analyzing firm capabilities
TRANSCRIPT
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7/27/2019 Analyzing Firm Capabilities
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If everyone can do it, its difficult to
create and capture value from it.
or, alternatively
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,
firm realizes economic profits (rents).
Monopoly RentsIndustrial Or anization View
Ricardian RentsResource Based View
Schumpeterian Rents(Dynamic Capabilities View)
P
Q
S
D
SP
Q
S
D
SP
q1
AC 2
MC 1
q2
AC 1
MC 2
P
q1
AC 2
MC 1
q2
AC 1
MC 2
-Barriers to entry-Industry structure matters
-Barriers to imitation-Firm structure matters
-Markets are dynamic-Innovation matters
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Premise that firm capabilitiesmatter most
Economic rents due tobarriers to imitation (i.e.Ricardian rents
P
AC 2
MC 1MC 2
P
AC 2
MC 1MC 2
Some firms are more
profitable than others q1 q2q1 q2
P
AC2
MC1
AC1
MC2 ACMC
P1
P2
q1 q2
Cost Advantage
q1 q2Demand Advantage
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CAPABILIITIES 1. _______ 2. _______ 3. _______ 4. _______
Processes
People
Alignment
Sustainability
Supplier Manufacture Distribution Buyer
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
Secondary
Activities
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Inbound
Inbound
Logistics
Logistics
Operations
Operations
Outbound
Outbound
Logistics
Logistics
Marketing
Marketing
&Sales
&Sales
Service
Service
Primary Activities
Inbound
Inbound
Logistics
Logistics
Operations
Operations
Outbound
Outbound
Logistics
Logistics
Marketing
Marketing
&Sales
&Sales
Service
Service
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CAPABILIITIES 1. _______ 2. _______ 3. _______ 4. _______
Processes
People
Alignment
Sustainability
Tan ible Intan ible
People/
Assets
Cash
Physical Plant
Patents
Talent
BrandsReputation
Technical Expertise
Loyalty
Processes ontracts ancesIT Systems Positive CultureTalent Acquisition
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CAPABILIITIES 1. _______ 2. _______ 3. _______ 4. _______
Processes
People
Alignment
Sustainability
Internal Ali nment
Are our processes, people, and systems aligned with
each other?
Do they reinforce each other to build capability?
External Alignment
Are capabilities aligned with the value proposition? The value in a VRIN analysis
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Human Resource Mgmt Performance incentives at all levels Non-unionized
Value Proposition:Low Cost Per Ton
F at ierarc y, imite status Participatory decision makingOperating Efficiency
Capital Efficiency
High Utilization
Rapid Expansion Little R&D, rely on suppliers Steady investment / upgrading
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nance w re a ne earn ngs Kept debt to
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CAPABILIITIES 1. _______ 2. _______ 3. _______ 4. _______
Processes
People
Alignment
Sustainability
The degree to which a competitive
a van age s cap ure an sus a ne
Imitability
Can others do what we do?
Rarity and inimitability conditions of a VRIN analysis
Durability Can we maintain our capabilities over time?
Will they degrade or become obsolete?
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Legal barriers present
Control scarce supply
Developed over unique historical path
Capabilities are socially complex
Value derives from tight combinations
Can they be used to keep others from exploiting
expanding opportunities? (scalable) Are they limited to this purpose? (specificity)
The degree to which a competitive
a van age s cap ure an sus a ne
Imitability
Can others do what we do?
Rarity and inimitability conditions of a VRIN analysis
Durability Can we maintain our capabilities over time?
Will they degrade or become obsolete?
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Human and physical assets tend to degrade overme
Core capabilities may become core rigidities success breeds complacency, risk aversion, myopia
Valuable capabilities today may be obsoletetomorrow
Some assets ma be more valuable to others andthus are worth selling!
CAPABILIITIES 1. _______ 2. _______ 3. _______ 4. _______
Processes
People
Alignment
Sustainability
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Alternative 1: Ac uired from others Resource markets (e.g. labor, technology, patents)
Mergers & acquisitions
Alliances, associations, corporate venture capital
Limitations: Only viable if these factor markets (markets for things
that firms buy) are imperfect!
Firm must have either superior information or pre-existing complementary capabilities (or luck)
Valueleader
laggard
Performance
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Valueleader
laggard
Performance
Valueleader
laggard
Performance
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New product development and internal R&D
Knowledge management, training
Superior leadership
Limitations: Firmstillmust have either Su erior information know-wh
Pre-existing complementary capabilities (know-how)
Luck!
Capability analysis helps identify a firms value- . ., .
Capabilities arise through the interaction of people,processes, and systems.
To provide a sustainable competitive advantage,capabilities must by well aligned internally andexternally, durable, and hard to imitate.
Superior capabilities are either acquired or built andrequired superior know-why or know-how (or luck!).
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