UNIT 5 THE INTERNAL ENVIRONMENT

RESOURCES, COMPETENCIES AND STRATEGIC CAPABILITY

When formulating strategy, the analyst will need to consider the strategic capability i.e. the resources and competencies that will enable an organisation to apply a strategy. Strategic capability refers to the organisations ability to perform at a sufficient level to achieve the objectives and satisfy the mission. In most instances this will be a constraining factor. The question: what is the organisation capable of achieving strategically? Many of the issues of strategic management are related to changing strategic capability to fit with the changing environment. The principle aim will be to stretch the abilities to achieve a sustainable competitive advantage for the organisation. A competitive advantage is something that an organisation has that gives people reason to buy or use its services. Organisations will need to understand the basis of their competitive advantage, how it may change and ensure that they remove the competitive disadvantages that may exist.

Analysing strategic capability

This involves understanding the resources and competencies of an organisation. The resources audit identifies the resources that are available to an organisation and seeks to start the process of identifying competencies. It attempts to assess the relative strength of the resource base the quantity of resources available, the nature of those resources and the extent to which those resources are unique and difficult to imitate. Resources are usually grouped under four headings. Physical or operational resources Human resources Financial resources Intangibles

The key is to know what you have available to you and how this will help you in any strategic initiative. At the same time the organisation needs to know what it is lacking and how things may change in the future. Shortage of resources will often constrain strategic initiative. Resources are needed to undertake a strategy. They will not ensure it ultimate success. For that, the resources will need to be combined together into competencies. The audit should include all resources and competencies which can be accessed, not just legally owned. Some strategically important resources may exist such as a network of contacts or customers or possibly knowledge.

Resources and competencies

Same as competitor & easy to copy Different to competitor & difficult to copy

Resources

Basic

Unique

Competencies

Threshold

Core

Resources are needed to undertake strategy but do not convey advantage on their own. If they are in short supply then they will become limiting factors i.e. constraints. Resources combined together present competences. A collection of competences will be required for an organisation to be successful in its market place. The threshold competence attainment avoids competitive disadvantage. It represents those processes, procedures and product characteristics that are necessary to enable the organisation to be considered as a potential supplier to a customer/consumer. The core competence attainment gives the basis for competitive advantage. The question exists as to whether this is sustainable in the longer term.

Competence Slip
Core competence Threshold competencies - the order winners. - the order qualifiers.

Difficult to win if you dont qualify in the first instance Over time the core competence will become threshold as: Cultures adjust and expectations develop Customers and consumers become more sophisticated in terms of their needs and expectations Competitors improve their products and processes in order to compete

Thus organisations need to ensure that they are continually monitoring their marketplace to ensure that their core competencies are still valid and that all thresholds are duly satisfied. Remember, what is good today is not necessarily good tomorrow...

PORTERS VALUE CHAIN

A means by which the activities within and around the organisation are identified and then relating them to the assessment of competitive strength. Resources are of no value unless they are deployed into activities that are organised into routines and systems. These should then ensure that products are produced which are valued by customers and consumers. Porter argued that an understanding of strategic capability must start with an identification of the separate value-adding activities. It can be used to identify the threshold and core competencies the bases for advantage and disadvantage.

Primary activities
Involved in the physical creation of the product, its transfer to the buyer and any after-sales service. Porter divided them into five categories:

1 2 3 4

Inbound logistics are activities concerned with receiving, storing and distributing the inputs to the product. They include materials handling, stock control, transport. Operations transform these various inputs into the final product machining, packing, assembling, testing and control equipment. Outbound logistics relate to collecting, storing and distributing the product to buyers. Marketing and sales provide the means whereby consumers and customers are made aware of the product and transfer is facilitated. This would include sales administration, advertising, selling and so on. Service relates to those activities which enhance or maintain the value of a product such as installation, repair, training and after-sales service.

Support activities
Each of the primary activities is linked to support activities and these can be divided into four areas:

1 2

Procurement refers to the processes for acquiring the various resource inputs to the primary activities not the resources themselves. Technology development All value activities have a technological content, even if it is just know how. IT can affect product design or process and the way that materials and labour are dealt with. Human resource management which is involved in recruiting, managing, training, developing and rewarding people within the organisation. Infrastructure refers to the systems of planning, finance, quality control, information management etc. and is crucially important to an organisations performance in primary activities.

3 4

Designed to look at American manufacturing in the 1980s, it provides a credible starting point for the team to approach an understanding of strategic capability and the basis of their competitive advantage.

Support Activities

Porter's Value Chain

Firm Infrastructure Human Resource Management Technology Development Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics

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Service

Primary Activities

THE VALUE SYSTEM

This looks at linking the value chain of suppliers and customers to that of the organisation. Can add value by:

SUPPLIER

US

RETAILER

Enhancing the supply e.g. organic food for ready meals. Control of the retail process e.g. car dealerships. Can link it all together to give advantage Porters diamond.

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