There are new interacting and reinforcing forces that are leading to dramatic changes: glob., dereg, digit. Thus industries are experiencing revolutionary technological changes - banking and finance merging, e-commerce, Digitization - Moore's law so computing power and communications bandwidth becoming cheap enough to treat as disposable. Globalization - world is a large network, global nw of suppliers and buyers, 24 hour operations, shop on a global basis Deregulation - free market better regulator than govt. Seen this in ariline and comm industry All 3 interact with each other. Digital techs mnake it possible to manage a wider vairety of rels with buyers an dsuppliers which ni turn feeds globalization. More global economy becomes, the more pressures there are for deregulation. Deregulation leads to opening of markets that had been underinvested in technology so start over again.
ONe of reasons why devd by practictioners is saw that market value was so much higher than book value. Traditional accounting could not make sense of this. So needed new way of accounting for this difference. became what is known as IC. One reason why more static than KM. Morgan Stanley's world index - companies on average are worth two times book value. In US two to ten times book value is makret value and in Sweden it is 3-8 times book value.
Increasing number of researchers claiming that knowledge is only true source of comp adv for fimr, Drucker, Spender, Grant. Anchored in resource based theory of firm in which firm creates its comp adv based on resources that are scarce, valuable, and reasonably durable (Barney 1991). Kn-based view builds on this and argues that comp adv lies in intangible firm-specific knowledge. Knowledge devd as firm increases specificity of its activities when deploying and combining inputs. As transforms inputs into higher value-added products and services, firm develops shared knowledge and routines (K&Z 1992) KNowledge holds firm together and not transaction costs. Would expect that as transaction costs decline, that firm would become markets or self-organizing inds, but knoweldge is glue that holds organization together.
Strategic Management and Implementation TMU Johannes M. Pennings June 2004 www-management.wharton.upenn.edu/pennings
“ [W]aves of new approaches [have been] proposed. […] Each approach made its contribution in turn, yet how any of them built on or refuted the previously accepted wisdom was unclear . The result: Each compounded the confusion about strategy that now besets managers”.
Source : Collis & Montgomery (1995) “ Competing on Resources: Strategy in the 1990s”, Harvard Business Review .
“ People seem to disagree about almost every aspect of strategy making […] they disagree about which issues to address in developing strategy, they disagree about the process of developing strategy, and they even disagree as to whether one can think about strategy at all”.
C. Markides (2000) All the Right Moves: A Guide to Crafting Breakthrough Strategy
... deals with the formulation and implementation of a set of decisions, the purpose of which is the realization of a sustainable competitive advantage (manifested in long-term above average profitability ).
Competitive advantage due to cost leadership or market differentiation
Mintzberg and Stream of Decisions
Not rational but emergent
BCG and low to high growth markets
New ”School” and competencies that produces a platform fro strategizing
Porter : Strategy, the Link between the Firm And its Environment THE FIRM Goals and Values Resources andCapabilities Structure and Systems THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers STRATEGY STRATEGY
Sources of Competitive Advantage COST ADVANTAGE DIFFERENTIATION ADVANTAGE COMPETITIVE ADVANTAGE Similar product at lower cost Price premium from unique product
Porter’s Framework Forces Driving Industry Competition Potential Entrants Substitutes Industry Competitors Suppliers Buyers Bargaining Power over Suppliers Threats of New Entrants Bargaining Power of Buyers Threat of Substitutes
Shifting From an Industry Focus(Porter) to a Resource Focus STRATEGY STRATEGY THE FIRM Goals and Values Resources and Capabilities Structure and Systems The Firm-Strategy interface The Strategy-Environment Interface THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers
Shifting From an Industry Focus(Porter) to a Resource Focus THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers STRATEGY STRATEGY THE FIRM Goals and Values Resources and Capabilities Structure and Systems The Firm-Strategy interface The Strategy-Environment Interface
“ We have to be willing to cannibalize what we’re doing today in order to ensure our leadership in the future. It’s counter to human nature but you have to kill your business while it is still working”.
“ Financial accounting, balance sheets, profit-and-loss statements, allocating of costs, etc. are an x-ray of the enterprise’s skeleton. But much as the diseases we most die from - heart disease, cancer, Parkinson’s - do not show up in a skeletal x-ray, a loss of market standing or a failure to innovate do not register in the accountant’s figures until the damage is done”.
P. Drucker (1993)
Developing (strategic) leading indicators
Rationale for the Resource-based Approach to Strategy
When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus.
Resources and capabilities are the primary sources of profitability
But note that platform of capabilities can become a TRAP
Evolution of Honda: A Strategy Based Upon Resources and Capabilities 1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Founding of Honda motor company 50cc 2-cycle engine 4 cycle engines 405cc motor cycle Related products: ground tillers, marine engines, generators, pumps, chainsaws First product: clip-on engine for bicycles The 50cc super -cub N360 mini car 1000cc Goldwing touring motor cycle Acura Car division
Resources as the Basis for Superior Profitability Rate of Profit in Excess of the Competitive Level Industry Attractiveness Competitive Advantage Differentation Advantage Cost Advantage Vertical Power Monopoly Barriers to Entry Brands Product technology Marketing capabilities Process technology Plant size Low-cost inputs Firm size Financial resources Market share Patents Brands Retaliatory capability
The Relationships Between Resources, Capabilities and Competitive Advantage STRATEGY INDUSTRY KEY SUCCESS FACTORS COMPETITIVE ADVANTAGE ORGANIZATIONAL CAPABILITIES
TANGIBLE INTANGIBLE HUMAN
The Rent-Earning Potential of Resources and Capabilities Scarcity Relevance Durability Mobility Replicability Property rights Relative bargaining power Embeddedness of resources THE EXTENT OF THE COMPETITIVE ADVANTAGE ESTABLISHED SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE APPROPRIABILITY THE PROFIT EARNING POTENTIAL OF A RESOURCE OR CAPABILITY
Growth of service sector partly explains increase in Strategy as Firm Knowledge Source: World Bank, 1998
Growth of service sector in Sweden, similar to other EU countries Source: IUI Agriculture Employment Percent Service Industry
The new forces Traditional sources of competitive leverage Deregulation Globalization Digitization Source: Unleashing the Killer App
Computer Associated International 14 Computer software/services
Schering Plough 12 Health care
Amgen 10 Health care
Gillette 10 Consumer Products
Metronic 9 Health care
Kellog 9 Food
Microsoft 9 Computer software/services
Pharmacia & UpJohn 9 Health care
First Date 9 Computer software/services
Pfizer 8 Health care
Abbot Laboratories 8 Health care
Mereck 7 Health care
Johnson & Johnson 7 Health care
Bristol-Myers-Squibb 7 Health care
Pepsico 7 Beverages
Phillip Morris 6 Tobacco
Eds 6 Computer software/services
Competitive advantage is becoming increasingly dependent on firm’s ability to create and leverage knowledge Firm knowledge Internal codification Dissemination Transfer External leakage and imitation Competitive advantage (if resources & capabilities are hard to replicate or imitate) Key idea: Firms are good at transferring tacit knowledge (Kogut & Zander, 1992)
Identifying Organizational capabilities : Functional Approach FUNCTION CAPABILITY EXEMPLARS Corporate Financial management Exxon, Coca Cola Management General Electric, Strategic Control Emerson Electric, GE Coordinating decentralized ABB, Shell business units Managing Acquisitions ING, ConAgra MIS Speed and responsiveness through American Airlines rapid information transfer Benneton R&D Research capability Mereck, AT&T Development of innovative new products Sony, 3M Manufacturing Efficient volume manufacturing Electrolux Continuous Improvement Nucor, Motorola Flexibility Benetton Design Marketing Design Capability Apple, Swatch, Brand Management Proctor & Gamble, PepsiCo Sales & Distribution Promoting reputation American Express Responsiveness to market trends The Gap Sales Responsiveness Microsoft, Glaxo Efficiency and speed of distribution DHL Customer Service KLM
The Framework for Analyzing Knowledge, Capabilities and other Resources 5. Identify resource gaps that need to be filled. 4. Select a strategy 3. Appraise the rent-earning potential of resources/ capabilities 2. Identify capabilities 1. Identify the firm’s resources. Appraise strengths and weaknesses STRATEGY CAPABILITIES RESOURCES POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE
ORGANIZATIONAL CHALLENGE : design structure & systems that:
Permit specialization of knowledge
Facilitate coordination by grouping individuals & link groups with systems of communication, decision making, & control
Deploy incentives to align individual & firm goals and share knowledge among them
Achieving high levels of productivity requires SPECIALIZATION Specialization by individuals necessitates COORDINATION For coordination to be effective requires COOPERATION But goals of employees = goals of owners THE AGENCY PROBLEM
General Motors Organization Structure, 1997 Board of Directors President’s Council Corporate Functions North American Operations Delphi Automotive Systems International Operations GM Acceptance Corporation Hughes Electronics Midsize & Luxury Car Group Small Car Group GM Power Train Group Vehicle Sales, & Marketing Group Development & Technical Cooperation Group GM Europe Asian & Pacific Operations Latin American, African, & Middle East Operation
General Electric’s Organization Structure, 1995 Board of Directors Corporate Executive Office Lighting NBC Motors Transportation Systems Aircraft Engines Industrial Power Systems Medical Systems Appliances Capital Services Information Services Electrical Distribution & Control Plastics Corporate Staff Functions: Tax, Treasury, Audit. M&A, Legal, Business Public Relations, Government Development Relations, Leadership Development Service Divisions Aerospace Environmental GE Licensing/ Marketing Technology Programs Supply Trading &Sales
Pros : fosters group identity, permits greater specialization and so increases skill levels, facilitates supervision.
Cons : creates strong contrasts and thus conflict between functional units, makes it harder to trace responsibility for performance (no unit is a profit centre), fails to develop well-rounded general managers.
Pros & Cons of Basic Organizational Designs
Pros : simplifies co-ordination across functions within units, can be very large and still maintain control, facilitates idiosyncratic treatment of customers when they differ greatly.
Cons : reduces collegiality, duplicates staff functions and foregoes opportunities to share them, reduces chances for skill specialization.
Units must work with each other to produce common output.
high Cost of Managing low low Priority for Linking high
Forms of Task Interdependence Needs Assessment Regional HQ Product Development 1. Pooled Interdependence 2. Sequential Interdependence Customer Contact Service Development Hotel A Hotel B Hotel C Manufacturing Sales/Mktng Need for Integration Low Medium High Coordinating Mechanism Standardize Plan Mutually Adjust 3. Reciprocal Interdependence
An Information-Processing Model of Organizational Design (Wheel vs Circle) Unpredictability of the Task Environmental Effects on the Task Interdependence of Task Elements Task Uncertainty Fit Information-Processing Capacity of the Structure Information-Processing Requirements to do the Task Grouping Linking Management Processes
Information Processing Capacity high low Costs of Managing the Linkage low high
Liaison Roles & Cross-Unit Groups Liaison A B Manager Manager A B Cross-Unit Group
Integrators (Project, Brand, Program, & Account Managers) General Manager Marketing Manufacturing Engineering Project Manager Program Program
Matrix Structures General Manager Marketing Manufacturing Engineering Project Manager Program Program
New Organizational Forms Process-based organizations Organizing around business processes Recognizing corporate processes - entrepreneurial process - competence building process - renewal process Parallel structures separate structures of separate management processes e.g. 3M, TQM, change management process Project-based organization, engineering cos., consulting also Firm’s “Formulas” cos., also manufacturing cos. e.g. Oticon Network and Virtual Organization the boundaryless corporation e.g. Sun Microsystems, Cisco Systems, Italian clothing manufacturers
Firm as a bunch of silos or interconnected departments
Evolution of Photography 35MM Cameras And Early DI (Sony MAVICA No Substitution Paradigm and its Trajectory Very “Obvious” PC Revolution Internet and Email limited to Universities Photo CD with CD Player 1. Complementary technologies And 2. Firms with NE Strategies, hugging Aging Paradigms 80-85 86-90 91-95 96-2003 Polaroid Bankrupt Price-adjusted Quality full Match Digital sales Exceeds Conventional Sales ‘ Counter’ Innovations APS Convergence In Full Swing
Companion Paradigms: Film and film reels, Movie Production, Projection
Complements are PC, WWW, Email
Number of pixels growing
Key Players Canon, Sony, Minolta, and perhaps Kodak
Companion Paradigms: Editing, Visual arts, Movie Production
Key photography elements of product/service/delivery Relative Value Price Resolution Features Immediate Viewing Image Sharing Digital
Camera Film Image Taken Slides Developing Negatives Prints Slide Album Photo Album Consumer Re - purchase Cycle Traditional Film Image Lifecycle Frequent re - purchases Photographic Process – Digital vs. Film Paradigm
Imaging Equipment Imaging Media Imaging Transfer Imaging Storage Imaging Display
Traditional Industry Players Digital Industry New Players
Various Album Manufacturers
H-P Printers / Ink
Epson Printers / Ink
Lexmark Printers / Ink
Palm Pilots / PDAs
Imaging Equipment Imaging Media Imaging Transfer Imaging Storage Imaging Display Imaging / Photography Value Chain
Photography Industry - Milestones Digital Sales Exceeds 35 mm Sales 2003 Kodak Stops making 35 mm camera 2004 Kodak introduces ‘Brownie’ camera 1900 Compact Flash (from SanDisk) introduced 1994 Kodak’s Photo CD introduced 1992 Kodak’s Ofoto Online service founded 1999 Advanced Photo System (APS) introduced 1996 Canon’s first all-digital camera introduced 1986 Sony’s MAVICA digital video camera introduced 1981 Kodak roll film introduced 1882 Kodak founded by George Eastman 1880 First photographic picture (Daguerre Type) 1827 Event Year
Majority of Kodak’s revenues come from sales of films not cameras, and digital cameras do not use any film. How difficult for Kodak to give up its cash cow product.
The economics of traditional photography are much more attractive for producers than those of digital. A constraint on Kodak?
Finally, given that Kodak supports a vast organization on the basis of film sales, and that digital won’t yield profits for some time to come, how will this organization be supported in lieu of film sales.