3rd-chap5.ppt

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  • 3rd-chap5.ppt

    1. 1. Analyzing Resources & Capabilities <ul><li>The role of resources and capabilities in strategy formulation. </li></ul><ul><li>The resources of the firm </li></ul><ul><li>Organizational capabilities </li></ul><ul><li>Appraising the profit potential of resources and capabilities (sustainability and appropiability). </li></ul><ul><li>Developing the firm’s resources and capabilities. </li></ul>OUTLINE
    2. 2. Shifting From an Industry Focus 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
    3. 3. Rationale for the Resource-based Approach to Strategy <ul><li>When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus. </li></ul><ul><li>Resources and capabilities are the primary sources of profitability </li></ul>
    4. 4. 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
    5. 5. 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
    6. 6. The Relationships Between Resources, Capabilities and Competitive Advantage STRATEGY INDUSTRY KEY SUCCESS FACTORS COMPETITIVE ADVANTAGE ORGANIZATIONAL CAPABILITIES <ul><li>RESOURCES </li></ul><ul><li>TANGIBLE INTANGIBLE HUMAN </li></ul><ul><li>Financial </li></ul><ul><li>Physical </li></ul><ul><li>Technology </li></ul><ul><li>Reputation </li></ul><ul><li>Culture </li></ul><ul><li>Specialized skills </li></ul><ul><li>and knowledge </li></ul><ul><li>Communication & </li></ul><ul><li>interactive abilities </li></ul><ul><li>Motivation </li></ul>
    7. 7. Appraising Resources <ul><li>RESOURCE CHARACTERISTICS INDICATORS </li></ul><ul><li> Financial Borrowing capacity Debt/ Equity ratio </li></ul><ul><li>Internal funds/ generation Credit rating </li></ul><ul><li>Tangible Net cash flow </li></ul><ul><li>Resources Physical Plant and equipment: Market value of </li></ul><ul><li>size, location, technology fixed assets. </li></ul><ul><li>flexibility. Scale of plants </li></ul><ul><li>Land and buildings. Alternatives for fixed </li></ul><ul><li>Raw materials. assets </li></ul><ul><li> Technology Patents, copyrights, know how No. of patents owned. </li></ul><ul><li>R&D facilities. Royalty income </li></ul><ul><li>Intangible Technical and scientific R&D expenditure. </li></ul><ul><li>Resources employees R&D staff </li></ul><ul><li> Reputation Brands. Customer loyalty. Company Brand equity. Product </li></ul><ul><li>reputation (with suppliers, customers, price premium. </li></ul><ul><li>government) Recognition. </li></ul><ul><li>Human Training, experience, adaptability, Employee qualifications, </li></ul><ul><li>Resources commitment and loyability of customers pay rates, turnover. </li></ul>
    8. 8. Valuation Ratios <ul><li>Coca-cola 19 Beverages </li></ul><ul><li>Oracle 15 Computer software/services </li></ul><ul><li>Cisco Systems 14 Computer software/services </li></ul><ul><li>Computer Associated International 14 Computer software/services </li></ul><ul><li>Schering Plough 12 Health care </li></ul><ul><li>Amgen 10 Health care </li></ul><ul><li>Gillette 10 Consumer Products </li></ul><ul><li>Metronic 9 Health care </li></ul><ul><li>Kellog 9 Food </li></ul><ul><li>Microsoft 9 Computer software/services </li></ul><ul><li>Pharmacia & UpJohn 9 Health care </li></ul><ul><li>First Date 9 Computer software/services </li></ul><ul><li>Pfizer 8 Health care </li></ul><ul><li>Abbot Laboratories 8 Health care </li></ul><ul><li>Mereck 7 Health care </li></ul><ul><li>Johnson & Johnson 7 Health care </li></ul><ul><li>Bristol-Myers-Squibb 7 Health care </li></ul><ul><li>Pepsico 7 Beverages </li></ul><ul><li>Phillip Morris 6 Tobacco </li></ul><ul><li>Eds 6 Computer software/services </li></ul>
    9. 9. Canon: Products as Outgrowths of Technical Capabilities Precision Fine Micro- Precision Fine Micro- Mechanics Optics electronics Mechanics Optics electronics Basic camera XXXXX XXXXX Battery PPC XXXXX XXXXX XXXXX Compact fashion camera XXXXX XXXXX Color copier XXXXX XXXXX XXXXX Electronic camera XXXXX XXXXX Laser copier XXXXX XXXXX XXXXX EOS autofocus camera XXXXX XXXXX XXXXX Color laser copier XXXXX XXXXX XXXXX Video still camera XXXXX XXXXX XXXXX NAVI XXXXX XXXXX XXXXX Laser beam printer XXXXX XXXXX XXXXX Still video system XXXXX XXXXX XXXXX Color video printer XXXXX XXXXX Laser imager XXXXX XXXXX XXXXX Bubble jet printer XXXXX XXXXX Cell analyzer XXXXX XXXXX XXXXX Basic fax XXXXX XXXXX Mask aligners XXXXX XXXXX Laser fax XXXXX XXXXX Stepper Aligners XXXXX XXXXX Calculator XXXXX Excimer laser aligners XXXXX XXXXX XXXXX Plain-paper copier XXXXX XXXXX XXXXX
    10. 10. 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 Nationsbank, ConAgra MIS Speed and responsiveness through American Airlines rapid information transfer LL Bean R&D Research capability Mereck, AT&T Development of innovative new products Sony, 3M Manufacturing Efficient volume manufacturing Briggs & Stratton 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 Federal Express Customer Service Walt Disney
    11. 11. The Value Chain: The McKinsey Business System TECHNOLOGY PRODUCT DESIGN MANUFACTURING MARKETING DISTRIBUTION SERVICE
    12. 12. The Porter Value Chain FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND OPERATIONS OUTBOUND MARKETING SERVICE LOGISTICS LOGISTICS & SALES PRIMARY ACTIVITIES SUPPORT ACTIVITIES
    13. 13. A Hierarchy of Capabilities: A Telecom Manufacturer CROSS FUNCTIONAL CAPABILITIES BROAD FUNCTIONAL CAPABILITIES ACTIVITY RELATED CAPABILITIES (Operations related only) SPECIALIZED CAPABILITIES (Manufacturing related only) SINGLE-TASK CAPABILITIES (Only those related to PCB assembly) INDIVIDUALS’ SPECIALIZED KNOWLEDGE
    14. 14. 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
    15. 15. Appraising VW’s Resources and Capabilities (Note: some data still to add to this figure) <ul><ul><li>Relative </li></ul></ul><ul><ul><li>Strength </li></ul></ul>Strategic Importance Superfluous Strengths Key Strengths Zone of Irrelevance Key Weaknesses 1 1 5 10 5 10
    16. 16. The Framework for Analyzing Resources and Capabilities 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

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