Strategic Management

1. 0 The Internal Environment: Resources, Capabilities, and Core Competencies Chapter Four © 2006 by Nelson, a division of Thomson Canada Limited.

2. The Strategic Management Process Strategic  Actions  Chapter 3: The External Environment Chapter 4: The Internal Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 3: The External Environment Chapter 4: The Internal Environment Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic Competitiveness

4. Canada’s most Admired Companies 10. Canadian Imperial Bank 10. IBM Canada 10. Magna International 9. Power Corporation 9. TD Canada Trust 9. BMO Financial 8. Magna International 8. Research in Motion 8. EnCana Corporation 7. Loblaw Companies 7. WestJet 7. Bank of Nova Scotia 6. Research in Motion 6. Dofasco 6. Research in Motion 5. Toronto Dominion Bank 5. Loblaw Companies 5. Bombardier Inc. 4. Nortel 4. Magna International 4. Loblaw Companies 3. BCE Inc. 3. BCE Inc. 3. BCE Inc. 2. RBC Financial 2. Bombardier Inc. 2. WestJet 1. Bombardier Inc. 1. RBC Financial 1. RBC Financial 2001 Top Ten 2002 Top Ten 2003 Top Ten

7. The Resource-Based Model of Superior Returns an * Action required: Identify firm resources. Study strengths & weaknesses relative to rivals. Resources Inputs to a firm’s production process.

8. The Resource-Based Model of Superior Returns an * Action required: Determine what firm capabilities allow it to do better than rivals. Resources Inputs to a firm’s production process. Capability Capacity for integrated set of resources to integratively perform a task or activity.

9. The Resource-Based Model of Superior Returns an * Action required: Determine how firm’s resources & capabilities may create competitive advantage. Resources Inputs to a firm’s production process. Capability Capacity for an integrated set of resources to integratively perform a task or activity. Competitive Advantage Ability of a firm to outperform its rivals

10. The Resource-Based Model of Superior Returns an * Action required: Locate an attractive industry. Resources Inputs to a firm’s production process. Capability Capacity for an integrated set of resources to integratively perform a task or activity. Competitive Advantage Ability of a firm to outperform its rivals An Attractive Industry Location of an industry with opportunities that can be exploited by firm’s resources & capabilities

11. The Resource-Based Model of Superior Returns an * Action required: Select strategy that best exploits res .& capabilities relative to opportunities in environments. Resources Inputs to a firm’s production process. Capability Capacity for an integrated set of resources to integratively perform a task or activity. Competitive Advantage Ability of a firm to outperform its rivals An Attractive Industry Location of an ind. with opportunities that can be exploited by firm’s resources & capabilities Strategy Formulation and Implementation Strategic actions taken to earn above-average returns

12. The Resource-Based Model of Superior Returns an * Resources Inputs to a firm’s production process. Capability Capacity for an integrated set of resources to integratively perform a task or activity. Competitive Advantage Ability of a firm to outperform its rivals An Attractive Industry Location of an ind. with opportunities that can be exploited by firm’s resources & capabilities Action required: Maintain selected strat. in order to outperform industry rivals. Strategy Formulation and Implementation Strategic actions taken to earn above-average returns Superior Returns Earning of above-average returns

13. Discovering Core Competencies Criteria of Sustainable Advantages Value Chain Analysis Valuable Rare Costly to Imitate Organized to be exploited * * * * Outsource * Resources * Tangible * Intangible Capabilities Teams of Resources Core Competencies Discovering Core Competencies Competitive Advantage Strategic Competitiveness Resources * Tangible * Intangible

15. Conditions Affecting Mgmt. Decisions About Resources, Capabilities & Core Competencies regarding characteristics of the general & the industry environments, competitor’s actions, and customer’s preferences regarding the interrelated causes shaping a firm’s environments and perceptions of the environments among people making managerial decisions & those affected by them Uncertainty Complexity Intraorganizational Conflicts

20. A core competency is a capability that is: * O rganized to be Exploited The firm must be organized appropriately to obtain full benefits of the resources in order to realize a competitive advantage. R are Possessed by few, if any, current and potential competitors . V aluable Allows a firm to neutralize threats or exploit opportunities in its external environment. Costly to I mitate When other firms either cannot obtain them or must obtain them at a much higher cost. $ Capabilities Teams of Resources Core Competencies

21. What Makes Core Competencies Costly to Imitate? * An unusual evolutionary pattern of growth may contribute to the development of competencies in a manner that is unique to those particular circumstances Unique Historical Conditions Causal Ambiguity When competitors are unable to detect how a firm uses its competencies as a foundation for competitive advantage Social complexity When a firm’s capabilities are a result of complex social phenomena, like interpersonal relationships, trust & friendships among managers or a firm’s reputation with suppliers & customers $ For Example: Bombardier created the Skidoo when Snowmobiles were new

22. What Makes Core Competencies Organized to be exploited Organized to be exploited means that: Organizational structures and control systems that allow a firm to take advantage of its resources Appropriate structure to support capability Appropriate control systems to support capability Appropriate reward systems to support capability * * *

24. The VRIO Framework YES NO YES YES Temporary Competitive Advantage Avg./Above Average Returns YES NO NO YES Competitive Parity Average Returns NO NO NO NO Below Average Returns Competitive Disadvantage Above Average Returns YES YES YES Sustainable Competitive Advantage YES Valuable Rare Costly to Imitate Org. to be Exploited Competitive Consequences Performance Implications Valuable

25. Value Chain Analysis Inbound Logistics Operations Outbound Logistics Marketing & Sales Procurement Technological Development Human Resource Management Firm Infrastructure Service Support Activities Primary Activities MARGIN MARGIN

26. Outsourcing Strategic choice to purchase some activities from outside suppliers Inbound Logistics Operations Outbound Logistics Marketing & Sales Procurement Technological Development Human Resource Management Firm Infrastructure Service MARGIN MARGIN Primary Activities Support Activities Firms often buy a portion of their value-creating activities from specialty external suppliers who can perform these functions more efficiently.

27. Outsourcing Strategic choice to purchase some activities from outside suppliers Inbound Logistics Operations Outbound Logistics Marketing & Sales Procurement Technological Development Human Resource Management Firm Infrastructure Service MARGIN MARGIN Inbound Logistics Operations Outbound Logistics Service Marketing & Sales Technological Development Human Resource Management Procurement Firms often buy a portion of their value-creating activities from specialty external suppliers who can perform these functions more efficiently . Support Activities

28. Strategic Rationales for Outsourcing Provides Access to World-Class Capabilities Outsourcing providers specialized resources make world-class capabilities available to firms in a wide range of applications Lets company focus on broader business issues by having outside experts handle various operational details Improves Business Focus Accelerates Business Re-Engineering Benefits Outsiders (who already have world-class standards) take over the process and gain re-engineering benefits more quickly

29. Strategic Rationales for Outsourcing Shares Risks Reduces investment requirements & makes firm more flexible, dynamic and better able to adapt to changing opportunities Permits firm to redirect efforts from non-core activities toward those that serve customers more effectively Frees Resources for Other Purposes

30. 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 They are former core competencies that sow the seeds of organizational inertia. Prevent the firm from responding appropriately to changes in the external environment.

31. The Strategic Management Process Strategic  Actions  Chapter 3: The External Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 3: The External Environment Chapter 4: The Internal Environment Chapter 4: The Internal Environment Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic Competitiveness