management, organizational policies and practices lecture 4
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Management, Organizational Policies and Practices
Lecture 4
Recap Lecture 3
Industrial Organizational View Macro Environment – PESTEL Industry Environment – Porter Five Forces Competitive – Strategic Groups
The Internal Assessment
Lecture 4
Dr Amna Yousaf
PhD-HRM
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Basis for objectives & strategies:Basis for objectives & strategies:
Clear statement of vision and mission External opportunities/threats Internal strengths/weaknesses
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Internal Audit
Gather & assimilate information from:• Management• Marketing• Finance/accounting• Production/operations• Research & development• Management information systems
Key to organizational success:
Coordination and understanding among managers from all functional areas
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3–6
External Analyses’ OutcomesExternal Analyses’ Outcomes
By studying the external environment, firms identify what they By studying the external environment, firms identify what they might choose to do.might choose to do.
OpportunitieOpportunities and s and threatsthreats
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3–7
Internal Analyses’ Outcomes Internal Analyses’ Outcomes
By studying the internal environment, firms By studying the internal environment, firms identify what they identify what they can docan do
Unique resources, Unique resources, capabilities, and capabilities, and competenciescompetencies((required forrequired for sustainable sustainable competitive competitive advantageadvantage))
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Resource Based View
Organizational Resources provide competitive advantage that can be sustained Traditional resources such as labor costs, access to
financial resources and raw materials continue to be sources of competitive advantage but to a lesser degree Globalization and openenss of markets make these
resources accessable worldwide and mobile Need to identify new sources of competitve advantage- do
the internal audit
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3–9
Key Concepts - Resources - Resources
ResourcesResources Are a firm’s assets, including Are a firm’s assets, including
people and the value of its people and the value of its brand name.brand name.
Represent inputs into a firm’s Represent inputs into a firm’s production process, such as:production process, such as: Capital equipmentCapital equipment Skills of employeesSkills of employees Brand namesBrand names Financial resourcesFinancial resources Talented managersTalented managers Raw MaterialRaw Material Strategic LocationStrategic Location
Types of ResourcesTypes of Resources Tangible resourcesTangible resources
Financial resourcesFinancial resources Physical resourcesPhysical resources Technological resourcesTechnological resources Organizational Organizational
resourcesresources Intangible resourcesIntangible resources
ReputationReputation InnovationInnovation
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Types of Resources
Threshold ResourcesThe resources needed to meet customer’s minimum requirements and therefore to continue to exist
Retailer requires the supplier to posses a powerful IT infrastructure to meet retailing requirements.
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Threshold Competences
Activities and processes needed to meet customer’s minimum requirements and therefore to continue to exist
Supplier should be able to use IT systems effectively
Threshold level changes over time as CSF’s change;
Traditional banking versus online internet banking (branchless)
Redundancy & Complementarily
Get away with redundent Resources & Competencies
Competitive rivalry may make cost efficency threshold comeptnece
Complementarity of resources and competencies essentail Brand name as resource but no marketing processes
Lack of understanding – out of the game
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Unique Resources & Core Competences
Unique resources can not be easily imitated and critically underpin competitive advantage Powerful Brand
Kallogs
Core competences are the activities and processes through which an organziation deploys the resources effectively to achieve competitive advatnage in ways non imitable by competitors. Unique ways of providing service or relationship
building with retailers/distributors/suppliers McKinsey & Co. recommends identifying three to four McKinsey & Co. recommends identifying three to four
competencies to use in framing strategic actions.competencies to use in framing strategic actions.
Cost Efficiency
Economies of Scale Supply costs Experience Product/process design
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Robustness of Strategic Capabilities
Rarity Collection of unique books in a library Intellectual capital-particularly talented individuals Relationships with key customers Harmoniuos functioning of the firms
Capabilities around resources may not be rare as IC may move – competences may be rare and non transferable
Robustness of Strategic Capabilities Non-imitability
Causal ambiguity Competences get embedded in organizational culture Tacit knowledge on organizational processes built in one
culture – may not be readily idetifiable; counter cultural for comeptitor
logical path can not be explicilty defined; taken for granted Formal and informal ways
Linkage ambiguity Whcih activities or processes dependent on which other. What is
the chain of linkages? The way customers are dealt on phone, return policies on goods,
flexibility in deliveries
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Robustness of Strategic Capabilities
Valuable Unique capabilities may not lead comepttive advantage
Customer value
Non substitutable Competencies may also be situtation dependent –
MNC’s have different competences accross the globe Competences can be created within organziation and
outside with suppliers and distributors
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Dynamic Capabilities
Danger of redundancy of strategic capability – strategic drift M&S kept inventing value based on past success; faced losses
in 1990’s
Dynamic capabilities refers to an organization’s abilities to develop and change competencies to meet the needs of rapidly changing environments Stable environment, competitive advatange more
durable and vice versa
Core Competencies—Cautions and RemindersCore Competencies—Cautions and Reminders
Never take for granted that core competencies will continue to provide a source of competitive advantage
Never take for granted that core competencies will continue to provide a source of competitive advantageAll core competencies have the potential to become Core RigiditiesAll core competencies have the potential to become Core Rigidities
Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment
Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment
Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats
Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats
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Case Examples (1)
Caterpiller; construction manufacturing company dealing with a range of diversified products such as construction and mining equipment, gas engines attributes success to the technology it uses and resources it spends to update its internal environment Spends $ 4 million per day to mainintain
competitive advantage through technology
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Case Examples (2)
Enterprise Rent-A-Car – 5000 plus offices worldwide and continually expanding CEO attributes success to employee’s efforts and
the intellectual capital they represnt
Japneese Automobile reduced GM Motors dominence with narrow asset base Lowered costs Improved quality Fast production processes
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Creating Value
Value is measured by product’s performance characteristics and by its attributes for which customers are willing to pay. Increasing perceptions of higher value in global
than local brands Firms create value by bundling resources and
capabilities in ways that create value
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The Value-Creating Potential of The Value-Creating Potential of Primary ActivitiesPrimary Activities
Inbound LogisticsInbound Logistics Activities used to receive, store, and disseminate Activities used to receive, store, and disseminate
inputs to a productinputs to a product OperationsOperations
Activities necessary to convert the inputs provided Activities necessary to convert the inputs provided by inbound logistics into final product formby inbound logistics into final product form
Outbound LogisticsOutbound Logistics Activities involved with collecting, storing, and Activities involved with collecting, storing, and
physically distributing the product to customersphysically distributing the product to customers
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The Value-Creating Potential of The Value-Creating Potential of Primary Activities (cont’d)Primary Activities (cont’d)
Marketing and SalesMarketing and Sales Activities completed to provide the means through Activities completed to provide the means through
which customers can purchase products and to induce which customers can purchase products and to induce them to do so.them to do so.
ServiceService Activities designed to enhance or maintain a product’s Activities designed to enhance or maintain a product’s
valuevalue Each activity should be examined relative to competitor’s Each activity should be examined relative to competitor’s
abilities and rated as superior, equivalent or inferior.abilities and rated as superior, equivalent or inferior.
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3–25
The Value-Creating Potential of The Value-Creating Potential of Primary Activities: SupportPrimary Activities: Support
ProcurementProcurement Activities completed to purchase the inputs needed Activities completed to purchase the inputs needed
to produce a firm’s products.to produce a firm’s products. Technological DevelopmentTechnological Development
Activities completed to improve a firm’s product and Activities completed to improve a firm’s product and the processes used to manufacture it.the processes used to manufacture it.
Human Resource ManagementHuman Resource Management Activities involved with recruiting, hiring, training, Activities involved with recruiting, hiring, training,
developing, and compensating all personnel.developing, and compensating all personnel.
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© 2007 Thomson/South-Western. All rights reserved. 3–26
The Value-Creating Potential of The Value-Creating Potential of Primary Activities: Support Primary Activities: Support (cont’d)(cont’d) Firm InfrastructureFirm Infrastructure
Activities that support the work of the entire value Activities that support the work of the entire value chain (general management, planning, finance, chain (general management, planning, finance, accounting, legal, government relations, etc.)accounting, legal, government relations, etc.)
Each activity should be examined relative to Each activity should be examined relative to competitor’s abilities and rated as superior, competitor’s abilities and rated as superior, equivalent or inferior.equivalent or inferior.
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© 2007 Thomson/South-Western. All rights reserved. 3–27
FIGUREFIGURE 3.33.3
The Basic The Basic Value ChainValue Chain
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Benefits of Value Chain
Cost benefit analysis at various levels Help identify comeptences of the firm Outsourcing decisions Identify profit pools Value network – set of inter-organizational
links and relationships necessary to create valuable product Internal position vis a vis other parties
How do we assemble How do we assemble bundlesbundles of of Resources, Capabilities and Core Resources, Capabilities and Core
Competencies to create Competencies to create VALUEVALUE for for customers?customers?
Will environmental changes make our Will environmental changes make our core competencies obsolete?core competencies obsolete?
And...And...
Are substitutes available for our core Are substitutes available for our core competencies?competencies?
Are our core competencies easily imitated?Are our core competencies easily imitated?
Key Questions for Managersin Internal Analysis
Key Questions for Managersin Internal Analysis
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Organizational Knowledge
Collective and shared experience accumulated through systems, routines and activities of sharing accross the organization Explicit Knowldge: Codified information system Implicit Knowledge: Tacit, hald to formalize, personal and
context specific More likely to occur where functional boundaries
are blurred; less demarcation of roles Formal and systematic system of knowledge
poses greater danger of imitation Experience of groups of individuals may not be
copied
SupportActivities
Primary Activities
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
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MARGIN
MARGIN
Inbound Inbound LogisticsLogistics
OperationsOperationsOutboundOutboundLogisticsLogistics
ServiceService
Marketing Marketing & Sales& Sales
Technological Technological DevelopmentDevelopment
Human Resource ManagementHuman Resource Management
ProcurementProcurement
MARGIN
MARGIN
Firms often purchase a portionportion of their value-creating activities from specialty external suppliers who can perform these functions more more efficientlyefficiently
OutsourcingOutsourcingStrategic Choice to Purchase Some Activities From Outside Suppliers
Lets company focus on broader business issues by having outside experts handle various operational detailsLets company focus on broader business issues by having outside experts handle various operational details
Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing
Improve Business FocusImprove Business Focus
Permits firm to redirect efforts from non-core activities toward those that serve customers more effectivelyPermits firm to redirect efforts from non-core activities toward those that serve customers more effectively
Free Resources for Other PurposesFree Resources for Other Purposes
Provide Access to World-Class CapabilitiesProvide Access to World-Class Capabilities
Accelerate Business Re-Engineering BenefitsAccelerate Business Re-Engineering Benefits
Share RisksShare Risks
The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications
Achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over processAchieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process
Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities
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Activity Maps
An activity map shows how the different activities of an organization are linked together
Help identify and preserve strategic capabilities
Different activties must be consistent to create value
Maybe reinforcing each other
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Activity Maps at Southwest
Frequent, reliable departures Lean, highly productive ground and gate crews High aircraft utliziation Very low ticket prices No meals No seat assignments No baggage transfers Automatic ticketing maxchines No connections with other airlines
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Internal Assessment Analyses
Qunatitative Analyses Balanced Scorecard Basic Financial Ratios
Qualitative Analyses
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The Balanced Scorecard Broad based criteria to assess a firm from multiple perspectives
Financial Ratios
Customer Value in terms of differentiation, low costs, quick response
Operations Which processes need to improve? How should they be changed?
Organizational Adaptability to change? Workforce commitment towards goals?
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Qualitative Analyses
Qualitative information supplements quantitative informatoin
Information on employee morale, commitmnet, creativity, employee views and customer views etc Motorolla invests $600m anually based on
qualitative analyses.
ResourcesResources
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
StrategicStrategicCompetitivenessCompetitiveness
Above-AverageAbove-AverageReturnsReturns
CompetitiveCompetitiveAdvantageAdvantage
Gained throughGained throughCore CompetenciesCore Competencies
DiscoveringDiscovering
CoreCore
CompetenciesCompetencies
ValueChain
Analysis
ValuableRareCostly to ImitateNonsubstitutable
****
* Outsource
Criteria ofSustainableAdvantages
Discovering Core CompetenciesDiscovering Core Competencies
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