Strategic Management Ch04

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Strategic Management

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  • Strategic Management Ch04

    1. 1. 0 The Internal Environment: Resources, Capabilities, and Core Competencies Chapter Four © 2006 by Nelson, a division of Thomson Canada Limited.
    2. 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
    3. 3. The Internal Environment: Resources, Capabilities and Core Competencies <ul><li>Knowledge Objectives: </li></ul><ul><li>Explain the need for firms to study & understand their internal environment. </li></ul><ul><li>Define value & discuss its importance. </li></ul><ul><li>Learn how tangible & intangible resources differ. </li></ul><ul><li>Define capabilities & discuss how they are developed. </li></ul><ul><li>Describe four criteria used to determine whether resources & capabilities are core competencies. </li></ul><ul><li>Explain how value chain analysis is used to identify and evaluate resources and capabilities. </li></ul><ul><li>Define outsourcing & discuss the reasons for its use. </li></ul><ul><li>Discuss the importance of preventing core competencies from becoming core rigidities. </li></ul>
    4. 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
    5. 5. The Resource-Based model of Above Average Returns <ul><li>Capabilities evolve and must be managed dynamically in pursuit of above-average returns. </li></ul><ul><li>Firms acquire different resources and develop unique capabilities. These resources may not be mobile across firms and that the differences in resources are the basis of competitive advantage. </li></ul>
    6. 6. The Resource-Based model of Above Average Returns <ul><li>The resource based view suggests that a firm’s unique resources and capabilities provide the basis for a strategy. </li></ul>
    7. 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. 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. 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. 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. 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. 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. 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
    14. 14. Value <ul><li>Value is measured by a product’s performance characteristics and it’s attributes for which clients are willing to pay. </li></ul><ul><li>Core competencies in combination with product-market positions are the firms most important sources of competitive advantage and should drive it’s selection of strategies. </li></ul>
    15. 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
    16. 16. Resources, Capabilities & Core Competencies <ul><li>Financial Resources </li></ul><ul><li>Organizational Resources </li></ul><ul><li>Physical Resources </li></ul><ul><li>Technological </li></ul><ul><li>Resources </li></ul><ul><li>The firm’s borrowing capacity </li></ul><ul><li>The firm’s ability to generate internal funds </li></ul><ul><li>Sophistication & location of a firm’s plant & equipment </li></ul><ul><li>Access to raw materials </li></ul><ul><li>Stock of technology, such as patents, trademarks, copyrights, & trade secrets </li></ul><ul><li>A firm’s formal reporting structure & formal planning, controlling & coordinating systems </li></ul>Tangible Resources Resources * Tangible * Intangible
    17. 17. Resources, Capabilities & Core Competencies <ul><li>Human Resources </li></ul><ul><li>Innovation Resources </li></ul><ul><li>Reputational Resources </li></ul><ul><li>Knowledge </li></ul><ul><li>Trust </li></ul><ul><li>Managerial capabilities </li></ul><ul><li>Organizational routines </li></ul><ul><li>Brand name </li></ul><ul><li>Reputation with Customer and Suppliers </li></ul><ul><li>Perceptions of product quality, durability and reliability </li></ul><ul><li>Ideas </li></ul><ul><li>Scientific capabilities </li></ul><ul><li>Capacity to Innovate </li></ul>Intangible Resources Resources * Tangible * Intangible
    18. 18. Resources, Capabilities & Core Competencies <ul><li>Functional Areas </li></ul><ul><li>Supply Chain Dist. </li></ul><ul><li>Human Res. Mgmt. </li></ul><ul><li>Capabilities </li></ul><ul><li>Effective procurement techniques </li></ul><ul><li>Effective logistics mgmt. techniques </li></ul><ul><li>Motivate, empower, retain employees </li></ul>Examples Starbucks Wal-Mart Royal Bank <ul><li>Info. Systems </li></ul><ul><li>Marketing </li></ul><ul><li>Management </li></ul><ul><li>Effective / efficient inventory control </li></ul><ul><li>via point-of-purchase data collection </li></ul><ul><li>Effective promo of brand-name product </li></ul><ul><li>Effective Customer Service </li></ul><ul><li>Ability to envision the future of clothing </li></ul><ul><li>Effective organizational structure </li></ul><ul><li>Effective culture </li></ul>Wal-Mart GilIette McKinsey Nordstrom Gap, Inc. WestJet Resources * Tangible * Intangible Capabilities Teams of Resources
    19. 19. Resources, Capabilities & Core Competencies <ul><li>Functional Areas </li></ul><ul><li>Manufacturing </li></ul><ul><li>Capabilities </li></ul><ul><li>Design & production skills yielding </li></ul><ul><li>reliable products </li></ul><ul><li>Product & design quality </li></ul><ul><li>Production of technologically </li></ul><ul><li>sophisticated automobile engines </li></ul><ul><li>Product & component miniaturization </li></ul>Examples Komatsu Gap, Inc. Mazda Sony <ul><li>Research and </li></ul><ul><li>Development </li></ul><ul><li>Exceptional technological capability </li></ul><ul><li>Development of sophisticated </li></ul><ul><li>elevator control solutions </li></ul><ul><li>Rapid transformation of technology </li></ul><ul><li>into new products and processes </li></ul><ul><li>Knowledge of silver-halide materials </li></ul>Corning Motion Control Nucor Steel Kodak Resources * Tangible * Intangible Capabilities Teams of Resources
    20. 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. 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. 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 * * *
    23. 23. Core Competencies Does the capability satisfy the criteria of sustainable competitive advantage? <ul><li>Resources </li></ul><ul><li>Inputs to a firm’s production process </li></ul><ul><li>Core Competence </li></ul><ul><li>A strategic capability </li></ul>The source of YES NO <ul><li>Capability </li></ul><ul><li>A non-strategic team of resources </li></ul><ul><li>Capability </li></ul><ul><li>Integration of a team of resources </li></ul>
    24. 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. 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. 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. 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. 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. 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. 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. 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

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