Criteria of Sustainable Advantages

Core Competencies

Valuable Rare Costly to Imitate Nonsubstitutable

Core competencies are resources and capabilities that serve as a source of competitive advantage over rivals Core competencies distinguish a company competitively and make it distinctive McKinsey and Co. recommends using three to four competencies when framing strategic actions

Valuable: Capabilities that help a firm neutralize threats or exploit opportunities

Discovering Core Competencies Four Criteria of Sustainable Advantages

Discovering Core Competencies Four Criteria of Sustainable Advantages

Valuable Rare Costly to Imitate Nonsubstitutable

Valuable Rare Costly to Imitate Nonsubstitutable

Rare: Capabilities that are not possessed by many others

Costly to imitate: capabilities that other firms cannot develop easily, usually due to Unique historical conditions Causal ambiguity Social complexity

Discovering Core Competencies Four Criteria of Sustainable Advantages

Core Competence as a Strategic Capability

Resources Inputs to a firms production process Core Competence A strategic capability
Does it satisfy the criteria of sustainable competitive advantage?

Valuable Rare Costly to Imitate Nonsubstitutable The source of

Nonsubstitutable: capabilities that do not have strategic equivalents Invisible to competitors Firm specific knowledge Trust Trust-based working relationships between managers and nonmanagerial personnel

Capability An integration of a team of resources

Yes

No

Capability A nonstrategic team or resource 18

Performance Implications
Competitive Consequences
No No No No Yes/ No Yes/ No Competitive Disadvantage Competitive Parity Temporary ComCompetitive Advantage Sustainable ComCompetitive Advantage

The Basic Value Chain

Technological Development Human Resource Mgmt.

Performance Implications Firm Infrastructure Support Activities

Below Average Returns

Service Marketing & Sales Procurement Outbound Logistics Operations Inbound Logistics Primary Activities
20

Yes

No

No

Average Returns Above Average to Average Returns Above Average Returns

Yes

Yes No

Yes

Yes Yes

Yes

19

Outsourcing
Technological Development

Strategic Rationales for Outsourcing

Improve Business Focus
lets company focus on broader business issues by having outside experts handle various operational details
Service Procurement Marketing & Sales Outbound Logistics Operations Inbound Logistics
21 Primary Activities

Human Resource Mgmt.

Support Activities

Usually this is because the specialty supplier can provide these functions more efficiently

Firm Infrastructure

Outsourcing is the purchase of some or all of a valuevaluecreating activity from an external supplier

Provide Access to WorldWorld-Class Capabilities

the specialized resources of outsourcing providers makes worldworld-class capabilities available to firms in a wide range of applications

Strategic Rationales for Outsourcing

Accelerate Business ReRe-Engineering Benefits
achieves rere-engineering benefits more quickly by having outsiders-outsiders--who who have already achieved worldworld-class standards standards---take take over process

Strategic Rationales for Outsourcing

Free Resources for Other Purposes
permits firm to redirect efforts from nonnon-core activities toward those that serve customers more effectively

Share Risks
reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities

Outsourcing Issues
Greatest Value
outsource only to firms possessing a core competence in terms of performing the primary or support activity being outsourced

Outsourcing Issues
Nonstrategic Team of Resources
do not outsource capabilities that are critical to their success, even though the capabilities are not actual sources of competitive advantage

Evaluating Resources and Capabilities

dont outsource activities in which the firm itself can create and capture value

Firms Knowledge Base

do not outsource activities that stimulate the development of new capabilities and competencies

Environmental Threats and Ongoing Tasks

do not outsource primary and support activities that are used to neutralize environmental threats or complete necessary ongoing organizational tasks

Core Competencies: Cautions and Reminders

Never take for granted that core competencies will continue to provide a source of competitive advantage All core competencies have the potential to become core rigidities Core rigidities are former core competencies that now generate inertia and stifle innovation