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Media Management Module 1 Strategy teigland jan24

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Slides from my third lecture in the Strategy module in the 2011 Media Management Course at Stockholm School of Economics and the Royal Institute of Technology. Here is more information on the course: …

Slides from my third lecture in the Strategy module in the 2011 Media Management Course at Stockholm School of Economics and the Royal Institute of Technology. Here is more information on the course: http://nordicworlds.net/2011/01/21/strategy-course-focuses-on-virtual-worlds-and-gaming-industries/.

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  • 1. Strategy January 24 - Morning Media Management – Module 1 Robin Teigland [email_address] www.knowledgenetworking.org January 2011
  • 2. Module Overview – 1/3
    • Jan 21 – What is Strategy?
      • Individual Assignment: Readings
      • Group Assignment: Choose your Live Case Strategic Issue
    • Jan 21 – External Analysis: Industry Structure and Competition
      • Individual Assignment: Readings
      • Group Assignment: Cola Wars Continue
    • Jan 24 –Internal Analysis: Analyzing Resources and Capabilities
      • Individual Assignment: Readings
      • Group Assignment: Wumart Stores
    • Jan 25 –An Entrepreneur’s View of Strategy in 3D
      • Individual Assignment: Readings & Questions
      • Guest: Steve Mahaley, PeaceTrain
  • 3. Module Overview – 2/3
    • Jan 26 – Recent Developments in Strategy
      • Group Assignment: Article summary ppt for slideshare
    • Jan 31 – Executing Strategy
      • Individual Assignment – Readings & Questions
      • Guest: Christian Björkman, MindArk
      • Guest: Fredrik Nilsson, IC You
    • Jan 31 – Exploring Business Models and role of IT
      • Individual Assignment – Readings & Questions
      • Guest: Paul DiGangi, Western Carolina University
    • Feb 2 - External Drivers of Change: Exploring the Future of the Gaming Industry
      • Individual Assignment: Readings
      • Group Assignment: STEEP
      • Guest: Stefan Lampinen, Speltjänst
  • 4. Module Overview – 3/3
    • Feb 2 – Creating Value Networks
      • Individual Assignment: Readings & Questions
      • Guest: Malin Ströman, Independent Consultant
    • Feb 7 - Live Case Day: Integrating Theory with Practice
      • Group Assignment: Virtual Worlds and Gaming
    • Feb 9 – Module 1 “Exam”
  • 5. What is strategy?
    • Strategy
      • An integrated and coordinated set of commitments and actions designed to gain a competitive advantage
    • Competitive advantage
      • When two or more firms compete within the same market, one firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit
    Hitt, Ireland & Hoskisson 2006
  • 6.
    • Long-term goal (objective)
    • Scope of the firm
    • Competitive advantage
    Components of strategy Collis & Rukstad 2008
  • 7. Making choices
    • Strategy is about choosing what NOT to do:
      • Which customers not to serve
      • What products or services not to offer
      • Which activities not to perform
    Strategy is about NOT being all things to all people Porter
  • 8. Why are some firms more profitable than others? RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL How do we make money? INDUSTRY ATTRACTIVENESS Which businesses should we be in? COMPETITIVE ADVANTAGE How should we compete? CORPORATE STRATEGY BUSINESS STRATEGY Grant 2008
  • 9. Operating margins in the heavy truck industry Scania Volvo Avg. 11.8 Avg. 3.7 Operating margin 1992 1994 1996 Teigland et al 1998
  • 10. Shifting the focus of strategy analysis: From the external to the internal environment The Firm-Strategy Interface The Environment-Strategy Interface INDUSTRY ENVIRONMENT • Competitors • Customers • Suppliers STRATEGY STRATEGY FIRM • Goals & Values • Resources & Capabilities • Structure & Systems Grant 2008
  • 11. Strategic analysis Environment Organization Industry Internal analysis RBV Model Inside->Out External analysis I/O Model Outside->In
  • 12. Focus on two models in this course
    • Industrial Organization (I/O)
      • Focuses on the environment outside the firm
      • Opportunities and threats
      • By studying the external environment, firms identify what they might choose to do .
    • Resource-based View (RBV)
      • Focuses on the inside of the firm
      • Unique resources, capabilities, and competencies ( required for sustainable competitive advantage )
      • By studying the internal environment, firms identify what they can do.
    Successful strategy formulation and implementation actions result only when the firm properly uses both models.
  • 13. Objectives of Internal Analysis (RBV Model)
    • To understand t he role of resources and capabilities in strategy formulation
      • To describe the differences between tangible and intangible resources
      • To discuss how capabilities are developed
      • To appraise the profit potential of resources and capabilities
      • Putting resource and capability analysis to work—a practical guide
  • 14. What is the basis for strategy?
    • Today external environment characterized by increasing pace of change
      • New technologies
      • Globalization
      • Increasing information/knowledge flows
      • Changing customer preferences
    • A firm’s resources and capabilities offer a more secure basis for strategy than market focus
    Grant 2008
  • 15. What is the basis of strategy?
    • Walmart vs K-Mart?
    • US airlines vs Southwest Airlines?
    • Jay Barney on RBV
    • http://www.youtube.com/watch?v=-KN81_oYl1s
  • 16. Links between resources, capabilities and competitive advantage
    • Skills/know-how
    • Capacity for communication & collaboration
    • Motivation
    STRATEGY INDUSTRY ENVIRONMENT COMPETITIVE ADVANTAGE ORGANIZATIONAL CAPABILITIES
    • RESOURCES
    • TANGIBLE INTANGIBLE HUMAN
    • Financial
    • Physical
    • Technology
    • Reputation
    • Culture
    Grant 2008
  • 17. What are the Key Success Factors (KSFs) in the industry? KEY SUCCESS FACTORS
    • Analysis of demand
    • Who are our customers?
    • What do they want?
    • Analysis of competition
    • What drives competition?
    • What are the main dimensions of competition?
    • How intense is competition?
    • How can we obtain a superior competitive position?
    What do customers want? How does the firm survive competition? Pre-requisites for success Grant 2008
  • 18. Steel industry – Key Success Factors
    • What do customers want?
      • Customers include auto, engineering, and container industries
      • Customers acutely price sensitive and require product consistency and reliability of supply
      • Specific technical specs required for specialty steels
    • How does a firm survive competition?
      • Compete primarily on price
      • Intense due to high fixed costs, low cost imports, high exit barriers, and entrance of minimills due to new technology
      • Logistics due to high transport costs and scale economies important
    • What are the Key Success Factors?
      • Cost efficiency through scale-efficient plants, low cost location, rapid adjustment of capacity of output, efficient use of labor
      • Possibility for differentiation through quality, service , and technical factors
    Grant 2008
  • 19. Links between resources, capabilities and competitive advantage
    • Skills/know-how
    • Capacity for communication & collaboration
    • Motivation
    STRATEGY INDUSTRY ENVIRONMENT COMPETITIVE ADVANTAGE ORGANIZATIONAL CAPABILITIES
    • RESOURCES
    • TANGIBLE INTANGIBLE HUMAN
    • Financial
    • Physical
    • Technology
    • Reputation
    • Culture
    Grant 2008
  • 20. What are resources? -Inputs into a firm’s production process -A firm’s assets What is their potential for creating competitive advantage?
  • 21. What are resources? RESOURCE CHARACTERISTICS INDICATORS Financial *Borrowing capacity *Debt/ Equity ratio *Internal funds generation *Credit rating Tangible *Net cash flow Resources Physical *Plant and equipment: *Market value of size, location, technology, flexibility fixed assets * Land and buildings *Scale of plants * Raw materials and fixed assets *Alternative uses Technology *Patents, copyrights, know-how *No. of patents owned *R&D facilities *Royalty income Intangible *Technical and scientific employees *R&D expenditure Resources *R&D staff Reputation *Brands *Brand equity *Customer loyalty *Customer retention *Company reputation with suppliers, *Supplier loyalty Culture customers, government Human *Training, experience, adaptability *Employee qualifications, Resources * Commitment and loyalty of employees pay rates, turnover Grant 2008
  • 22.
    • “ A capability is the capacity for a set of resources to perform a task or an activity in an integrative manner .”
    • In other words …
      • The deployment of resources to achieve a goal
      • The ability to do something…
      • Used interchangeably with competence
    What are capabilities?
  • 23. Architecture of resources and capabilities
    • RESOURCES
    • TANGIBLE INTANGIBLE HUMAN
    • Financial
    • Physical
    Management Systems Organization Structure ORGANIZATIONAL CAPABILITIES
    • Skills/know-how
    • Capacity for communication & collaboration
    • Motivation
    • Technology
    • Reputation
    • Culture
    Grant 2008
  • 24. Identifying organizational capabilities: A functional classification FUNCTION CAPABILITY EXAMPLES Corporate Financial management ExxonMobil, GE Management Strategic control IBM, Samsung Coordinating business units BP, P&G Managing acquisitions Citigroup, Cisco MIS Speed and responsiveness through Wal-Mart, Dell, rapid information transfer Capital One R&D Research capability Merck, IBM Development of innovative new products Apple, 3M Manufacturing Efficient volume manufacturing Briggs & Stratton Continuous Improvement Nucor, Harley-D Flexibility Zara, Four Seasons Design Design capability Apple, Nokia Marketing Brand management P&G, LVMH, Coke Quality reputation Johnson & Johnson Responsiveness to market trends MTV, L’Oreal Sales, Distribution Sales responsiveness PepsiCo, Pfizer & Service Efficiency and speed of distribution LL Bean, Dell Customer Service Singapore Airlines Caterpillar Grant 2008
  • 25. Identifying capabilities through the value chain Inbound Logistics Operations Outbound Logistics Marketing and Sales Service Firm Infrastructure Human Resource Management Technological Development Procurement Primary Activities Porter
  • 26. Defining organizational capabilities
    • Organizational Capabilities = firm’s capacity for undertaking a particular activity (Grant)
    • Distinctive Competence = activity that an organization does particularly well relative to competitors (Selznick)
    • Core Competence = capabilities that are fundamental to a firm’s strategy and performance (Hamel and Prahalad)
  • 27. Core Competencies -Tree Diagram Prahalad & Hamel 1990 http://www.youtube.com/watch?v=Ar_r2kE9Ej4&NR=1 Core Product 1 Core Product 2 Business 1 Business 2 1 2 3 4 5 6 Business 3 Business 4 7 8 9 10 11 12 End Products Competence 1 Competence 2 Competence 3 Competence 4 Core Product 3 End Products
  • 28. Disney • Movies for theatrical, television and home video markets • Cable channel • Magic Kingdom • Golfing • Shopping Village • Conference Center • Epcot Center • Camping • Hotels • General real estate brokerage & resort & property mgmt services • Develops commercial & industrial properties • Plans resort & primary home communities • Character Merchandise • Records • Merchandise & publishing licenses • Educational computer software, films, cassettes & filmstrips Filmed Entertainment Brand Image Creativity (Characters) Imagineering Real Estate Development Consumer Products Visual Media • Walt Disney Studios • Disney Channel • Home video Theme Parks & Resorts • Disneyland • Walt Disney World • Epcot Center • Tokyo Disney Community Development • Disney Development Co. • Arvida Community Development Other Media • Character merchandising & publications • Records & music publishing • Educational media Core Competencies Core Products Business Units End Products Walt Disney Studios’ 1984 Strategic Architecture Capabilities • Distribution (Buena Vista) Entertainment & Recreational Parks, Shows & Resorts
  • 29. Honda Elite Gold Wing Shadow 1100 Silky 125 TRX Honda Accord Prelude Accura Integra All-Terrain Vehicles Chain Saws Dirt Bikes General Purpose Engines Lawn Mowers Lawn Tractors Marine Engines Mini Tractors Outboard Motors Portable Generators Power Carriers Power Sprayer Garden Tillers Snow Blowers Snow Mobiles Honda Motorcycles Honda Motor Company Honda Engineering Engine Know How Power Train Know How Competencies Core Products Business Units Some End Products Honda Motor Company’s 1996 Strategic Architecture Motorcycle Engines Automotive Engines Small Engine
  • 30. Resources and Capabilities Exercise 1 extra point to the winning team on their group report
  • 31. What is strategy?
    • Strategy
      • An integrated and coordinated set of commitments and actions designed to gain a competitive advantage
    • Competitive advantage
      • When two or more firms compete within the same market, one firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit
    Hitt, Ireland, and Hoskisson 2009
  • 32. Creating sustainable competitive advantage Thomson Learning Resources & Capabilities Tangible, intangible, and human resources and capabilities that an organization controls Competitive Advantage Providing greater value for customers than competitors can Sustainable Competitive Advantage A competitive advantage that other companies try unsuccessfully to duplicate or beat
  • 33. The VRIS model for appraising profit potential Profit-earning Potential Magnitude of advantage (ability to establish) Sustainability of advantage (ability to sustain) Value Rareness Imperfect Imitability Substitutability Barney 1991
  • 34. What characteristics of resources and capabilities provide a competitive advantage? Barney 1991, Collis & Montgomery 2008 VRIS Model V aluable • Appropriability: Value captured by company • Superior in market (Demand): Better than competition R are • Physical uniqueness : Not possessed by many others I nimitable • Path dependency: Developed in unusual way supporting development of certain resources and capabilities (Southwest Airlines). • Causal ambiguity: Cannot detect how firm uses as foundation for competitive advantage. (Wal-Mart, Intel) • Economic deterrence: No room in market for competition • Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, customers, partners S ubstitutable No strategic equivalent: Cannot be replaced with different resource or capability
  • 35. Outcomes from combinations of the four criteria Valuable? Rare? Inimitable? Nonsubstitutable? Competitive Consequences Performance Implications No No No No Competitive Disadvantage Below Average Returns Yes No No Yes/ No Competitive Parity Average Returns Yes Yes No Yes/ No Temporary Com- petitive Advantage Average to Above Average Returns Yes Yes Yes Yes Sustainable Com- petitive Advantage Above Average Returns Hitt, Ireland, & Hoskisson 2006
  • 36. Imitability Easy to imitate: Cash Commodities Can be imitated (but may not be): Capacity pre-emption Economies of scale Difficult to imitate: Brand loyalty Favorable cost position Employee satisfaction Reputation for fairness Cannot be imitated: Patents Unique location Unique assets ( e.g. Mineral rights) Collis and Montgomery, Corporate Strategy: Resources and the Scope of the Firm (1996).
  • 37. Three main types of capabilities that meet VRIS Innovation Architecture/ Networks of relationships Brand & Reputation #1 openlearn.open.ac.uk/mod/resource/view.php?id=161737 Kay 1993 B
  • 38. A framework for analyzing resources and capabilities 4. Develop strategy implications: (a) In relation to strengths, --Ho w can resources and capabilities be exploited more effectively and fully? (b) In relation to weaknesses, --Identify opportunities for out sourcing activities that can be better performed by other organizations --How can weaknesses be corrected through acquiring and developing resources and capabilities? 2. Explore linkages between resources and capabilities STRATEGY CAPABILITIES RESOURCES POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE 1. Identify firm’s resources and capabilities 3. Appraise firm’s resources and capabilities: (a) Strategic importance (b) Relative strength Grant 2008
  • 39. Steps 1 & 2. Identifying resources and capabilities and their linkages
    • Key Success Factors
    • How do customers choose?
    • What do we need to survive
    • the competition?
    • What resources & capabilities
    • do we need to deliver these
    • KSFs?
    Starting from the inside Starting from the outside Grant 2008
  • 40. Step 3. Appraising resources and capabilities VW RESOURCES CAPABILITIES Grant 2008 Note: Hypothetical example!   Strategic Importance VW’s Relative Strength C1. Product development 9 4 C2. Purchasing 7 5 C3. Engineering 7 9 C4. Manufacturing 8 7 C5. Financial management 6 3 C6. R&D 6 4 C7. Marketing & sales 9 4 C8. Government relations 4 8   Strategic Importance VW’s Relative Strength R1. Finance 6 4 R2. Technology 7 5 R3. Plant and equipment 8 8 R4. Location 7 4 R5. Distribution 8 5
  • 41. Appraising VW’s resources and capabilities
      • Relative Strength
    Strategic Importance Superfluous Strengths Key Strengths Zone of Irrelevance Key Weaknesses 1 1 5 10 5 10 R1 R2 R3 R4 R5 C1 C2 C3 C4 C5 C6 C7 C8 (Hypothetical) Grant 2008
  • 42. Step 4. Develop strategy implications 4. Develop strategy implications (a) In relation to strengths, --Ho w can resources and capabilities be exploited more effectively and fully? (b) In relation to weaknesses, --Identify opportunities for out sourcing activities that can be better performed by other organizations --How can weaknesses be corrected through acquiring and developing resources and capabilities? 2. Explore linkages between resources and capabilities STRATEGY CAPABILITIES RESOURCES POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE 1. Identify firm’s resources and capabilities 3. Appraise firm’s resources and capabilities (a) Strategic importance (b) Relative strength Grant 2008
  • 43. Approaches to capability development
    • Acquire and develop the underlying resources, especially human resources
    • --Externally (hiring)
    • --Internally through developing individual skills
    • Acquire/access capabilities externally through acquisition or alliance
    • Greenfield development of capabilities in separate organizational unit (IBM & the PC, Xerox & PARC, GM & Saturn)
    • Build team-based capabilities through training and team development (i.e. develop organizational routines )
    • Align structure & systems with required capabilities
    • Change management to transform values and behaviors (GE, BP)
    • Product sequencing (Intel , Sony, Hyundai)
    • Knowledge management (systematic approaches to acquiring, storing, replicating, and accessing knowledge)
    Grant 2008
  • 44. Outsourcing decisions A firm may outsource all or only part of one or more primary and/or support activities. Operations Marketing and Sales Firm Infrastructure Inbound Logistics Service Outbound Logistics Human Resource Management Technological Development Procurement Primary Activities Outsourced activity
  • 45. Outsourcing
    • The purchase of a value-creating activity from an external supplier
      • Few organizations possess the resources and capabilities required to achieve competitive superiority in all primary and support activities.
    • By performing fewer capabilities..
      • A firm can concentrate on those areas in which it can create value.
      • Specialty suppliers can perform outsourced capabilities more efficiently.
  • 46. Why should we outsource?
    • Improve business focus
      • Lets a company focus on broader business issues by having outside experts handle various operational details
    • Provide access to world-class capabilities
      • The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications
    • Accelerate business re-engineering benefits
      • Achieves re-engineering benefits more quickly by having outsiders —who have already achieved world-class standards—take over process
    • Sharing risks
      • Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities
    • Frees resources for other purposes
      • Redirects efforts from non-core activities toward those that serve customers more effectively
  • 47. Outsourcing CAUTIONS
    • Seeking greatest value
      • Outsource only to firms possessing a core competence in terms of performing the primary or supporting the outsourced activity.
    • Evaluating resources and capabilities
      • Do not outsource activities in which the firm itself can create and capture value.
    • Environmental threats and ongoing tasks
      • Do not outsource primary and support activities that are used to neutralize environmental threats or to complete necessary ongoing organizational tasks
    • Nonstrategic team resources
      • Do not outsource capabilities critical to the firm’s success, even though the capabilities are not actual sources of competitive advantage.
    • Firm’s knowledge base
      • Do not outsource activities that stimulate the development of new capabilities and competencies..
  • 48. Wumart
    • What are the sources of Wumart’s competitive advantage?
      • Identify the principal resources and capabilities that form the basis of Wumart’s competitive advantage.
      • Are Wumart’s resources “competitively superior” to other competitors at the time of the case?
    • How sustainable is Wumart’s competitive advantage domestically?
      • Is its position sustainable when challenged by international entrants?
      • To what extent is Wumart’s competitive advantage sustainable?
    • Will Wumart be able to transfer its competitive advantage it has in China to other countries?
      • Will it be able to leverage the same resources and capabilities that it has in China in other markets?
      • Are Wumart’s resources and capabilities specific to China or emerging markets?
    • Looking into the future, what should Wumart do to sustain its performance?
      • What challenges does it face?
      • How can it defend against competitive (and other) threats?
  • 49. Wumart Case Assignment
    • Questions 1& 2
      • You are a consulting company asked by Wal-Mart’s top management to conduct a competitor analysis of Wumart. Prepare a presentation for Wal-Mart’s top management.
    • Questions 3 & 4
      • You are Wumart internal consultants asked by top management to look into an international expansion strategy. Prepare a presentation for Wumart’s top management.
    http://www.flickr.com/search/?q=wumart
  • 50. Competitor Analysis
    • PREDICTIONS
    • What strategy changes
    • will the competitor
    • initiate?
    • How will the competitor
    • respond to others’ strategic
    • initiatives?
    OBJECTIVES What are the competitor’s current goals? Is performance meeting these goals? How are goals likely to change? STRATEGY How is the firm competing? ASSUMPTIONS What assumptions does the competitor hold about industry and itself? RESOURCES & CAPABILITIES What are the competitor’s key strengths and weaknesses? Grant 2008
  • 51. A framework for analyzing resources and capabilities 4. Develop strategy implications: (a) In relation to strengths, --Ho w can resources and capabilities be exploited more effectively and fully? (b) In relation to weaknesses, --Identify opportunities for out sourcing activities that can be better performed by other organizations --How can weaknesses be corrected through acquiring and developing resources and capabilities? 2. Explore linkages between resources and capabilities STRATEGY CAPABILITIES RESOURCES POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE 1. Identify firm’s resources and capabilities 3. Appraise firm’s resources and capabilities: (a) Strategic importance (b) Relative strength Grant 2008
  • 52. Reminders
    • Never take for granted that resources and capabilities will continue to provide a source of competitive advantage.
    • All resources and capabilities have the potential to become core rigidities — former ones that now generate inertia and stifle innovation.
    • Determining what the firm can do through continuous and effective analyses of its internal environment will increase the likelihood of long-term competitive success.
  • 53. Making choices
    • Strategy is about choosing what NOT to do:
      • Which customers not to serve
      • What products or services not to offer
      • Which activities not to perform
    Strategy is about NOT being all things to all people Porter
  • 54. Exploiting differences, not doing the same! Competitive advantage: Ability to outperform others due to exploiting unique features of firm’s resources and capabilities Grant 2008
  • 55. Build strategy on strong resources and capabilities! End products Resources & capabilities Core products Business units
  • 56. Cisco’s globalization plan
    • Interesting podcast on how Cisco is thinking about strategy and globalization
    http://deimos3.apple.com/WebObjects/Core.woa/Browse/new.duke.edu.1385587001.01385587006
  • 57. Strategy strives to achieve a “fit” between the FIRM & its ENVIRONMENT The Firm-Strategy Interface The Environment-Strategy Interface INDUSTRY ENVIRONMENT • Competitors • Customers • Suppliers STRATEGY STRATEGY FIRM • Goals & Values • Resources & Capabilities • Structure & Systems Grant 2008
  • 58. Focus on two models in this course
    • Industrial Organization (I/O)
      • Focuses on the environment outside the firm
      • Opportunities and threats
      • By studying the external environment, firms identify what they might choose to do .
    • Resource-Based View (RBV)
      • Focuses on the inside of the firm
      • Unique resources, capabilities, and competencies ( required for sustainable competitive advantage )
      • By studying the internal environment, firms identify what they can do.
    Successful strategy formulation and implementation actions result only when the firm properly uses both models.
  • 59. Porter’s five forces of competition ENTRANTS SUPPLIERS BUYERS SUBSTITUTES INDUSTRY COMPETITORS Rivalry among existing firms Threat of new entrants Threat of substitutes Bargaining power of suppliers Bargaining power of buyers http://www.youtube.com/watch?v=mYF2_FBCvXw&feature=channel
  • 60. A framework for analyzing resources and capabilities 4. Develop strategy implications: (a) In relation to strengths, --Ho w can resources and capabilities be exploited more effectively and fully? (b) In relation to weaknesses, --Identify opportunities for out sourcing activities that can be better performed by other organizations --How can weaknesses be corrected through acquiring and developing resources and capabilities? 2. Explore linkages between resources and capabilities STRATEGY CAPABILITIES RESOURCES POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE 1. Identify firm’s resources and capabilities 3. Appraise firm’s resources and capabilities: (a) strategic importance (b) relative strength Grant 2008
  • 61. Which matters more?.. Industry? Firm? Same?
    • Both matter: Recall the I/O Model and RBV Model.
    • There is more profit variability across firms within an industry (31%) than across industries (18.6%).
    • We should understand both the firm’s external environment ( industry analysis ) and the firm’s resources and capabilities ( internal analysis ) relative to its competitors’ resources and capabilities.
  • 62. Four assumptions of the I/O Model
    • External environment imposes pressures and constraints that determine strategies leading to above-average returns
    Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies Resources used to implement strategies are highly mobile across firms Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests (profit-maximizing) 1 2 3 4
  • 63. Four assumptions of the RBV Model
    • Each organization is a collection of unique resources and capabilities that provides the basis for its strategy and that is the primary source of its returns.
    Capabilities evolve and must be managed dynamically. Differences in firms’ performances are due primarily to their unique resources and capabilities rather than structural characteristics of the industry. Firms acquire different resources and develop unique capabilities. 1 2 3 4
  • 64. I/O Model of Above-Average Returns
    • Strategy dictated by the external environment of the firm (What opportunities exist in these environments?)
    • Firm develops internal skills required by external environment (What can the firm do about the opportunities?)
    • Strategy dictated by the firm’s unique resources and capabilities
    • 2. Find an environment in which to exploit these (Where are the best opportunities?)
    RBV Model of Above-Average Returns What is the difference between The I/O and RBV perspectives of strategy? Outside … In Inside … Out
  • 65. The I/O Model of above-average returns
    • The External Environment
    Study the external environment, especially the industry environment
    • The general environment
    • The industry environment
    • The competitor environment
    • An Attractive Industry
    Locate an attractive industry with a high potential for above-average returns
    • An industry whose structural characteristics suggest above-average returns
    • Strategy Formulation
    Identify the strategy called for by the attractive industry to earn above-average returns
    • Selection of a strategy linked with above-average returns in a particular industry
    • Assets and Skills
    Develop or acquire assets and skills needed to implement the strategy
    • Assets and skills required to implement a chosen strategy
    • Strategy Implementation
    Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy
    • Selection of strategic actions linked with effective implementation of the chosen strategy
    • Superior Returns
    • Superior returns: earning of above-average returns
  • 66. Resource-based model of above-average returns
    • Resources
    Identify the firm’s resources. Study its strengths and weaknesses compared with those of competitors
    • Inputs into a firm’s production process
    • Capability
    Determine the firm’s capabilities. What do the capabilities allow the firm to do better than its competitors?
    • Capacity of an integrated set of resources to integratively perform a task or activity
    • Competitive Advantage
    Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage.
    • Ability of a firm to outperform its rivals
    • An Attractive Industry
    Locate an attractive industry.
    • An industry with opportunities that can be exploited by the firm’s resources and capabilities
    • Strategy Implementation
    Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment.
    • Strategic actions taken to earn above-average returns
    • Superior Returns
    • Superior returns: earning of above-average returns
  • 67. Module Overview – 1/3
    • Jan 21 – What is Strategy?
      • Individual Assignment: Readings
      • Group Assignment: Choose your Live Case Strategic Issue
    • Jan 21 – External Analysis: Industry Structure and Competition
      • Individual Assignment: Readings
      • Group Assignment: Cola Wars Continue
    • Jan 24 –Internal Analysis: Analyzing Resources and Capabilities
      • Individual Assignment: Readings
      • Group Assignment: Wumart Stores
    • Jan 25 –An Entrepreneur’s View of Strategy in 3D
      • Individual Assignment: Readings & Questions
      • Guest: Steve Mahaley, PeaceTrain
  • 68. Module Overview – 2/3
    • Jan 26 – Recent Developments in Strategy
      • Group Assignment: Article summary ppt for slideshare
    • Jan 31 – Executing Strategy
      • Individual Assignment – Readings & Questions
      • Guest: Christian Björkman, MindArk
      • Guest: Fredrik Nilsson, IC You
    • Jan 31 – Exploring Business Models and role of IT
      • Individual Assignment – Readings & Questions
      • Guest: Paul DiGangi, Western Carolina University
    • Feb 2 - External Drivers of Change: Exploring the Future of the Gaming Industry
      • Individual Assignment: Readings
      • Group Assignment: STEEP
      • Guest: Stefan Lampinen, Speltjänst
  • 69. Module Overview – 3/3
    • Feb 2 – Creating Value Networks
      • Individual Assignment: Readings & Questions
      • Guest: Malin Ströman, Independent Consultant
    • Feb 7 - Live Case Day: Integrating Theory with Practice
      • Group Assignment: Virtual Worlds and Gaming
    • Feb 9 – Module 1 “Exam”