ch05 - Analyzing Resources & Capabilities OUTLINE •...

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Unformatted text preview: Analyzing Resources & Capabilities OUTLINE • The role of resources and capabilities in strategy formulation. • The resources of the firm • Organizational capabilities • Appraising the profit potential of resources and capabilities • Putting resource and capability analysis to work —a practical guide • Creating new capabilities. Shifting the Focus of Strategy Analysis: From the External to the Internal Environment THE FIRM THE INDUSTRY ENVIRONMENT Goals and Values Resources and Capabilities Structure and Systems STRATEGY STRATEGY The Firm-Strategy Interface •Competitors •Customers •Suppliers The Environment-Strategy Interface Rationale for the Resource-based Approach to Strategy • When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus. • Resources and capabilities are the primary sources of profitability The Evolution of Honda Motor Company Honda Technical Research Institute founded Competes in Isle of Man TT motorcycle races 1 motorcycle: 98cc, 2-cycle Dream D st 1946 1950 4 cycle engine First product: Model A clip-on engine for bicycles 1955 4-cylinder 750cc motorcycle 1st gasoline-powered car to meet US Low Emission Vehicle Standard Portable generator Power products: ground tillers, marine engines, generators, pumps, chainsaws snowblowers 405cc motor cycle 1960 The 50cc Supercub 1965 1970 1975 N360 mini car Enters Formula 1 Gran Prix racing Honda Civic 1980 Civic Hybrid (dual gasoline/ electric) Civic GS (natural gas powered) 1985 1990 1995 Acura Car division 1000cc Goldwing touring motor cycle 2000 Home cogeneration system Enters Indy car racing Honda FCX fuel cell car Canon: Products and Core Technical Capabilities Precision Mechanics Fine Optics 35mm SLR camera Plain-paper copier Compact fashion camera Color copier EOS autofocus camera Color laser copier Digital camera Basic fax Laser copier Video still camera Laser fax Mask aligners Inkjet printer Laser printer Excimer laser aligners Color video printer Stepper aligners Calculator Notebook computer MicroElectronics Links between Products & Capabilities: Capability-Based Strategy at 3M Carborundum mining PRODUCTS Road signs Videotape & markings Floppy disks & Scotchtape Audio tape data storage products Acetate Post-it notes film Housewares/kitchen products Surgical tapes & dressings Pharmaceuticals Sandpaper Materials sciences Health sciences Flexible circuitry Microreplication CAPABILITIE S Abrasives Adhesives Thin-film technologies New-product development & introduction Evolution of Capabilities and Products: 3M Carborundum mining PRODUCTS Road signs Videotape & markings Floppy disks & Scotchtape Audio tape data storage products Acetate Post-it notes film Housewares/kitchen products Surgical tapes & dressings Pharmaceuticals Sandpaper Materials sciences Health sciences Flexible circuitry Microreplication CAPABILITIE S Abrasives Adhesives Thin-film technologies New-product development & introduction Eastman Kodak’s Dilemma Resources & Capabilities 1980’s Chemical Imaging •Organic Chemistry •Polymer technology •Optomechtronics •Thin-film coatings Brands Businesses Film Cameras Fine Chemicals Pharmaceuticals Diagnostics Global Distribution 1990’s DIVESTS: Eastman Chemical, Sterling Winthrop, Diagnostics Need to build digital imaging capability Digital Imaging Products (e.g. Photo CD System; Advantix cameras & film The Links between Resources, Capabilities and Competitive Advantage COMPETITIVE ADVANTAGE INDUSTRY KEY SUCCESS FACTORS STRATEGY ORGANIZATIONAL CAPABILITIES RESOURCES TANGIBLE INTANGIBLE •Financial •Physical •Technology •Reputation •Culture HUMAN •Skills/know-how •Capacity for communication & collaboration •Motivation Appraising Resources RESOURCE CHARACTERISTICS INDICATORS Financial Physical Plant and equipment: size, location, technology flexibility. Land and buildings. Raw materials. Debt/ Equity ratio Credit rating Net cash flow Market value of fixed assets. Scale of plants Alternative uses for fixed assets Technology Patents, copyrights, know how R&D facilities. Technical and scientific employees No. of patents owned Royalty income R&D expenditure R&D staff Reputation Tangible Resources Borrowing capacity Internal funds generation Brands. Customer loyalty. Company reputation (with suppliers, customers, government) Brand equity Customer retention Supplier loyalty Training, experience, adaptability, commitment and loyalty of employees Employee qualifications, pay rates, turnover. Intangible Resources Human Resources Firms with the Highest Ratios of Market Value to Book Value (December 2005) Company Valuation Country ratio Company Valuation Country ratio Yahoo! Japan 72.0 Japan Coca-Cola 7.8 US Colgate-Palmolive 20.8 US Diageo 7.4 UK Glaxo Smith Kline 13.4 UK 3M 7.3 US Anheuser-Busch 12.6 US Nokia 6.7 Finland eBay 11.2 US Sanofi-Aventis 6.3 France SAP 10.8 Germany AstraZeneca 5.9 UK Yahoo! 10.7 US Johnson & Johnson 5.7 US Dell Computer 10.0 US Boeing 5.7 US Sumitomo Mitsui Financial 8.8 Japan Eli Lily 5.6 US Procter & Gamble 8.4 US Cisco Systems 5.5 US Qualcomm 8.3 US Roche Holding 5.5 Switz. Schlumberger 8.2 US L’Oreal 5.3 France Unilever 8.1 Neth/UK Altria 5.2 US PepsiCo 8.0 US Novartis 5.1 Switz. The World’s Most Valuable Brands, 2006 Rank Company Brand value ($bn.) Rank Company Brand value ($bn.) 1 2 3 Coca-Cola Microsoft IBM 67.5 59.9 53.4 11 12 13 Mercedes Benz Citi Hewlett-Packard 20.0 20.0 18.9 4 5 6 7 8 9 10 GE Intel Nokia Disney McDonald’s Toyota Marlboro 47.0 35.6 26.5 26.4 26.0 24.8 21.2 14 15 16 17 18 19 20 American Express 18.6 Gillette 17.5 BMW 17.1 Cisco 16.6 Louis Vuitton 16.1 Honda 15.8 Samsung 15.0 Source: Interbrand Identifying Organizational Capabilities: A Functional Classification FUNCTION Corporate Management CAPABILITY Financial management Strategic control Coordinating business units Managing acquisitions EXEMPLARS ExxonMobil, GE IBM, Samsung BP, P&G Citigroup, Cisco MIS Speed and responsiveness through rapid information transfer Wal-Mart, Dell Capital One R&D Research capability Development of innovative new products Merck, IBM Apple, 3M Manufacturing Efficient volume manufacturing Continuous Improvement Flexibility Briggs & Stratton Nucor, Harley-D Zara, Four Seasons Design Design Capability Apple, Nokia Marketing Brand Management Quality reputation Responsiveness to market trends P&G, LVMH Johnson & Johnson MTV, L’Oreal Sales, Distribution & Service Sales Responsiveness Efficiency and speed of distribution Customer Service PepsiCo, Pfizer LL Bean, Dell Singapore Airlines Caterpillar The Value Chain: The McKinsey Business System TECHNOLOGY PRODUCT DESIGN MANUFACTURING MARKETING DISTRIBUTION SERVICE The Porter Value Chain FIRM INFRASTRUCTURE SUPPORT ACTIVITIES HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS MARKETING SERVICE & SALES PRIMARY ACTIVITIES The Architecture of Organizational Capability ORGANIZATIONAL CAPABILITY SKILLS & Organization Management KNOWLEDGE Structure Systems VALUES TECHNICAL & NORMS RESOURCES MANAGERIAL •Human skills & know-how SYSTEMS SYSTEMS •Technology •Culture (values, norms) Dorothy Leonard “Core Capabilities & Core Rigidities” A modified view A Hierarchy of Capabilities: A Telecom Manufacturer CROSS FUNCTIONAL CAPABILITIES N e w p ro d u c t d e v e lo p m e n t c a p a b ility C u s to m e r s u p p o rt c a p a b ility BROAD FUNCTIONAL CAPABILITIES o p e r a tio n s c a p a b ility R & D and d e s ig n c a p a b ility M IS c a p a b ility M a r k e t in g a n d s a le s c a p a b ility H um an r e s o u r c e m g t. c a p a b ility M a n u f a c tu r in g c a p a b ility M a t e r i a ls m anagem ent c a p a b ility P ro c e s s e n g in e e r in g c a p a b ility P ro d u c t e n g in e e r in g c a p a b ility Test e n g in e e r in g c a p a b ility P r in t e d c ir c u it - b o a rd a s s e m b ly T e ls e t a s s e m b ly S y s te m a s s e m b ly A u to m a t e d t h r o u g h - h o le com ponent in s e r t io n M anual in s e r tio n o f c o m p o n e n ts ACTIVITY RELATED CAPABILITIES (Operations related only) SPECIALIZED CAPABILITIES (Manufacturing related only) SINGLE-TASK CAPABILITIES (Only those related to PCB assembly) Q u a lity m anagem ent c a p a b ility S u rfa c e m o u n t in g o f c o m p o n e n ts W ave s o ld e r in g INDIVIDUALS’ SPECIALIZED KNOWLEDGE The Rent-Earning Potential of Resources and Capabilities THE EXTENT OF THE COMPETITIVE ADVANTAGE ESTABLISHED THE PROFIT EARNING POTENTIAL OF A RESOURCE OR CAPABILITY Scarcity Relevance Durability SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE Transferability Replicability Property rights APPROPRIABILITY Relative bargaining power Embeddedness Two approaches to identifying an organization’s resources and capabilities Starting from the inside Starting from the outside Key Success Factors F IRM INFRASTRUCTURE SUP PORT ACTIVITIES HUMAN RESOURCE MANAGEMENT •How do customers choose? •What do we need to survive competition? TECHNOLOGY DEVELOPMENT FINANCIAL MANAGEMENT & CONTROL INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS MARKETING What resources & capabilities do we need to deliver these KSFs? SERVICE & SALES PRIMARY ACTIVITIES Assessing a Companies Resources and Capabilities: The Case of VW Importance VW’s Relative Strength C1. Product development 9 4 5 C2. Purchasing 7 5 8 C3. Engineering 7 9 C4. Manufacturing RESOURCES 8 7 C5. Financial management 6 3 C6. R&D 6 4 C7. Marketing & sales 9 4 C8. Government relations 4 8 Importance VW’s Relative Strength R1. Finance 6 4 R2. Technology 7 R3. Plant and equipment 8 R4. Location R5. Distribution 7 8 CAPABILITIES 4 5 Appraising VW’s Resources and Capabilities (Hypothetical only) 10 Key Strengths Superfluous Strengths Relative Strength C3 R3 C8 C4 C2 R2 5 R1 R5 R4 C6 C1 C7 C5 Zone of Irrelevance 1 1 Key Weaknesses 5 Strategic Importance 10 Appraising the Capabilities of a Business School (illustrative only) Superfluous strengths Relative Strength Superior Key strengths 6 9 3 5 Parity 2 Inconsequential weaknesses 8 4 12 11 Deficient 10 7 Not important 1 Key weaknesses Critically important Importance C1 Alumni relations C2 Student placement C3 Teaching C4.Administration C5 Course devlpmnt C6 Student recruitment C7 Research C8 Corporate relations C9 Marketing C10 IT C11 PR C12 HRM Amoco’s Appraisal of Organizational Capabilities (illustrative only) Superfluous strengths Superior Key strengths 6 Relative Strength 9 4 5 Parity 2 Inconsequential weaknesses 11 3 1 10 Deficient Not important 7 1 Needed to play Importance 8 Key weaknesses Needed to win 1. Effective deal making 2. Rapid new product development 3. Relentless cost forms 4. Product quality 5. JV management 6. Superior EH&S management 7. Managing culturally diverse workforce 8. Fast decision making 9. Customer segmentation 10.Capture synergies across divisions 11. Effective procurement Distinctive Capabilities as a Consequence of Childhood Experiences Company Capability Past History Exxon Financial management Exxon’s predecessor, Standard Oil (NJ) was the holding co. for Rockefeller’s Standard Oil Trust RD/ Shell Coordinating decentralized global empire Shell a j-v formed from Shell T&T founded to sell Russian oil in China, and Royal Dutch founded to exploit Indonesian reserves BP “Elephant hunting” Discovered huge Persian reserves, went on to find Forties Field and Prudhoe Bay ENI Deal making in politicized environments The Enrico Mattei legacy; the challenge of managing government relations in post-war Italy Mobil Lubricants Vacuum Oil Co. founded in 1866 to supply patented petroleum lubricants 2 Approaches to Capability Development 1) Acquire and develop the underlying resources. Especially human resources --Externally (hiring) --Internally through developing individual skills 1) Acquire/access capabilities externally through acquisition or alliance 1) Greenfield development of capabilties in separate organizational unit (IBM & the PC, Xerox & PARC, GM & Saturn) 2) Build team-based capabilities through training and team development (i.e. develop organizational routines) 3) Align structure & systems with required capabilities 4) Change management to transform values and behaviors (GE, BP) 5) Product sequencing (Intel , Sony, Hyundai) 6) Knowledge Management (systematic approaches to acquiring, storing, replicating, and accessing knowledge) Product Sequencing to Build Capabilities: Hyundai Capabilities •Assembly •Production engineering •Local marketing SKD CKD Ford Cortina Products 1968 •Auto styling &design •Casting & forging •Chassis design •Tooling •Body production •Export mktg. Pony 1970 •FWD engineering •CAD/CAM •Assembly control systems •Advanced component handling Excel 1974 •Hydrodynamics •Thermodynamics •Fuel engineering •Emission control •Lubrication •Kinetics& vibration •Ceramics •Electronic control systems •Large-scale design integration •Global logistics •Lifecycle engineering ‘Alpha’ engine 1985 Accent Avante Sonanta 1994-95 What Determines Organizational Capability in Football? Matt Busby 1945-70 Alf Ramsey Who are the outstandingly successful team managers (coaches) in British football? Manchester U. Ipswich 1955-64 Bill Shankley Liverpool 1959-74 Jock Stein Brian Clough Glasgow Celtic Derby/Notts F. 1965-78 1972-84 Bob Paisley Liverpool 1974-83 Alex Ferguson Aberdeen Manchester U. 1980-86 1986- Arsene Wenger Monaco Arsenal Jose Mourinho Porto Chelsea 1985-95 19962000-04 2004- Building Team Capabilities in Soccer: Alex Ferguson at Manchester United •Find/develop young players •Training •Developing coordination •Structuring the team •Cross-functional integration Scouting staff doubled— “find the best.” Building youth team—1992 youth team included Ryan Giggs, David Beckham, Paul Scholes, Nicky Butt, Gary Neville •State-of-the-art training complex •Rigorous training schedule (+war on booze) •Training for team skills •Building team spirit—“team functions with single spirit & constant flow of mutual support”; “Talent without unity of purpose is hopeless” Build a core of group internally Supplement with key purchases •Blending personalities as well as skills •Player rotation for experimentation & flexible coordination Building the wider team—coaches, scouts, physiotherapists, psychologists, even cleaners Summary: A Framework for Analyzing Resources and Capabilities 4. Develop strategy implications: (a) In relation to strengths--How can these be exploited more effectively and fully? (b) In relation to weaknesses --Identify opportunities to outsourcing activities that can be better performed by other organizations. --How can weaknesses be corrected through acquiring and developing resources and capabilities? 3. Appraise the firm’s resources and capabilities in terms of: (a) strategic importance (b) relative strength 2. Explore the linkages between resources and capabilities 1. Identify the firm’s resources and capabilities STRATEGY POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE CAPABILITIES RESOURCES Knowledge Management and the Knowledge-based View of the Firm OUTLINE 1) Why the surge of interest in knowledge management (KM)? --kn. as the key resource of the firm --giving us a better understanding of management 2) What is KM? 3) What progress have we made, what are the key gaps, which areas are likely to add most value? 4) Developing strategy: Exploiting strengths, protecting and eliminating weaknesses 5) Building the capability base: Can it be done? How? 6) What can be learn from Knowledge Management? 7) Implications for organizational structure. Knowledge Processes within the Organization Knowledge Generation (“Exploration”) Knowledge Creation • Training Knowledge Acquisition Knowledge Integration Knowledge Sharing Knowledge Application (“Exploitation”) • Research Knowledge Replication Knowledge Storage & Organization • Recruitment • Intellectual property licensing • Benchmarking • New product development • Operations • Strategic planning • Communities of practice • Best practices transfer • On-the-job training • Databases • Standard operating practices Knowledge Measurement • Intellectual capital accounting • Competency modeling Knowledge Identification • Project reviews • Competency modeling Nonaka’s Knowledge Conversion Matrix Tacit Knowledge Tacit Knowledge TO SOCIALIZATION Sharing of tacit knowledge among individuals and from the organization to the individual FROM Explicit Knowledge INTERNALIZATION Instructions and principles are converted into intuition and routines Explicit Knowledge EXTERNALIZATION The articulation and systematization of tacit into explicit knowledge. Use of metaphor to communicate tacit concepts COMBINATION A key role of information systems is to combine different units of information and other forms of explicit knowledge What is Knowledge Management? Intellectual Courses & Seminars On-theCapital Data job Accounting mining Benchmarkin Intellectual I T Training g Property New Product Protection Development Customer & Best Communications Market Analysis Practice Strategic Alliances Scenario Transfer TQM Lesson Analysis s ERP Research CRM learned Definition: “The systematic leveraging of information and expertise to improve organizational innovation, responsiveness, productivity and competency.” (Lotus division of IBM) Types & Levels of Knowledge (and Knowledge Conversion) Levels of knowledge Individual Explicit Types of Knowledge Tacit Information Facts Scientific kn. Skills Know-how Organization Databases Systems & procedures Intellectual property Organizational routines Replication through Knowledge Systematization Levels of knowledge Individual Explicit Types of Knowledge EXAMPLES • Ford • McDonalds • Starbucks •Accenture Tacit Information Facts Scientific kn. Organization Databases Systems & procedures Intellectual property ‘INDUSTRIAL’ ENTERPRISES CRAFT ENTERPRISES Skills Organizational capabilities Knowledge Transfer Mechanisms D I S S E M I N A T I O N B R E A D T H M a n y Rules, procedures & directives Modular integration Manuals & reports Communities Communities -of-interest -of-practice F e w E-mail Group -ware Internal consultants Personnel transfer Shared data bases Training seminars Video & conferencing courses Meetings On-the job training Informal visits Data exchange Fax Telephone Low (know-how & contextual kn..) ABILITY TO CODIFY High (explicit kn.. & information Designing a Knowledge Management System • What kn. processes which are critical to creating value & competitive advantage? --Dow: creating and exploiting patents --McKinsey & Co.: sharing kn. & retaining experienced consultants --Accenture: systematization.) • What are the characteristics of the relevant kn.? • What mechanisms are needed for the generation and application of the relevant kn.? • What organizational conditions need to be in place in order for knowledge management mechanisms to work? ---Organizational structures ---Incentives to contributors and users ---Behavioral norms and values ...
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This note was uploaded on 08/18/2011 for the course BADM 449 taught by Professor Fertig during the Spring '11 term at University of Illinois at Urbana–Champaign.

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ch05 - Analyzing Resources & Capabilities OUTLINE •...

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