Strategic management 3Strategic management 3

Resource analysis, competences, Resource analysis, competences,

value chain, and strategic position value chain, and strategic position

Resource audit

Competences

In separate activitiesThrough linking activities

Value chain analysis

Identifying key issues

SWOT analysis

Critical success factors

Understanding strategic capability

Comparisons

HistoricalIndustry norms

Benchmarking

Analysing strategic capability

Resources, competences, and value chain analysis

Resource AuditResource Audit Audit CompetencesAudit Competences

Identify core resourcesIdentify core resources Identify core competencesIdentify core competences

Strategic capabilitiesStrategic capabilities

ComparisonsComparisons

Historical basisHistorical basis BenchmarkingBenchmarkingIndustry NormsIndustry Norms

Identifying key issuesIdentifying key issues

SWOT AnalysisSWOT Analysis

Value chain analysis

ResourcesResources audit audit Physical resourcesPhysical resources: : Machines, buildings, Machines, buildings,

production capacityproduction capacity Technological resources: Pc, equipments, Technological resources: Pc, equipments,

networks networks Financial resourcesFinancial resources: : Capital, cash, Capital, cash,

debtors/creditors, suppliers of money debtors/creditors, suppliers of money (shareholders, bankers etc)(shareholders, bankers etc)

Human resourcesHuman resources: : Number and mix of people, Number and mix of people, skillsskills, competences, competences and knowledge and knowledge

Intellectual capitalIntellectual capital: : Patents, brands, business Patents, brands, business systems, customer databases, systems, customer databases,

Intangible resources: reputation, Intangible resources: reputation, “goodwill”“goodwill”

Appraising ResourcesAppraising ResourcesAppraising ResourcesAppraising ResourcesRESOURCERESOURCE CHARACTERISTICSCHARACTERISTICS INDICATORS INDICATORS

FinancialFinancial Borrowing capacityBorrowing capacity Debt/ Equity ratioDebt/ Equity ratioInternal funds generationInternal funds generation Credit ratingCredit rating

TangibleTangible Net cash flowNet cash flow

ResourcesResources Physical Physical Plant and equipment:Plant and equipment: Market Market value of value of

size, location, technologysize, location, technology fixed assets.fixed assets.flexibility.flexibility. Scale of plantsScale of plantsLand and buildings.Land and buildings. Alternative uses forAlternative uses forRaw materials.Raw materials. fixed assetsfixed assets

TechnologyTechnology Patents, copyrights, know howPatents, copyrights, know how No. of patents ownedNo. of patents ownedR&D facilities.R&D facilities. Royalty incomeRoyalty income

IntangibleIntangible Technical and scientificTechnical and scientific R&D expenditureR&D expenditureResourcesResources employeesemployees R&D staffR&D staff

ReputationReputation Brands. Customer loyalty. CompanyBrands. Customer loyalty. Company Brand equityBrand equityreputation (with suppliers, customers,reputation (with suppliers, customers, Customer retentionCustomer retentiongovernment)government) Supplier loyaltySupplier loyalty

HumanHuman Training, experience, adaptability,Training, experience, adaptability, Employee Employee qualifications,qualifications,

ResourcesResources commitment and loyalty of employeescommitment and loyalty of employees pay rates, turnover.pay rates, turnover.

Audit resources- core resources 1.

The resource audit identifies the resources „available” to an organisation in supporting its strategies both from within and outside the organisation

The resource audit identifies the resources „available” to an organisation in supporting its strategies both from within and outside the organisation

Resources can be groupedResources can be grouped

• • Material assets

• Immobility• Machines

• Others• Current assets

• Inventory• Nature of assets

• age• condition• location

• • Material assets

• Immobility• Machines

• Others• Current assets

• Inventory• Nature of assets

• age• condition• location

• Number of employees• Skills

• Education• Experience

• Loyalty•Corporate culture

• Number of employees• Skills

• Education• Experience

• Loyalty•Corporate culture

• Equity• Debt

• Credibility• Relationship with

• Suppliers• Investors• Bankers

• Managing cash

• Equity• Debt

• Credibility• Relationship with

• Suppliers• Investors• Bankers

• Managing cash

• Goodwill• Loyalty of consumers

• Brand name• Good contacts with

• Politicians• CEOs

• Corporate image

• Goodwill• Loyalty of consumers

• Brand name• Good contacts with

• Politicians• CEOs

• Corporate image

Physical resourcesPhysical resources IntangiblesIntangiblesFinancial resourcesFinancial resourcesHuman resourcesHuman resources

Audit resources- core resources 2.

NecessaryResourcesNecessaryResources

UniqueResources

UniqueResources

ResourcesResources

Easy toimitateEasy toimitate

Difficult toimitate

Difficult toimitate

Same as competitors

Same as competitors

Better than competitorsBetter than competitors

Define core resourcesDefine core resources

Core resources

CompetencesCompetences How an organisation employs and How an organisation employs and

deploys its resourcesdeploys its resources Efficiency and effectiveness of Efficiency and effectiveness of

physical, financial, human and physical, financial, human and intellectual resourcesintellectual resources• How they are managedHow they are managed• Cooperation between peopleCooperation between people• AdaptabilityAdaptability• InnovationInnovation• Customer and supplier relationshipsCustomer and supplier relationships• Learning Learning

The differences between resources and The differences between resources and competencescompetences

Resources Resources CompetencesCompetences

TangibleTangible IntangibleIntangible

MeasurebleMeasureble Mostly difficult to Mostly difficult to measure measure

Easy to identify the Easy to identify the „owners” „owners”

Difficult to identify Difficult to identify the „owners”the „owners”

You can buy and sellYou can buy and sell You can acquire by You can acquire by „learnind by doing” „learnind by doing”

Analysing competences and core competences 1.

The competence undertake the activities of the organisation. It shows how to link the different activities together and how to deploy resources to sustain excellent performance

The competence undertake the activities of the organisation. It shows how to link the different activities together and how to deploy resources to sustain excellent performance

Cost efficiencyCost efficiency

Value addedValue added

Managing linkagesManaging linkages

RobustnessRobustness

Bases of competences

Economies of scale: offers the ability in mass consumer advertising, Supply costs: well managed input costs, with IT or personal networks

Experience: the cumulative experience decrease the R+D and unit costs

Economies of scale: offers the ability in mass consumer advertising, Supply costs: well managed input costs, with IT or personal networks

Experience: the cumulative experience decrease the R+D and unit costs

How well are matched the products/services to the identified needs of the chosen customers. Value added activity must be done from the viewpoint

of the customer or user of the production or service.

How well are matched the products/services to the identified needs of the chosen customers. Value added activity must be done from the viewpoint

of the customer or user of the production or service.

Competences are likely to be more robust and difficult to imitate if there are linkages within the organisation’s value chain and linkages into the

supply and distribution channels.

Competences are likely to be more robust and difficult to imitate if there are linkages within the organisation’s value chain and linkages into the

supply and distribution channels.

The strategic importance of an organisation’s competences relates to howeasy or difficult they are to imitate.

The strategic importance of an organisation’s competences relates to howeasy or difficult they are to imitate.

Unique Resources andUnique Resources and Core Competences Core Competences

Unique resourcesUnique resources• Critically underpin competitive advantage Critically underpin competitive advantage

and cannot be imitated or obtained by othersand cannot be imitated or obtained by others Core competencesCore competences

• Activities and processes through which Activities and processes through which resources are deployed such as to achieve resources are deployed such as to achieve competitive advantages in ways which others competitive advantages in ways which others cannot imitate or obtaincannot imitate or obtain

??

Market access

Quality/Reliability

Product features (at low volume)

Global networkOverseas plants

Production processesSupplier management

Life-style niche marketing'Agile' production

How core competences change over time: the world automobile industry

Strategic Capability (1)Strategic Capability (1)

Resources Resources • Tangible resources – physical assets of Tangible resources – physical assets of

an organisationan organisation• Intangible resources – non-physical Intangible resources – non-physical

assets of an organisationassets of an organisation

Strategic capability is the adequacy and suitabilityof the resources and competences of anorganisation for it to survive and prosper

Strategic capability is the adequacy and suitabilityof the resources and competences of anorganisation for it to survive and prosper

Strategic Capability (2)Strategic Capability (2)

CompetencesCompetences• The activities and processes through The activities and processes through

which an organisation deploys its which an organisation deploys its resources effectivelyresources effectively

Identifying Organizational Identifying Organizational CCapabilities:apabilities:A Functional ClassificationA Functional Classification

Identifying Organizational Identifying Organizational CCapabilities:apabilities:A Functional ClassificationA Functional Classification

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 Apple, 3M

Manufacturing Efficient volume manufacturing Briggs & StrattonContinuous Improvement Nucor, Harley-DFlexibility Zara, Four Seasons

Design Design Capability Apple, Nokia

Marketing Brand Management P&G, LVMH

Quality reputation Johnson & JohnsonResponsiveness to market trends MTV, L’Oreal

Sales, Distribution Sales Responsiveness PepsiCo, Pfizer& Service Efficiency and speed of distribution LL Bean, Dell

Customer Service Singapore AirlinesCaterpillar

Value Chain and Value NetworkValue Chain and Value Network

The main roles of the value chain The main roles of the value chain analysis:analysis:

To diagnose strategic capabilityTo diagnose strategic capability To understand how value is created or lost To understand how value is created or lost

in terms of the activities undertakenin terms of the activities undertaken

The value chain describes the activities withinand around an organisation which togethercreate a product or service

The value chain describes the activities withinand around an organisation which togethercreate a product or service

Value Chain AnalysisValue Chain Analysis Identifies clusters of activities providing Identifies clusters of activities providing

particular benefit to customersparticular benefit to customers Highlights activities which are less Highlights activities which are less

efficient and which might be de-efficient and which might be de-emphasised or outsourcedemphasised or outsourced

Requires managers to think about the Requires managers to think about the role of such activitiesrole of such activities

Can be used to identify the cost and Can be used to identify the cost and value of activitiesvalue of activities

ChannelChannelvalue chains value chains

Organisation'svalue chain

SupplierSuppliervalue chainsvalue chains

Customer Customer value chainsvalue chains

The value system of an industry

The The Porter’s Porter’s Value ChainValue Chain modell modell

Exhibit 3.6

Main areas of primarry activitions Main areas of primarry activitions

Inbound logistics: concerned with receiving, Inbound logistics: concerned with receiving, storing, and distributing inputs,storing, and distributing inputs,

Operations: trnasformation the inputs into final Operations: trnasformation the inputs into final products and services,products and services,

Outbound logistics: moving the product ti buyer Outbound logistics: moving the product ti buyer (including warehousing and distributinon) ,(including warehousing and distributinon) ,

Marketind and sales: bringing the product to Marketind and sales: bringing the product to buyers and inducing them to buy and use it, buyers and inducing them to buy and use it,

Services: activities to enhence or maintain the Services: activities to enhence or maintain the value of product and service (installing, repairing, value of product and service (installing, repairing, maintenace, training, and other services) maintenace, training, and other services)

Main areas of supporting activitionsMain areas of supporting activitions

Procurement: process for acquiring Procurement: process for acquiring resources and input, resources and input,

Technology development: covering Technology development: covering product, process and raw material product, process and raw material development and „know how”, development and „know how”,

Human resource management: Human resource management: recruitment, training, motivating, recruitment, training, motivating, development, and rewardsdevelopment, and rewards

Management infrastructure: strategic, and Management infrastructure: strategic, and operational decision-making problem-operational decision-making problem-solving, financial planning, leadingsolving, financial planning, leading

The Value Network – Key Questions (1)The Value Network – Key Questions (1)

Where are cost and value created?Where are cost and value created? Which activities are vital to an organisation?Which activities are vital to an organisation?

• Retain direct control of core capabilitiesRetain direct control of core capabilities• Outsource less important activitiesOutsource less important activities

Where are the profit pools? Where are the profit pools? • Potential profits at different parts of the value Potential profits at different parts of the value

networknetwork• Availability of competences to compete in these Availability of competences to compete in these

areasareas

0

5

0

10

15

20

25%

100%Share of industry revenue

Auto loans

Leasing

Warranty

Gasoline

Auto insurance

Aftermarket parts

Auto rentalO

per

atin

g m

arg

in

Auto manufacturing

New car dealers

Used car dealers

Service & repair

Vertical Segmentation & Industry Profit Pools—The US Auto Industry

Vertical Segmentation & Industry Profit Pools—The US Auto Industry

The Value Network – Key Questions (2)The Value Network – Key Questions (2)

Make or buy?Make or buy?• OutsourcingOutsourcing• Develop competence in influencing performance Develop competence in influencing performance

of other organisationsof other organisations Who are the best partners?Who are the best partners?

• What kind of relationships are required?What kind of relationships are required?

Benchmarking StrategicBenchmarking Strategic CapabilityCapability

• Historical – performance compared to Historical – performance compared to previous yearsprevious years

• Industry/sector – comparative performance of Industry/sector – comparative performance of other organisations other organisations (strategic groups)(strategic groups)

• Best in class – wider search for best practiceBest in class – wider search for best practice Increased expectations due to improved Increased expectations due to improved

performance in another sector performance in another sector Breaking the frame about performance standards to Breaking the frame about performance standards to

be achievedbe achieved Spot opportunities to outperform incumbents in Spot opportunities to outperform incumbents in

other markets – stretch core competencesother markets – stretch core competences

SWOT (1)SWOT (1) SummariseSummarise of the strategic position of of the strategic position of

the organizationsthe organizations Made by providing Made by providing analysis ofanalysis of

• Business environmentBusiness environment Opportunities and threatsOpportunities and threats

• Strategic capabilitiesStrategic capabilities Strengths and weaknessesStrengths and weaknesses

Used for comparison with competitorsUsed for comparison with competitors Focuses on future choices and Focuses on future choices and

capability of organisation to support capability of organisation to support themthem

The SWOT analysis (2)The SWOT analysis (2)

Strengths: internal resources in which you Strengths: internal resources in which you have advantage to competitors,have advantage to competitors,

Weaknesses: internal resources in which Weaknesses: internal resources in which you have disadvantages to comeptitors, you have disadvantages to comeptitors,

Opportunities: environmental factors Opportunities: environmental factors which favorable for your organization, which favorable for your organization,

Threats: environmental factors which Threats: environmental factors which unfavorable for your organizationunfavorable for your organization

Simple SWOT matrix (3)Simple SWOT matrix (3)

STRENGHTSSTRENGHTS

(Resource factors)(Resource factors)

List: List:

WEAKNESSESWEAKNESSES

(Resource factors) (Resource factors)

List: List:

OPPORTUNITIESOPPORTUNITIES

(Factors of the (Factors of the environments): environments):

List:List:

THREATSTHREATS

Factors of the Factors of the environments):environments):

List: List:

Extended SWOT matrix (4)Extended SWOT matrix (4)

StrenghtsStrenghts1, 1,

2, 2,

3,3,

WeaknessesWeaknesses1, 1,

2,2,

3, 3,

OpportunitiesOpportunities1, 1,

2, 2,

3,3,

SO SO strategic strategic projects: projects:

1, 1,

2,2,

WO WO strategic strategic projects: projects:

1, 1,

2, 2,

ThreatsThreats1, 1,

2, 2,

3, 3,

ST ST strategic strategic projects: projects:

1, 1,

2, 2,

SWOT (SWOT (55))

Problems of SWOT analysisProblems of SWOT analysis• Can generate long lists: need to focus on Can generate long lists: need to focus on

key issueskey issues• Danger of over-generalisation: not a Danger of over-generalisation: not a

substitute for rigorous strategic analysissubstitute for rigorous strategic analysis• It create illusion: we have a strategyIt create illusion: we have a strategy

Stretching and Adding CapabilitiesStretching and Adding Capabilities

Extending best practicesExtending best practices Adding and changing activitiesAdding and changing activities Stretching competencesStretching competences Building on apparent “weaknesses”Building on apparent “weaknesses” Ceasing activitiesCeasing activities Trade-offsTrade-offs External capability developmentExternal capability development

Building Dynamic CapabilitiesBuilding Dynamic Capabilities

Promote a learning organisationPromote a learning organisation• Recognise intuition of peopleRecognise intuition of people• Accept conflicting ideasAccept conflicting ideas• Experimentation as the normExperimentation as the norm

Add activities to support learning, e.g. “venturing” Add activities to support learning, e.g. “venturing” business unitsbusiness units

Manage organisational knowledgeManage organisational knowledge• Need right culture and structureNeed right culture and structure

Develop spiral of interaction between tacit and Develop spiral of interaction between tacit and explicit knowledgeexplicit knowledge

Question core rigiditiesQuestion core rigidities

Strategic Capability – Key Points (1)Strategic Capability – Key Points (1)

Competitive advantageCompetitive advantage derives from strategic derives from strategic capabilitiescapabilities

Strategic capability comprises Strategic capability comprises tangible and tangible and intangible resourcesintangible resources deployed via deployed via competencescompetences

Continual improvement of Continual improvement of cost efficiencycost efficiency is vital is vital For For sustainablesustainable competitive advantage strategic competitive advantage strategic

capabilities must be valuable, rare, robust or capabilities must be valuable, rare, robust or non-substitutablenon-substitutable

Dynamic capabilitiesDynamic capabilities are needed in a changing are needed in a changing environmentenvironment

Value chain/value network/activity mapping to Value chain/value network/activity mapping to understand understand cost and value creationcost and value creation

Strategic Capability – Key Points (2)Strategic Capability – Key Points (2)

BenchmarkingBenchmarking establishes relative establishes relative performance and challenges assumptionsperformance and challenges assumptions

Management of strategic capabilities Management of strategic capabilities involves involves stretchingstretching capabilitiescapabilities and and building building dynamic capabilitiesdynamic capabilities

Strategic Capability - OutlineStrategic Capability - Outline

Resources, competences and dynamic Resources, competences and dynamic capabilitiescapabilities

Continual improvement in cost efficiencyContinual improvement in cost efficiency Strategic capabilities and competitive Strategic capabilities and competitive

advantageadvantage Organisational knowledge and strategic Organisational knowledge and strategic

capabilitycapability Diagnosing strategic capability: value chain, Diagnosing strategic capability: value chain,

value networks, activity maps, benchmarkingvalue networks, activity maps, benchmarking Developing strategic capabilitiesDeveloping strategic capabilities