ellen drost, 2014 internal analysis: analyzing resources and capabilities dr. ellen a. drost
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Ellen Drost, 2014Ellen Drost, 2014
Internal Analysis:Internal Analysis:Analyzing Resources and CapabilitiesAnalyzing Resources and Capabilities
Dr. Ellen A. DrostDr. Ellen A. Drost
Ellen Drost, 2014Ellen Drost, 2014
OutlineUnderstanding resources and capabilities and core competency
Functional perspective and the value chain
How to assess a capability
How to sustain/develop a capability
Ellen Drost, 2014Ellen Drost, 2014
Resources and Capabilitiesof the Firm
How do companies use their resources, capabilities, and core competencies to create value for customers?
Will changes in the environment make companies core competencies obsolete?
Are substitutes available for their core competencies?
Are core competencies easily imitated?
Ellen Drost, 2014Ellen Drost, 2014
Competing on ResourcesCase:
– Consider the competitive conditions in which whole-sale or warehouse type businesses compete.
– The industry-based view suggests that all firms “stuck” in this industry are likely to suffer.
Question:– How can Wal-Mart and Target consistently do
well in such an unattractive industry even during periods of recession?
Ellen Drost, 2014Ellen Drost, 2014
Competing on Resources (cont’d)
Answer:
– There must be resources and capabilities specific to successful firms like Wal-Mart and Target that are not shared by their unsuccessful competitors in the same industry.
This insight has been developed into a resource-based view, which has emerged as one of the two leading perspectives on strategy.
Ellen Drost, 2014Ellen Drost, 2014
Competing on Resources (cont’d)
Focus of the industry-based view:
– How “average” firms within an industry compete.
Focus of the resource-based view:
– How individual firms differ from each other within an industry and can outperform the industry average consistently and significantly.
Ellen Drost, 2014Ellen Drost, 2014
Resources and Capabilities
The Resource-based View
– A firm consists of a bundle of productive resources and capabilities.
Resources
– The tangible and intangible assets a firm uses to choose and implement its strategies.
Capabilities
– The skills a firm can use to bring its resources to bear. “a firm’s capacity to deploy resources for a desired end result” (page 122, Grant & Jordan, 2012)
Ellen Drost, 2014Ellen Drost, 2014
Resources of the FirmTangible
– Resources and capabilities that are observable and easily quantified
– Broadly organized in four categories: Financial Physical Organizational
Intangible– Resources and
capabilities not easily observed or difficult (or impossible) to quantify
– Examples include: Human Technological
– innovation Reputation
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RESOURCE CHARACTERISTICS INDICATORS
Financial Borrowing capacity Debt/ Equity ratioInternal funds generation Credit rating
Tangible Net cash flow
Resources Physical Plant and equipment: Market value of size, location, technology fixed assets.flexibility. Scale of plantsLand and buildings. Alternative uses forRaw materials. fixed assets
Technology Patents, copyrights, know how No. of patents ownedR&D facilities. Royalty income
Intangible Technical and scientific R&D expenditureResources employees R&D staff
Reputation Brands. Customer loyalty. Company Brand equityreputation (with suppliers, customers, Customer retentiongovernment) Supplier loyalty
Human Training, experience, adaptability, Employee qualifications,
Resources commitment and loyalty of employees pay rates, turnover.
Identifying Resources
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Identifying Capabilities
What is a capability? A firm’s capacity to undertake a particular productive
activity An activity that creates competitive advantage Distinctive competence or core competence
Capability as a routine
Classify capabilities Functional analysis Value chain analysis
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FUNCTION CAPABILITY EXEMPLARSCorporate Financial management ExxonMobil, GEManagement Strategic control IBM, Samsung
Coordinating business units BP, P&GManaging acquisitions Citigroup, Cisco
MIS Speed and responsiveness through Wal-Mart, Dell rapid information transfer Capital One
R&D Research capability Merck, IBMDevelopment of innovative new products Sony, 3M
Manufacturing Efficient volume manufacturing Briggs & StrattonContinuous Improvement Nucor, Harley-DFlexibility Zara, Southwest Air
Design Design Capability Apple, Nokia
Marketing Brand Management P&G, LVMH, PepsiCoQuality reputation Johnson & JohnsonResponsiveness to market trends MTV, L’Oreal
Sales, Distribution Sales Responsiveness PepsiCo, Pfizer& Service Efficiency and speed of distribution Amazon, Dell
Customer Service Singapore AirlinesCaterpillar
Identifying Capabilities – Functional Analysisis
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Value Chain AnalysisValue Chain Analysis Value Chain AnalysisValue Chain Analysis
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
INBOUND OPERATIONS OUTBOUND MARKETING SERVICE
LOGISTICS LOGISTICS & SALES
PRIMARY ACTIVITIES
SUPPORT ACTIVITIES
Ellen Drost, 2014Ellen Drost, 2014
Value Chain AnalysisShows how a bundle of resources and capabilities come together to add value.
– Forces strategists to think about firm resources and capabilities at a micro-activity-based level.
– The key is to examine whether the firm has the resources and capabilities to perform a particular activity in a manner superior to competitors.
Requires that strategists ascertain a firm’s strengths and weaknesses on an activity-by-activity basis, relative to rivals, in a SWOT analysis.
Ellen Drost, 2014Ellen Drost, 2014
Value Chains are Part ofa Total Value System
Supplier Value Chain
Firm Value Chain
Channel Value Chain
Buyer Value Chain
• Upstream Value
• Perform valuable activities that complement the firm’s activities
• Each firm must at some point in time find a way to become a part of a buyer’s value chain
• A critical basis for differentiation is the ability to play a role in a buyer’s value chain
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The Nature of CapabilityCapabilities are the outcomes of processes or routines
–Organizational processes
–Routinization
Hierarchy of capabilities
–Specialization
–Cross-functional
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Appraising Resources and Capabilities
Establishing competitive advantage
–Scarcity
–Relevance
Sustaining competitive advantage
–Durability
–Transferability
–Replicability
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Analyzing Resources and Capabilities
Identify AppraiseAssessing importanceAssessing relative strength
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Developing Resources and Capabilities
Company’s capabilities today are the result of its history (path dependency)
Linkage between resources and capabilitiesDynamic capabilities
–Ability to integrate, integrate and reconfigure
internal and external competences to address rapidly changing environments
Ellen Drost, Summer 2007Ellen Drost, Summer 2007
Dynamic Capabilities in Slow- and Fast-Moving Industries
Table 3.3
Approaches to Capability Development
Acquisition
Internal development
–Focus and sequencing
Incremental development
Internal Development of Capability Integrating resources into capabilities, requires organizational processes which are facilitates by organization culture and strategic intent.
These processes, which are a combination of human and non-human resources, perform a capability which becomes a core capability through routinization, management systems supported by appropriate strategic intent (adapted from Grant & Jordan, 2012, page 152)
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