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Chapter 4: Analysing the organisation’s resources and
capabilities
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Learning objectives
Understanding resources, capabilities, dynamic capabilities and strategic capabilities
Identifying strategic capabilities in an organisation
Developing capabilities Strategic capability analysis
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Creating competitive advantage
What is competitive advantage? What the organisation does better than competitors
which is valuable to its customers and which is difficult for competitors to imitate or replicate.
Resources The tangible and intangible assets of the organisation.
Capabilities The processes, systems or organisational routines
which the organisation uses to coordinate its resources for productive use.
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Creating competitive advantage
Strategic capabilities Those capabilities that are rare, are better than
the capabilities of competitors and are difficult to imitate or replicate.
Normal capabilities Those capabilities that are necessary for the
organisation to carry out its tasks.
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Resources, capabilities and the creation of value
Capabilities
Resources
Better than Competitors?Rare?Difficult to imitate?
Strategic capabilities
Competitive advantage
Customer value
Figure 4.1
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
The resource-based view
Four necessary conditions for creation of competitive advantage from capabilities: organisations are different, and can remain so for
long periods some of their capabilities are rare and valuable these capabilities are difficult to imitate these capabilities are not easily traded
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
The VRIO/VRINE model
Resources must be: Valuable – defined by market demand Rare – be scarce with some degree of surplus
demand Inimitable – not able to be easily imitated Non-substitutable Organised – effectively arranged and deployed in
the organisation Exploitable – able to be nurtured and converted to
a viable business initiative
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Dynamic capabilities:Managing knowledge, learning and innovation
Moves from examining current capabilities to how future capabilities are developed
Competitive advantage depends on the ability to build capabilities
Knowledge management an important aspect of building capabilities Turns existing information into decisions about
future capabilities Using knowledge increases its value Organisations must develop the ability to manage
‘knowledge workers’
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Dynamic capabilities:Managing knowledge, learning and innovation
Components of knowledge management: An accessible database of information An organisational language that enables individuals to
understand the meaning of organisational information Networking between individuals both inside and outside the
organisation Ability and incentive to transfer information among
individuals The ability to transfer knowledge effectively and use
it is an extremely difficult dynamic capability to achieve
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Dynamic capabilities:Managing knowledge, learning and innovation
Successful knowledge management is similar to managing innovation and should: Foster a desire for knowledge Reward employees for seeking, sharing and
creating knowledge Set ambitious goals for product and process
innovation Tie incentives to goals achieved through
collaboration with others
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Dynamic capabilities:Managing knowledge, learning and innovation
Rotate jobs to facilitate communication Regularly update databases Encourage training and networking with
external partners Allow people to participate in projects not
linked to their usual work
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Dynamic capabilities:Managing knowledge, learning and innovation
Innovation is another underlying dynamic capability
The ability to build and sustain innovation depends on five major classes of activities:
integrating problem solving across different cognitive and functional barriers
implementing new methodologies and processes experimenting and prototyping importing and absorbing technical knowledge from
outside learning from the market
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Physical technical system
Organisation values and
norms
Managerial systems
Individual skills and
knowledge
Experimenting
Implementing and integrating
Importing Knowledge
Problem Solving
Physical technical system
Organisation values and
norms
Managerial systems
Individual skills and
knowledge
Physical technical system
Organisation values and
norms
Managerial systems
Individual skills and
knowledge
Experimenting
Implementing and integrating
Importing Knowledge
Problem Solving
Experimenting
Implementing and integrating
Importing Knowledge
Problem Solving
Leonard’s Core Technical Dynamic Capability
Figure 4.4
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Identifying strategic capabilities
To identify strategic capabilities each activity, process, system and routine should be examined to see if it meets all the tests of the resource-based view Is it valuable to customers? Is it rare? Is it superior to competitors? Is it difficult to imitate or replicate? Is it specific to the organisation?
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Identifying strategic capabilities
Functional analysis examine each function of the organisation easily understood and comprehensive but follows
conventional thinking, may not identify cross-functional capabilities
Resource analysis examines the resources available to the organisation intangible resources such as key personnel, reputation
and brand image may be competitive resources
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Identifying strategic capabilities
Processes and systems analysis underlying processes and systems are the true creators
of competitive advantage processes and functions may be within or cross-
functional systems are usually complex, but how they link and
support each other determines whether they are strategic capabilities
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Measuring capability performance
Once identified, strategic capabilities need to be measured to see if they are true competitive advantages.
Some means of measuring capabilities are: Internal self-perception Intra-industry comparisons Benchmarking Cost drivers and strategic cost analysis Competitive intelligence
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Managing capabilities
Community of practice networks Build on the informal structure Require structures and systems to
encourage knowledge, learning and innovation dissemination
Should be managed through ‘non-visible’ management
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Managing capabilities
Knowledge reward systems Provides incentives for individual holders
of knowledge to share and disseminate Cash awards for creative outputs Showcase new ideas to all sections of the
organisation Reward idea generators when ideas used
in other parts of the organisation
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Strategic capabilities and core rigidities
Why can strategic capabilities become ‘core rigidities’? Attacking core rigidities attacks the current
economic foundation of the organisation Attacking current strategic capabilities
attacks the current power structure Organisational routines are ingrained.
Habits govern behaviour
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Summary: Resources and capabilities
The internal strategic capabilities of an organisation
Underlying theories of RBV The VRIO/VRINE model Tests to define strategic capabilities Identifying strategic capabilities How strategic capabilities can become
liabilities