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730N1 Strategic Management
Lecture 4
Learning outcomes
Overview of lecture
The
The basic
basic framework
framework strategy
strategy as
as aa link
link
between
between the
the firm
firm and
and its
its environment
environment
THE FIRM
THE
INDUSTRY
ENVIRONMENT
Goals and
Values
Resources and
Capabilities
Structures and
Systems
STRATEGY
STRATEGY
The
Firm-Strategy
Interface
Competitors
Customers
Suppliers
The
Environment-Strategy
Interface
Resource-based strategy
Competes in
Isle of Man TT
motorcycle
races
1 motorcycle:
98cc, 2-cycle
Dream D
st
1946 1950
4 cycle
engine
First product:
Model A
clip-on engine
for bicycles
1955
4-cylinder
750cc
motorcycle
1st gasoline-powered
car to meet US Low
Emission Vehicle Standard
Portable
generator
Power products:
ground tillers, marine
engines, generators,
pumps, chainsaws
snow blowers
405cc
motor
cycle
1960
The 50cc
Supercub
1965
1970
1975
N360 mini
car
Enters Formula 1
Gran Prix racing
Honda
Civic
1980
Civic Hybrid
(dual gasoline/
electric)
Civic GS
(natural
gas
powered)
1985
1990
1995
Acura Car
division
1000cc
Goldwing
touring
motor cycle
2000
Home cogeneration
system
Enters Indy
car racing
Honda FCX
fuel cell
car
Canon Inc.
Canon:
Canon: Products
Products and
and Core
Core Technical
Technical Capabilities
Capabilities
Precision
Mechanics
Fine
Optics
MicroElectronics
3M Corporation
3M:
3M: Evolution
Evolution of
of Capabilities
Capabilities and
and Products
Products
Road signs Videotape
Sandpaper
Sandpaper Road signs Videotape
Carborundum
&&markings
Carborundum
markings
Floppy
Floppydisks
disks&&
mining
mining
Scotch
data storage
Scotchtape
tape
Audio
Audiotape
tape data storage
products
products
Acetate
Acetate
Post-it
Post-itnotes
notes
film
Housewares/kitfilm
Housewares/kitPRODUCTS
PRODUCTS
chen
Surgical
chenproducts
products
Surgicaltapes
tapes
&&dressings
dressings
Pharmaceuticals
Pharmaceuticals
Materials
Materialssciences
sciences Flexible
Flexible
Health
Healthsciences
sciences circuitry
circuitry
Microreplication
Microreplication
CAPABILITIES
CAPABILITIES
Abrasives
Abrasives
Adhesives
Adhesives
Thin-film
Thin-film
technologies
technologies
New-product
New-product
development
development&&
introduction
introduction
what we have .
what we do well.
The
The Links
Links between
between Resources,
Resources, Capabilities
Capabilities
and
and Competitive
Competitive Advantage
Advantage
COMPETITIVE
ADVANTAGE
INDUSTRY KEY
SUCCESS FACTORS
STRATEGY
ORGANIZATIONAL
CAPABILITIES
RESOURCES
TANGIBLE
Financial
Physical
INTANGIBLE
Technology
Reputation
Culture
HUMAN
Skills/know-how
Capacity
for
communication
& collaboration
Motivation
Identifying Resources
resources
Appraising
Appraising aafirms
firmsresources
resources
RESOURCES
CHARACTERISTICS
INDICATORS
Financial
Borrowing capacity
Internal funds generation
Physical
Market value of
fixed assets.
Scale of plants
Alternative uses for
fixed assets
Technology
Reputation
Brand equity
Customer retention
Supplier loyalty
Employee qualifications,
pay rates, turnover.
Tangible
Resources
Intangible
Resources
Human
Resources
Tangible resources
Intangible resources
Brand names
Technical know-how
Intellectual property
Exploited by spreading the profit
potential across a range of products
(e.g. Nike brand extended across a
range of sports wear and sports
equipment)
Organisational capabilities
Activity 1
VRIN (1)
V Value of strategic capabilities
Strategic capabilities are of value when
they:
take advantage of opportunities and
neutralise threats
VRIN (2)
R Rarity
VRIN (3)
I Inimitability
Inimitable capabilities are those that
competitors find difficult to imitate or obtain.
VRIN (4)
N - Non-substitutability
Competitive advantage may not be
sustainable if there is a threat of
substitution.
Product or service substitution from a different
industry/market. For example, postal services
partly substituted by e-mail.
Competence substitution. For example, a skill
substituted by expert systems or IT solutions
Redundant capabilities
Dynamic capabilities
Dynamic capability is the ability of an
organisation to renew and recreate its
strategic capabilities to meet the needs
of changing environments.
BREAK !!!
Classifying capabilities
analysis (identifying
capabilities within each of the firms
functional areas)
Value chain analysis (providing a detailed
identification of the firms activities and
the capabilities that correspond to them)
Identifying
Identifying Organizational
Organizational Capabilities:
Capabilities:
AAFunctional
FunctionalClassification
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
Wal-Mart, Dell
Capital One
R&D
Research capability
Development of innovative new products
Merck, IBM
Apple, 3M
Manufacturing
Design
Design Capability
Apple, Nokia
Marketing
Brand Management
Quality reputation
Responsiveness to market trends
P&G, LVMH
Johnson & Johnson
MTV, LOreal
Sales, Distribution
& Service
Sales Responsiveness
Efficiency and speed of distribution
Customer Service
PepsiCo, Pfizer
LL Bean, Dell
Singapore Airlines
Caterpillar
Figure 3.4
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance
by Michael E. Porter. Copyright 1985, 1998 by Michael E. Porter. All rights reserved
Two
Two approaches
approaches to
to identifying
identifying an
an
organizations
organizations resources
resources and
and capabilities
capabilities
Starting
Startingfrom
from the
the inside
inside
Starting
Startingfrom
fromthe
the outside
outside
Key Success Factors
How
do customers choose?
What do we need to survive
competition?
Assessing
AssessingaaCompanies
CompaniesResources
Resources
and
and Capabilities:
Capabilities: The
TheCase
Caseof
of VW
VW
RESOURCES
Strategic
Importance
VWs
Relative
Strength
R1. Finance
R2. Technology
R4. Location
R5. Distribution
7
8
Strategic
Importance
VWs
Relative
Strength
C1. Product
development
C2. Purchasing
C3. Engineering
C4. Manufacturing
C5. Financial
management
C6. R&D
C8. Government
relations
CAPABILITIES
4
5
Appraising
AppraisingVWs
VWsResources
Resourcesand
andCapabilities
Capabilities
(Hypothetical only)
10
Key Strengths
Superfluous Strengths
Relative Strength
C3
R3
C8
C4
C2
R2
5
R1
R5
R4
C6
C1
C7
C5
Zone of Irrelevance
1
1
Key Weaknesses
5
Strategic Importance
10
Approaches
Approachesto
toCapability
CapabilityDevelopment
Development
1)
1) Acquire
Acquireand
anddevelop
developthe
theunderlying
underlyingresources.
resources.Especially
Especially
human
humanresources
resources
--Externally
--Externally(hiring)
(hiring)
--Internally
--Internallythrough
throughdeveloping
developingindividual
individualskills
skills
2)
2) Acquire/access
Acquire/accesscapabilities
capabilitiesexternally
externallythrough
throughacquisition
acquisitionor
or
alliance
alliance
3)
3) Greenfield
Greenfielddevelopment
developmentof
ofcapabilities
capabilitiesin
inseparate
separate
organizational
organizationalunit
unit(IBM
(IBM&&the
thePC,
PC,Xerox
Xerox&&PARC,
PARC,GM
GM&&Saturn)
Saturn)
4)
4) Build
Buildteam-based
team-basedcapabilities
capabilitiesthrough
throughtraining
trainingand
andteam
team
development
development(i.e.
(i.e.develop
developorganizational
organizationalroutines)
routines)
5)
5)
6)
6)
Align
Alignstructure
structure&&systems
systemswith
withrequired
requiredcapabilities
capabilities
Change
Changemanagement
managementto
totransform
transformvalues
valuesand
andbehaviors
behaviors(GE,
(GE,
7)
7)
8)
8)
Product
Productsequencing
sequencing(Intel
(Intel, ,Sony,
Sony,Hyundai)
Hyundai)
Knowledge
KnowledgeManagement
Management(systematic
(systematicapproaches
approachesto
toacquiring,
acquiring,
BP)
BP)
storing,
storing,replicating,
replicating,and
andaccessing
accessingknowledge)
knowledge)
Summary:
Summary:AAFramework
Frameworkfor
forAnalyzing
AnalyzingResources
Resourcesand
andCapabilities
Capabilities
4. Develop strategy implications:
(a) In relation to strengths--How can these
be exploited more effectively and fully?
(b) In relation to weaknesses
--Identify opportunities to outsourcing
activities that can be better
performed by other organizations.
--How can weaknesses be corrected
through acquiring and developing
resources and capabilities?
3. Appraise the firms resources and
capabilities in terms of:
(a) strategic importance
(b) relative strength
2. Explore the linkages between resources
and capabilities
STRATEGY
POTENTIAL FOR
SUSTAINABLE
COMPETITIVE
ADVANTAGE
CAPABILITIES
RESOURCES
SWOT analysis
SWOT summarises the strengths,
weaknesses, opportunities and threats
likely to impact on strategy development.
INTERNAL
STRENGTHS
WEAKNESSES
EXTERNAL
OPPORTUNITIES
THREATS
Summary (1)
Summary (2)
Ways of diagnosing organisational capabilities include:
Analysing an organisations value chain and value
network as a basis for understanding how value to
a
customer is created and can be developed.
Activity mapping as a means of identifying more
detailed activities which underpin strategic
capabilities.
SWOT analysis as a way of drawing together an
understanding of strengths, weaknesses, opportunities and
threats an organisation faces.