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Strategic Management BUSM 3200                   These Lecture Slides summarize the key points covered in the respective c...
Learning outcomes for Chapter Three           Identify what comprises strategic capabilities in terms of            organ...
Note:        This lecture focuses on INTERNAL Analysis of a         business        It gives you the concepts to assess ...
Strategic capabilities: the key issues     Figure 3.1     Strategic capabilities: the key issuesBUSM 3200- Strategic Manag...
Resource-based strategy               The resource-based view (RBV) of strategy               asserts that the competitive...
Resources and competences         Resources are the assets that organisations have          or can call upon (e.g. from p...
Components of strategic capabilities     Table 3.1     Components of strategic capabilitiesBUSM 3200- Strategic Management...
Redundant capabilities         Capabilities, however effective in the past, can          become less relevant as industri...
Dynamic capabilities           Dynamic capability is the ability of an           organisation to renew and recreate its st...
Threshold and distinctive capabilities (1)          Threshold capabilities are those needed for an           organisation...
Threshold and distinctive capabilities     Table 3.2     Threshold and distinctive capabilitiesBUSM 3200- Strategic Manage...
Core competences          Core competences1 are the linked set of skills,          activities and resources that, together...
Core competences          Core competences are distinguished from competences          in several ways:              • the...
Strategic capabilities and                                                  competitive advantage          The four key cr...
VRIN (1)                        V – Value of strategic capabilities        Strategic capabilities are of value when they: ...
VRIN (2)                                                 R – Rarity      Rare capabilities are those possessed uniquely  ...
VRIN (3)                                                 I – Inimitability        Inimitable capabilities are those that c...
Criteria for the inimitability of strategic                                   capabilities                                ...
VRIN (4)                                       N - Non-substitutability    Competitive advantage may not be sustainable   ...
Summary of the VRIN Factors:     Figure 3.3     VRINBUSM 3200- Strategic Management (Jan 2013) GDS                      3-20
Organisational knowledge               Organisational knowledge is the collective               intelligence, specific to ...
Diagnosing Strategic Capabilities        Several techniques and frameworks are used to         assess a company’s strateg...
Benchmarking           Benchmarking is a means of understanding how           an organisation compares with others – typic...
The value chain         The value chain describes the categories of          activities within an organisation which,    ...
The Concept of a Company Value Chain   ♦ The Value Chain            ●    Identifies the primary internal activities that c...
The Value Chain (Porter)     Figure 3.4      The value chain within an organisation     Source: Adapted with the permissio...
Read up in detail        The description of EACH of the activities of the         Value Chain on page 968.        Unders...
Uses of the value chain          A generic description of activities – understanding           the discrete activities an...
The value network         The value network comprises the set of inter-          organisational links and relationships t...
The value network     Figure 3.5      The value network     Source: Adapted with the permission of The Free Press, a Divis...
Uses of the value network          Understanding cost/price structures across the           value network – analysing the...
Strategic Options for Remedying a Disadvantage                in Costs or Effectiveness   ♦ There are three places in the ...
Representative Value Chain System for an Entire IndustrySome additional slides on how VC analysis is applied tostudy the l...
Options for Improving the Efficiency and      Effectiveness of Internal Value Chain Activities   ♦ Implement best practice...
Ways to Improve the Efficiency and Effectiveness      of Supplier-Related Value Chain Activities   ♦ Pressure suppliers fo...
Ways to Improve the Effectiveness of the Customer Value Proposition and Enhance Differentiation   ♦ Implement best practic...
Translating Company Performance of Value Chain Activities                            into Competitive Advantage           ...
Translating Company Performance of Value Chain Activities                            into Competitive Advantage (cont’d)  ...
Mapping activity systems (1)         Identify ‘higher order strategic themes’ that is,          how the organisation meet...
Mapping activity systems (2)     Illustration 3.5     Activity systems at Geelmuyden.KieseBUSM 3200- Strategic Management ...
Using activity system maps         A means of identifying strategic capabilities in          terms of linkages of activit...
SWOT analysis               SWOT summarises the strengths, weaknesses,               opportunities and threats likely to i...
IS THE COMPANY ABLE TO SEIZE MARKET               OPPORTUNITIES AND NULLIFY EXTERNAL               THREATS? THE SWOT ANALY...
What Do the SWOT Listings Reveal?   ♦ SWOT Analysis Involves:            ●    Drawing conclusions from the SWOT           ...
The Steps Involved in SWOT Analysis: Identify the Four                           Components of SWOT, Draw Conclusions, Tra...
Remember:        SWOT Listing is NOT SWOT Analysis        “So What?” Implications        What do the SWO and T factors ...
SWOT analysis: Illustration 3.6 (page 107)                                                 In this illustration from the t...
SWOT analysis: Illustration 3.6 (page 107)                                                 This continuation version of th...
Uses of SWOT analysis           Key environmental impacts are identified using            the analytical tools explained ...
The TOWS matrix                                                     This model is an extension of the SWOT analysis.      ...
Sample of a TOWS matrix                                                 Try to Google more samples of TOWs matricesBUSM 32...
Dangers in a SWOT analysis        Long lists with no attempt at prioritisation.        Over generalisation – sweeping st...
Managing Strategic Capability           Internal capability development:           Leveraging capabilities – identifying ...
Managing activities for capability                                      development          External capability developm...
Managing people for capability development          Targeted training and development          Staffing policies        ...
The Process of Performing an           Internal Audit                            One area not covered in the text is the “...
Marketing Audit Checklist             of Questions1. Are markets segmented effectively?2. Is the organization positioned w...
Marketing Audit Checklist             of Questions7. Are product quality and customer service good?8. Are the firm’s produ...
Finance/Accounting Audit               Checklist1. Where is the firm financially strong and weak     as indicated by finan...
Finance/Accounting Audit               Checklist7. Are dividend payout policies   reasonable?8. Does the firm have good re...
How CalculatedKey FinancialRatios                                                                                         ...
Key FinancialRatios (cont’d)  Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.   4–62             ...
Production/Operations                Audit Checklist1. Are supplies of raw materials, parts, and     subassemblies reliabl...
Integrating Strategy and Culture Organizational culture significantly affects  business decisions and thus must be  evalu...
Chapter summary (1)         • Strategic capabilities comprise both resources and           competences.         • The conc...
Chapter summary (2)          Ways of diagnosing organisational capabilities include:               Benchmarking as a mean...
PRACTICE ESSAY QUESTIONS                IMPORTANT NOTE: →              These questions are provided for your reference on...
Sample Exam Question               According to the resource based view of the firm,               there are four attribut...
Sample Exam Question        Describe the four criteria for an         organization’s core competence. Explain         how...
Sample Exam Question        Examine the advantages and disadvantages for a        firm to rely on the Value Chain to achie...
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Transcript of "SM Lecture Three : Strategic Capabilities"

  1. 1. Strategic Management BUSM 3200 These Lecture Slides summarize the key points covered in the respective chapters in your recommended text; these slides do NOT substitute, at all, the required reading of the assigned chapter from the text. These slides also may contain additional supplementary material extracted from other texts and sources outside your text book.BUSM 3200- Strategic Management (Jan 2013) GDS 3-1
  2. 2. Learning outcomes for Chapter Three  Identify what comprises strategic capabilities in terms of organisational resources and competences and how these relate to the strategies of organisations.  Analyse how strategic capabilities might provide sustainable competitive advantage on the basis of their value, rarity, inimitability and non-substitutability (VRIN).  Diagnose strategic capability by means of benchmarking, value chain analysis, activity mapping and SWOT analysis.  Consider how managers can develop strategic capabilities for their organisations.BUSM 3200- Strategic Management (Jan 2013) GDS 3-2
  3. 3. Note: This lecture focuses on INTERNAL Analysis of a business It gives you the concepts to assess the capabilities and constraints of a company – simply put it enables you to study its ‘strengths and weaknesses’ Taken together with the material from Lecture Two (external environment), you can then proceed to complete the overall SWOT analysis of the company.BUSM 3200- Strategic Management (Jan 2013) GDS 3-3
  4. 4. Strategic capabilities: the key issues Figure 3.1 Strategic capabilities: the key issuesBUSM 3200- Strategic Management (Jan 2013) GDS 3-4
  5. 5. Resource-based strategy The resource-based view (RBV) of strategy asserts that the competitive advantage and superior performance of an organisation is explained by the distinctiveness of its capabilities. Proponents of the RBV contend that organizational performance will primarily be determined by internal resources that can be grouped into three all-encompassing categories: physical resources, human resources, and organizational resources. (think of the functional divisions such as marketing, finance, HR and operations; where does the key strengths of the company lie in? )BUSM 3200- Strategic Management (Jan 2013) GDS 3-5
  6. 6. Resources and competences Resources are the assets that organisations have or can call upon (e.g. from partners or suppliers),that is, ‘what we have’ . Competences are the ways those assets are used or deployed effectively, that is, what we do well’.BUSM 3200- Strategic Management (Jan 2013) GDS 3-6
  7. 7. Components of strategic capabilities Table 3.1 Components of strategic capabilitiesBUSM 3200- Strategic Management (Jan 2013) GDS 3-7
  8. 8. Redundant capabilities Capabilities, however effective in the past, can become less relevant as industries evolve and change. Such ‘capabilities’ can become ‘rigidities’ that inhibit change and become a weakness. (Consider the case of Nokia: a leader in the past but now reduced to being a lost follower in the mobile phone market)BUSM 3200- Strategic Management (Jan 2013) GDS 3-8
  9. 9. Dynamic capabilities Dynamic capability is the ability of an organisation to renew and recreate its strategic capabilities to meet the needs of changing environments. Three types of capabilities: • Sensing opportunities and threats • Seizing new opportunities • Reconfiguring the capabilities of the organizationBUSM 3200- Strategic Management (Jan 2013) GDS 3-9
  10. 10. Threshold and distinctive capabilities (1) Threshold capabilities are those needed for an organisation to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market – ‘qualifiers’. Distinctive capabilities are those that critically underpin competitive advantage and that others cannot imitate or obtain – ‘winners’.BUSM 3200- Strategic Management (Jan 2013) GDS 3-10
  11. 11. Threshold and distinctive capabilities Table 3.2 Threshold and distinctive capabilitiesBUSM 3200- Strategic Management (Jan 2013) GDS 3-11
  12. 12. Core competences Core competences1 are the linked set of skills, activities and resources that, together: deliver customer value differentiate a business from its competitors potentially, can be extended and developed as markets change or new opportunities arise. 1G. Hamel and C.K. Prahalad, ‘The core competence of the corporation’, Harvard Business Review, vol. 68, no. 3 (1990), pp. 79–91.BUSM 3200- Strategic Management (Jan 2013) GDS 3-12
  13. 13. Core competences Core competences are distinguished from competences in several ways: • they are only possessed by those companies whose performance is superior to the industry average; • they are unique to the company; • they are more complex; • they are difficult to emulate (copy); • they relate to fulfilling customer needs; • they add greater value than general competences; • they are often based on distinctive relationships with customers, distributors and suppliers; • they are based upon superior organisational skills and knowledge.BUSM 3200- Strategic Management (Jan 2013) GDS 3-13
  14. 14. Strategic capabilities and competitive advantage The four key criteria by which capabilities can be assessed in terms of providing a basis for achieving sustainable competitive advantage are: value, rarity, VRIN inimitability and non-substitutability Source: Jay Barney: ‘Firm resources and sustained competitive advantage’, Journal of Management, vol. 17 (1991), no. 1, pp. 99–120 .BUSM 3200- Strategic Management (Jan 2013) GDS 3-14
  15. 15. VRIN (1) V – Value of strategic capabilities Strategic capabilities are of value when they:  take advantage of opportunities and neutralise threats,  provide value to customers  provide potential competitive advantage  at a cost that allows an organisation to realise acceptable levels of returnBUSM 3200- Strategic Management (Jan 2013) GDS 3-15
  16. 16. VRIN (2) R – Rarity Rare capabilities are those possessed uniquely by one organisation or by a few others only. (E.g. a company may have patented products, have supremely talented people or a powerful brand.) Rarity could be temporary. (Eg: Patents expire, key individuals can leave or brands can be de-valued by adverse publicity.)BUSM 3200- Strategic Management (Jan 2013) GDS 3-16
  17. 17. VRIN (3) I – Inimitability Inimitable capabilities are those that competitors find difficult to imitate or obtain. Competitive advantage can be built on unique resources (a key individual or IT system) but these may not be sustainable (key people leave or others acquire the same systems). Sustainable advantage is more often found in competences (the way resources are managed, developed and deployed) and the way competences are linked together and integrated.BUSM 3200- Strategic Management (Jan 2013) GDS 3-17
  18. 18. Criteria for the inimitability of strategic capabilities Read the explanation of Figure 3.2 Criteria for the inimitability of strategic capabilities these four components on pages 92-93 of the text.BUSM 3200- Strategic Management (Jan 2013) GDS 3-18
  19. 19. 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 solutionsBUSM 3200- Strategic Management (Jan 2013) GDS 3-19
  20. 20. Summary of the VRIN Factors: Figure 3.3 VRINBUSM 3200- Strategic Management (Jan 2013) GDS 3-20
  21. 21. Organisational knowledge Organisational knowledge is the collective intelligence, specific to an organisation, accumulated through both formal systems and the shared experience of people in that organisation. Some of this knowledge is ‘Tacit’ knowledge that is, more personal, context-specific and hard to formalise and communicate – so it is difficult to imitate, for example, the knowledge and relationships in a top R&D team.BUSM 3200- Strategic Management (Jan 2013) GDS 3-21
  22. 22. Diagnosing Strategic Capabilities Several techniques and frameworks are used to assess a company’s strategic capabilities: 1. Benchmarking 2. Value Chain and Value Networks 3. Activity Systems 4. SWOT AnalysisBUSM 3200- Strategic Management (Jan 2013) GDS 3-22
  23. 23. Benchmarking Benchmarking is a means of understanding how an organisation compares with others – typically competitors. Two approaches to benchmarking: Industry/sector benchmarking - comparing performance against other organisations in the same industry/sector against a set of performance indicators. Best-in-class benchmarking - comparing an organisation’s performance or capabilities against ‘best-in-class’ performance – wherever that is found even in a very different industry. (E.g. BA benchmarked its refuelling operations against Formula 1).BUSM 3200- Strategic Management (Jan 2013) GDS 3-23
  24. 24. The value chain The value chain describes the categories of activities within an organisation which, together, create a product or service. The value chain invites the strategist to think of an organisation in terms of sets of activities – sources of competitive advantage can be analysed in any or all of these activities.BUSM 3200- Strategic Management (Jan 2013) GDS 3-24
  25. 25. The Concept of a Company Value Chain ♦ The Value Chain ● Identifies the primary internal activities that create customer value and the related support activities. ● Permits a deep look at the firm’s cost structure and ability to offer low prices. ● Reveals the emphasis that a firm places on activities that enhance differentiation and support higher prices. Using the VC model, the form can analyze its INTERNAL OPERATIONS and identify specific areas of efficiencies and core competences.Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–25 3-25
  26. 26. The Value Chain (Porter) Figure 3.4 The value chain within an organisation 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 reservedBUSM 3200- Strategic Management (Jan 2013) GDS 3-26
  27. 27. Read up in detail The description of EACH of the activities of the Value Chain on page 968. Understand the difference between primary and support activities Importance of VC:  Used to do an internal analysis of business operations  Discover where the capabilities lie. Those inefficient functions should be ‘outsourced’  To analyze the value chains of other related organizations and identify areas of integration. Develop better linkages in order to create efficienciesBUSM 3200- Strategic Management (Jan 2013) GDS 3-27
  28. 28. Uses of the value chain A generic description of activities – understanding the discrete activities and how they both contribute to consumer benefit and how they add to cost. Identifying activities where the organisation has particular strengths or weaknesses Analysing the competitive position of the organisation using the VRIN criteria – thus identifying sources of sustainable advantage. Looking for ways to enhance value or decrease cost in value activities (e.g. outsourcing) See page 99 of textBUSM 3200- Strategic Management (Jan 2013) GDS 3-28
  29. 29. The value network The value network comprises the set of inter- organisational links and relationships that are necessary to create a product or service. Competitive advantage can be derived from linkages within the value network. (implication in strategic analysis: we don’t only look at our own company VC but also the linkages between the other organizations that do business with our firm – suppliers and distributors)BUSM 3200- Strategic Management (Jan 2013) GDS 3-29
  30. 30. The value network Figure 3.5 The value network 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 reservedBUSM 3200- Strategic Management (Jan 2013) GDS 3-30
  31. 31. Uses of the value network Understanding cost/price structures across the value network – analysing the best area of focus and the best business model . Identifying ‘profit pools’ within the value network and seek to exploit these. The ‘make or buy’ decision: deciding which activities to do ‘in-house’ and which to outsource. Partnering and relationships – deciding who to work with and the nature of these relationships.BUSM 3200- Strategic Management (Jan 2013) GDS 3-31
  32. 32. Strategic Options for Remedying a Disadvantage in Costs or Effectiveness ♦ There are three places in the total value chain system for a company to look for ways to improve its efficiency and effectiveness: ● The firm’s own activity segments ● The suppliers’ part of the overall value chain ● The distribution channel portion of the chain.Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–32 3-32
  33. 33. Representative Value Chain System for an Entire IndustrySome additional slides on how VC analysis is applied tostudy the linkages between the firm and its alliedpartners such as suppliers and distributorsCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–33 3-33
  34. 34. Options for Improving the Efficiency and Effectiveness of Internal Value Chain Activities ♦ Implement best practices throughout the company, particularly for high-cost activities. ♦ Redesign products to eliminate high-cost components or facilitate speedier and more economical assembly or manufacture. ♦ Relocate high-cost activities to areas where they can be performed more cheaply. ♦ Outsource activities that can be performed by contractors more cheaply than in-house. ♦ Shift to lower-cost technologies and/or invest in productivity- enhancing, cost-saving technological improvements. ♦ Stop performing activities that add little or no customer value. 3-34Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–34
  35. 35. Ways to Improve the Efficiency and Effectiveness of Supplier-Related Value Chain Activities ♦ Pressure suppliers for lower prices. ♦ Switch to lower-priced substitute inputs. ♦ Collaborate closely with suppliers to identify mutual cost-saving opportunities. ♦ Work with suppliers to enhance the firm’s differentiation. ♦ Select and retain suppliers who meet higher-quality standards. ♦ Coordinate with suppliers to enhance design or other features desired by customers. ♦ Provide incentives to suppliers to meet higher-quality standards, and assist suppliers in their efforts to improve.Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–35 3-35
  36. 36. Ways to Improve the Effectiveness of the Customer Value Proposition and Enhance Differentiation ♦ Implement best practices throughout the company, particularly for high-cost activities. ♦ Adopt best practices and technologies that spur innovation, improve design, and enhance creativity. ♦ Implement the best practices in providing customer service. ♦ Reallocate resources to devote more to activities that will have the biggest impact on the value delivered to the customer and that address buyers’ most important purchase criteria. ♦ For intermediate buyers, gain an understanding of how the activities the firm performs impact the buyer’s value chain. ♦ Adopt best practices for signaling the value of the product and for enhancing customer perceptions.Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–36 3-36
  37. 37. Translating Company Performance of Value Chain Activities into Competitive Advantage Differentiation Advantage Later in our lecture on Business Strategy (Chapter 6) we will show how the VC is linked to the strategy of Differentiation (Porter)Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–37 3-37
  38. 38. Translating Company Performance of Value Chain Activities into Competitive Advantage (cont’d) Cost-Based Advantage Later in our lecture on Business Strategy (Chapter 6) we will show how the VC is linked to the strategy of Cost Leadership (Porter)Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–38 3-38
  39. 39. Mapping activity systems (1) Identify ‘higher order strategic themes’ that is, how the organisation meets the critical success factors in the market. Identify the clusters of activities that underpin these themes and how they fit together. Map this in terms of how activity systems are interrelated.BUSM 3200- Strategic Management (Jan 2013) GDS 3-39
  40. 40. Mapping activity systems (2) Illustration 3.5 Activity systems at Geelmuyden.KieseBUSM 3200- Strategic Management (Jan 2013) GDS 3-40
  41. 41. Using activity system maps A means of identifying strategic capabilities in terms of linkages of activities Internal and external links are identified (e.g. in terms of the needs of customers). Therefore helps identify bases of competitive advantage. And sustainable advantage for example, in terms of bases of inimitability.BUSM 3200- Strategic Management (Jan 2013) GDS 3-41
  42. 42. SWOT analysis SWOT summarises the strengths, weaknesses, opportunities and threats likely to impact on strategy development. INTERNAL  STRENGTHS WEAKNESSES ANAYSIS EXTERNAL  OPPORTUNITIES THREATS ANALYSIS Derived from PESTEL and Industry AnalysesBUSM 3200- Strategic Management (Jan 2013) GDS 3-42
  43. 43. IS THE COMPANY ABLE TO SEIZE MARKET OPPORTUNITIES AND NULLIFY EXTERNAL THREATS? THE SWOT ANALYSIS ♦ SWOT Analysis ● Is a powerful tool for sizing up a firm’s:  Internal strengths (the basis for strategy)  Internal weaknesses (deficient capabilities)  Market opportunities (strategic objectives)  External threats (strategic defenses)Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–43
  44. 44. What Do the SWOT Listings Reveal? ♦ SWOT Analysis Involves: ● Drawing conclusions from the SWOT listings about the firm’s overall situation. ● Translating these conclusions into strategic actions by the firm that:  Match its strategy to its internal strengths and to market opportunities.  Correct important weaknesses, and defend it against external threats.Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–44
  45. 45. The Steps Involved in SWOT Analysis: Identify the Four Components of SWOT, Draw Conclusions, Translate Implications into Strategic ActionsCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–45
  46. 46. Remember: SWOT Listing is NOT SWOT Analysis “So What?” Implications What do the SWO and T factors mean? Which are more critical? And what should the company do about such factors? Just like the external variables (refer to my Lecture Two), we can also quantify the internal variables  External we used EFE and CPM Matrices  For Internal Factors we can use the IFE (internal factor evaluation) matrix BUSM 3200- Strategic Management (Jan 2013) GDS 3-46
  47. 47. SWOT analysis: Illustration 3.6 (page 107) In this illustration from the text, the SWOT analysis is more complex. Here the company matches the different S&W factors against the external O and T factors. Notice how contextual the points are (all specific to the pharmaceutical industry). This is how a good SWOT analysis should be.BUSM 3200- Strategic Management (Jan 2013) GDS 3-47
  48. 48. SWOT analysis: Illustration 3.6 (page 107) This continuation version of the SWOT analysis shows a second stage analysis where the firm compares its performance to those of its direct competitors.BUSM 3200- Strategic Management (Jan 2013) GDS 3-48
  49. 49. Uses of SWOT analysis Key environmental impacts are identified using the analytical tools explained in Chapter 2. Major strengths and weaknesses are identified using the analytic tools explained in Chapter 3. Scoring (e.g. + 5 to - 5) can be used to assess the interrelationship between environmental impacts and the strengths and weaknesses. SWOT can be used to examine strengths, weaknesses, opportunities and threats in relation to competitors. SWOT can be used to generate strategic options– using a TOWS matrix.BUSM 3200- Strategic Management (Jan 2013) GDS 3-49
  50. 50. The TOWS matrix This model is an extension of the SWOT analysis. What is done here is to consider possible strategies Figure 3.6 The TOWS matrix arising from the fit between internal and external factorsBUSM 3200- Strategic Management (Jan 2013) GDS 3-50
  51. 51. Sample of a TOWS matrix Try to Google more samples of TOWs matricesBUSM 3200- Strategic Management (Jan 2013) GDS 3-51
  52. 52. Dangers in a SWOT analysis Long lists with no attempt at prioritisation. Over generalisation – sweeping statements often based on biased and unsupported opinions. SWOT is used as a substitute for analysis – it should result from detailed analysis using the frameworks in Chapters 2 and 3. SWOT is not used to guide strategy – it is seen as an end in itself.BUSM 3200- Strategic Management (Jan 2013) GDS 3-52
  53. 53. Managing Strategic Capability Internal capability development: Leveraging capabilities – identifying capabilities in one part of the organisation and transferring them to other parts (sharing best practice). Stretching capabilities - building new products or services out of existing capabilities.BUSM 3200- Strategic Management (Jan 2013) GDS 3-53
  54. 54. Managing activities for capability development External capability development – adding capabilities through mergers, acquisitions or alliances. Ceasing activities – non-core activities can be stopped, outsourced or reduced in cost. Monitor outputs and benefits – to understand sources of consumer benefit and enhance anything that contributes to this. Managing the capabilities of people – training, development and organisation learning.BUSM 3200- Strategic Management (Jan 2013) GDS 3-54
  55. 55. Managing people for capability development Targeted training and development Staffing policies Organizational learning Developing people’s awareness of their importance of the roles they play in the organizationBUSM 3200- Strategic Management (Jan 2013) GDS 3-55
  56. 56. The Process of Performing an Internal Audit One area not covered in the text is the “auditing” or The internal audit internal assessment of the key business functions in the organization  Requires gathering and assimilating information about the firm’s management, marketing, finance/accounting, production/operations, research and development (R&D), and management information systems operations  Provides more opportunity for participants to understand how their jobs, departments, and divisions fit into the whole organization 3-56BUSM 3200- 4-56
  57. 57. Marketing Audit Checklist of Questions1. Are markets segmented effectively?2. Is the organization positioned well among competitors?3. Has the firm’s market share been increasing?4. Are present channels of distribution reliable and cost effective?5. Does the firm have an effective sales organization?6. Does the firm conduct market research? 3-57BUSM 3200- 4-57
  58. 58. Marketing Audit Checklist of Questions7. Are product quality and customer service good?8. Are the firm’s products and services priced appropriately?9. Does the firm have an effective promotion, advertising, and publicity strategy?10. Are marketing, planning, and budgeting effective?11. Do the firm’s marketing managers have adequate experience and training?12. Is the firm’s Internet presence excellent as compared to rivals? 3-58BUSM 3200- 4-58
  59. 59. Finance/Accounting Audit Checklist1. Where is the firm financially strong and weak as indicated by financial ratio analyses?2. Can the firm raise needed short-term capital?3. Can the firm raise needed long-term capital through debt and/or equity?4. Does the firm have sufficient working capital?5. Are capital budgeting procedures effective? 3-59BUSM 3200- 4-59
  60. 60. Finance/Accounting Audit Checklist7. Are dividend payout policies reasonable?8. Does the firm have good relations with its investors and stockholders?9. Are the firm’s financial managers experienced and well trained?10.Is the firm’s debt situation excellent? 3-60BUSM 3200- 4-60
  61. 61. How CalculatedKey FinancialRatios 3-61 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–61
  62. 62. Key FinancialRatios (cont’d) Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 4–62 3-62
  63. 63. Production/Operations Audit Checklist1. Are supplies of raw materials, parts, and subassemblies reliable and reasonable?2. Are facilities, equipment, machinery, and offices in good condition?3. Are inventory-control policies and procedures effective?4. Are quality-control policies and procedures effective?5. Are facilities, resources, and markets strategically located?6. Does the firm have technological competencies? 3-63BUSM 3200- 4-63
  64. 64. Integrating Strategy and Culture Organizational culture significantly affects business decisions and thus must be evaluated during an internal strategic- management audit. If strategies can capitalize on cultural strengths, such as a strong work ethic or highly ethical beliefs, then management often can swiftly and easily implement changes. We cover the topic of Corporate Culture in Lecture 4 (Chapter 5) 3-64BUSM 3200- 4-64
  65. 65. Chapter summary (1) • Strategic capabilities comprise both resources and competences. • The concept of dynamic capabilities highlights that strategic capabilities need to change as the market and environmental context of an organisation changes. • Sustainability of competitive advantage is likely to depend on an organisation’s capabilities being of at least threshold value in a market but also being valuable, relatively rare, intimable and non- substitutable.BUSM 3200- Strategic Management (Jan 2013) GDS 3-65
  66. 66. Chapter summary (2) Ways of diagnosing organisational capabilities include:  Benchmarking as a means of understanding the relative performance of organisations.  Analysing an organisation’s 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.BUSM 3200- Strategic Management (Jan 2013) GDS 3-66
  67. 67. PRACTICE ESSAY QUESTIONS IMPORTANT NOTE: →  These questions are provided for your reference only – they are only INDICATIVE of the standard of questions you might expect in the final exam.  DO NOT use these questions to “spot”  The RMIT examiner will post advice on the exam on the Learning Hub closer to the exam; you are required to pay attention to that advise  The questions here show the range of topics that could be tested from this lecture; they are NOT exhaustive  To score a high grade it is important to LINK the theory to applications and examples. Where from?  You have been assigned specific cases to read from the text. Each case study will show you the kinds of strategic decisions the case company needs to make. You can draw from these examples.  You have selected a case company for your project; you may use examples from there.  You are supposed to read widely from the business press about local, regional and international companies strategies. You can use examples from there as well.BUSM 3200- Strategic Management (Jan 2013) GDS 6-67
  68. 68. Sample Exam Question According to the resource based view of the firm, there are four attributes resources a firm needs to have if they are going to provide it with a sustainable competitive advantage. Explain how these can give a firm a sustainable competitive advantage. Give an example of each to support your answer. Hint: VRINBUSM 3200- Strategic Management (Jan 2013) GDS 3-68
  69. 69. Sample Exam Question Describe the four criteria for an organization’s core competence. Explain how core competences can be identified and leveraged to develop strategies. Give examples to support your argument. VRINBUSM 3200- Strategic Management (Jan 2013) GDS 1-69
  70. 70. Sample Exam Question Examine the advantages and disadvantages for a firm to rely on the Value Chain to achieve sustainable competitive advantage with a cost leadership strategy. Use examples from the ___ case to illustrate your answer. Note: this question is not about discussing the Value Chain by itself. It requires you to LINK the VC model to discussion on one of the Business Strategies (cost leadership). We cover the topic of business strategies in a later lecture. In the meantime take note of how exam questions require you to analyze and write across the different topics.BUSM 3200- Strategic Management (Jan 2013) GDS 1-70
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