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Internal Analysis- resources, capabilities and core Competencies
- 1. Internal Analysis: Resources,Capabilities, and Core Competencies
- 2. Outline 4.1 Core Competencies 4.2The Resource-Based View – Two Critical Assumptions – The VRIO Framework – Isolating Mechanisms: How to Sustain a Competitive Advantage 4.3 The Dynamic Capabilities Perspective 4.4 The Value Chain Analysis 4.5 Implications for the Strategist – Using SWOT Analysis to Generate Insights from External and Internal Analysis
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- 4. What Are CoreCompetencies? • Unique strengths • Embedded deep within a firm • Allow a firm to differentiate its products and services from those of its rivals • Results in: – Creating higher value for the customer or – Offering products and services at lower cost
- 5. Competitive Advantage basedon Core Competencies, Resources, Capabilities Jump to Appendix 2 long image description
- 6. Examples of CoreCompetencies • IKEA – Superior in designing modern functional home furnishings at low cost • Beats Electronics – Superior marketing: perception of coolness • Facebook – Superior algorithms to offer targeted online ads • General Electric – Superior expertise in industrial engineering, designing and implementing efficient management processes, and developing and training leaders
- 7. 7 Project-Based Evolution atHonda Motor Company
- 8. 8 Canon: Products &Core Technical Capabilities Fine Optics Micro- Electronics Precision Mechanics 35mm SLR camera Compact fashion camera EOS autofocus camera Digital camera Video still camera Video security systems Camcorders Plain-paper copier Color copier Color laser copier Laser copier Basic fax Laser fax Scanners Mask aligners Excimer laser aligners Stepper aligners Inkjet printer Laser printer Color video printer Digital commercial printer Calculator Notebook computer Binoculars
- 9. © 2013 RobertM. Grant www.contemporarystrategyanalysis.com 9 3M: Evolution of Products & Capabilities Carborundum mining Sandpaper Scotch tape Road signs & markings Post-it notes Audio tape Surgical tapes & dressings Videotape Acetate film Floppy disks & data storage products Pharmaceuticals Housewares/kit- chen products Abrasives Adhesives New-product development & introduction Thin-film technologies PRODUCTS CAPABILITIES Materials sciences Health sciences Microreplication Flexible circuitry
- 10. Resources, Capabilities andActivities Help Deliver Core Competencies • Resources: – Any assets that a firm can draw on • Capabilities: – Organizational and managerial skills • Activities: – Distinct and fine-grained business processes
- 11. Links to CompetitiveAdvantage and Superior Firm Performance Jump to Appendix 3 long image description
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- 13. What is theResource Based View (RBV)? • A model that sees certain types of resources (VRIO) as key to superior firm performance – Valuable – Rare – Costly to Imitate – Organized to Capture Value • Resources fall into two categories: – Tangible – Intangible
- 14. A Resource isValuable If… • It enables the firm to exploit an opportunity. • It enables the firm to offset a threat. • It enables a firm to increase its economic value creation (V – C). • Beats Electronics: – Example: Design and marketing of premium headphones • Production = ~$15 • Retail = $150 - $450 • Swiss watches
- 15. A Resource isRare If… • Only one or a few firms possess it • Example: Beats Electronics: – Product placement – Vast celebrity endorsement Google: - Algorithm - Repository of prior searches
- 16. A Resource IsCostly to Imitate If… • Firms that do not possess the resource are unable to develop or buy the resource at a reasonable price. • Example: Beats Electronics: – Dr. Dre relies on gut instinct in making decisions rather than market research. – The social capital of Dr. Dre and Jimmy Lovine might be impossible to replicate. Organization culture: Arvind Eye Care Systems, service oriented culture
- 17. Substitution Effect… • Amazononline book model was substitute to buy books through physical stores • Combining imitation & substitute - Samsung Galaxy an example of imitating features and using Google operating system as substitute to Apple - Xiaomi put pressure on both Samsung and Apple (using Google operating system, add features on low cost
- 18. A Resource IsOrganized to Capture Value If… • It has an effective organizational structure. • It has coordinating systems. • Example: Xerox Palo Alto Research Center: – Developed the first word-processing application Graphical User Interface (GUI), Ethernet, Mouse, Personal Computer – These innovations did not fit within the Xerox focus. – Management was busy pursuing innovations in the photocopier business. Southwest Airlines, Walmart
- 19. • Unique historicalcondition - Coca Cola • Social complexity - organization culture, values, management tradition • Legal restrictions - patent, trademark, copyright (Pharma) • Causal ambiguity - superior outcome due to integration of multiple activity (Southwest Airlines faster turnaround time) How to Sustain Competitive Advantage
- 20. • Superior accessto inputs and customers - Control on input supply, distribution channels (Walmart) • Network Effect - Large consumer base (Facebook) • Early mover advantage and learning curve effect - Walmart presence in rural markets in beginning • Resource non substitutable
- 21. Tangible and IntangibleResources Jump to Appendix 4 long image description
- 22. Example Google Headquarters •Tangible Resource – Googleplex: land + futuristic building • Intangible Resource – Location: heart of Silicon Valley • Large & computer savvy workforce • Largest concentration of venture capitalists in the U.S.
- 23. Two Critical Assumptionsof the RBV • Resource Heterogeneity – A firm is bundle of resources and capabilities that differ across firms • Resource Immobility – A firm has resources that tend to be “sticky” and that do not move easily from firm to firm
- 24. The VRIO DecisionTree Jump to Appendix 5 long image description
- 25. © 2013 RobertM. Grant www.contemporarystrategyanalysis.com 25 Identifying Organizational Capabilities: A Functional Classification Functional Area Capability Exemplars CORPORATE FUNCTIONS Financial control ExxonMobil, PepsiCo Management development General Electric, Shell Strategic innovation Google, Haier Multidivisional coordination Unilever, Shell Acquisition management Cisco Systems, Luxottica International management Shell, Banco Santander Corporate Social Responsibility Johnson & Johnson, Danone INFORMATION MANAGEMENT Integration of IT with decision making Wal-Mart, Capital One, Cemex RESEARCH & DEVELOPMENT Research capability IBM, Merck New product development Apple, 3M Fast-cycle new product development Canon, Inditex (Zara) OPERATIONS Operational efficiency Briggs & Stratton, UPS Continuous improvement Toyota, Wal-Mart Flexibility and speed of response Four Seasons Hotels DESIGN Product design capability Apple, Alessi MARKETING Brand management Procter & Gamble, Altria Building reputation for quality Johnson & Johnson Responding to consumer requirements L'Oréal, Amazon SALES AND DISTRIBUTION Effective sales promotion and execution PepsiCo, Pfizer Efficient, fast order processing L. L. Bean, Dell Computer Speed of distribution Amazon.com SERVICE Customer service Singapore Airlines, Caterpillar
- 26. Strategy Highlight The Riseand Fall of Groupon • A daily-deal website, offering group coupons • Grew quickly – 260 million subscribers, 500,000 merchants – $6 billion buyout offer (Google 2011), was declined • It was valuable, and rare, but not costly to imitate. – More specialized local startups began
- 27. The Dynamic CapabilitiesPerspective
- 28. Dynamic Capabilities • Afirm’s ability to: – Create, deploy, modify, reconfigure, upgrade, and leverage its resources over time • Helps prevent a core rigidity – A former core competency that turned into a liability as the environment changed
- 29. Strategy Highlight Dynamic Capabilitiesat IBM • IBM is a solutions company – Solves data-based problems for clients – The data / the problems change over time • Has successfully transformed itself several times over its 100-year history
- 30. Strategy Highlight Dynamic Capabilitiesat IBM • Current disruptions: – Cloud computing – Systems of engagement – Big data and analytics
- 31. The Dynamic CapabilitiesPerspective • A model that emphasizes a firm’s ability to: – Modify and leverage its resource base – Gain and sustain competitive advantage in a constantly changing environment
- 32. Resource Stocks andFlows • Resource stocks – The firm’s current level of intangible resources • Resource flows – The firm’s level of investments to maintain or build a resource
- 33. The Bathtub Metaphor Jumpto Appendix 6 long image description SOURCE: Figure based on metaphor used in I. Dierickx and K. Cool (1989), “Asset stock accumulation and sustainability of competitive advantage,” Management Science 35: 1504–1513.
- 34. Implications for theStrategist
- 35. SWOT Analysis • Aframework that allows managers to synthesize insights obtained from an internal and external analysis to derive strategic implications • Internal Analysis – Strengths – Weaknesses • External Analysis – Opportunities – Threats
- 36. Strategic SWOT Questions •How can the firm use strengths to take advantage of opportunities? • How can the firm use strengths to reduce the likelihood and impact of threats? • How can the firm overcome weaknesses that prevent the firm from taking advantage of opportunities? • How can the firm overcome weaknesses that will make threats a reality?
- 37. How to GenerateAdditional Insights • SWOT analysis combines external and internal analysis: – External analysis – Internal analysis – Purpose: – Leverage internal strengths to exploit external opportunities – Mitigate internal weaknesses and external threats
- 38. The Final Step… •Evaluate the pros and cons of each strategic alternative. • Select one or more alternatives to implement. • Carefully explain decision rationale. – Including why other strategic alternatives were rejected
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- 40. SWOT Limitations • Longlists 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. • SWOT is not used to guide strategy – it is seen as an end in itself.
- 41. A Word ofCaution • A strength can also be a weakness. • An opportunity can also be a threat. • Example: – Google is located in Silicon Valley. • Strength: near Universities • Weakness: high cost of living
- 42. The Value ChainAnalysis
- 43. What Is theValue Chain? • Internal activities a firm engages in when transforming inputs into outputs • Each activity adds incremental value – Primary activities directly add value – Support activities add value indirectly • Example: Beats Electronics: – Headphones designed by Dr. Dre – Packaging: premium unboxing experience – Superb displays in Apple stores
- 44. The Value Chain Jumpto Appendix 7 long image description
- 45. Primary Activities • Firmactivities that add value directly • Transform inputs into outputs as the firm moves a product or service horizontally along the internal value chain. • Examples: – Supply chain management – Operations – Distribution – Marketing and sales – After-sales service
- 46. Support Activities • Firmactivities that add value indirectly • Necessary to sustain primary activities – Research and development (R&D) – Information systems – Human resources – Accounting and finance – Firm infrastructure including processes, policies, and procedures
- 47. Value Chain UgandanChilled Fish www.ufpea.co.ug
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- 49. • Did Applepurchase Beats for its talent? – Talents of Beats co-founders (Iovine & Dr. Dre) • They have creative talent. • They have a successful track record. • They have deep & far reaching networks. – Apple has lacked visionary leadership since Jobs’ death. • Both Iovine and Dr. Dre are taking on leadership roles at Apple. – Bringing in flashy celebrities might have been unthinkable for Jobs.
- 50. • Do youagree that Beats Electronics’ core competencies are its marketing savvy and Dr. Dre’s coolness factor? • What are the potential downsides of this multi- billion- dollar “acqui-hire?” • Do you think these competencies will remain as valuable under Apple? • Why do you think Apple purchased Beats?
- 51. • Dr. Dre(Andrew Young) – First hip-hop billionaire – Successful music producer, rapper, and entrepreneur – Strong work ethic, expects perfection – One of the best-connected businesspeople in music – Founded Beats Electronics: premium headphones • Apple acquired Beats Electronics for $3 billion – Largest acquisition in Apple’s history – Hoping that some of Beats’ coolness will spill over to its brand
- 52. • Beats CoolnessFactor – Celebrity endorsements • Music celebrities wore them in their music videos. • Famous athletes wear them in public. – Custom Beats created for stars • Disruption in Content Delivery – Changing from downloads to streaming – Apple is lagging behind Pandora • iTunes radio was created in 2013, has been falling flat
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- 54. • Jay Barney •Resource Based View of the Firm • Link: – https://www.youtube.com/watch?v=-KN81_oYl1s • 4:23 Minutes
- 55. • Honda: ThePower of Dreams • Competencies are honed over long periods of time through learning from failure • Link: – http://www.youtube.com/watch?v=1bPzCZCmMfQ • 8:22 Minutes
- 56. • Steve Jobsand Bill Gates • 2007 Interview, Core Competencies discussed • Link: – https://www.youtube.com/watch?v=85PMSYAguZ8 • 15:05 Minutes
- 57. • Steve Jobs •Rare footage from 1980, discussing Competitive Advantage and Capabilities • Link: – https://www.youtube.com/watch?v=0lvMgMrNDlg • 22:54 Minutes
- 58. • Beats Electronicsby Dr. Dre • Commercial: Hear What You Want • Link: – https://www.youtube.com/watch?v=4Ttsx5squWg • 2:47 minutes
- 59. • Caroline Cummings,VP of Business Development at Palo Alto Software • What is a SWOT Analysis? • Link: – https://www.youtube.com/watch?v=4aFB9xrkdiU • 3:43 minutes