ORGANIZATIONAL APPRAISAL

What are the strengths/weaknesses of a firm?

Chapter 4
 RESOURCE BASED THEORY OF FIRM

Every organization is a collection of resources & capabilities.

These can be strong or weak.

If a firm has some advantage in resource/capability over competition it leads

to superior financial performance.
 FRAMEWORK FOR INTERNAL ANALYSIS

Resources

Strength/weaknesses

Organization capabilities

Synergistic effects

Distinctive competence

Strategic advantage

Sustainable strategic advantage

 RESOURCES
-Are inputs used to produce goods/service

Physical resources
-Access to raw materials
-Machinery

Financial resources Firm Human resources

- Money - Knowledge/Skill
- Borrowing capacity

Organizational resources
-structure & systems

Intangible resources

Technological Process knowhow- Patents – trade secrets

resources
Reputational Brand name – reputation with customers – reputation
resources with channel partner relations – government relations
 MANUFACTURING CAPABILITY

Money Skilled Manpower Technological knowhow

Buy operate efficient operation

Modern Machines

Manufacturing capability-
Strong -Produce a good quality product at low cost

Strong resources lead to strong capabilities

 ORGANIZATION CAPABILITIES

Definition
Organizational skill for doing a specific task- involves combining resources

Illustrative list of capabilities

Eg- Innovation capability

Eg- Sales capability
Eg- Marketing capability
Eg -Manufacturing capability
Eg- Logistic capability
 QUESTION

Should functions work independently or work together ?

 MULTI- FUNCTIONAL COORDINATION

Sales

?
Suppliers - Procurement Production Distribution
- - Customers

Multi-Functional Coordination

All functions work together -support one another -to fulfill customer demand.
 SYNERGY

Whole is more than the sum of parts

When 2 or more functions work together their combined effects are greater
than the sum of their individual effects
 QUESTION

If a firm is strong in all resources & capabilities

Will it become the best in the industry?
 DISTINCTIVE COMPETENCE
(also called core competence )

Distinctive competence is any advantage over competition

Either in resources – capabilities- or product

 HONDA

Distinctive competence -Ability to design small engines

 NIKE

Distinctive competence -Innovation

+
Distinctive competence -Brand building Ability
 QUESTION

What is the difference between strong brand building capability & brand
building capability as a distinctive competence?
 STRATEGIC ADVANTAGE

Financial & non-financial rewards/penalties

Financial

Firm profitability > average industry profitability

(ROE, ROTA, ROR)

Non- financial

Firm market share > Competitor market share

 SUCCESS SEQUENCE

Strong resources

Strong capabilities

Synergy effects

Some distinctive competence

Long run above average profitability

Q- Does leadership make a firm strong?

 QUESTION

In resource theory of firm –

how to distinguish weakness from strength & strength from distinctive
competence?
 VRIO ANALYSIS

4 characteristics:

Valuable Fundamental in generating revenue /reducing costs

Rare Not possessed by many other competitors

Inimitable Difficult to imitate by competition

Organized for usage Deployed on large scale

 ROCHE

Excellent Research capability

Valuable
R&D discovers new molecules – sales increase

Rare
Best in research capability
(number of new drugs discovered over 5 years > competition)

Inimitable
patent protection

Organized for usage

Large Scale – all drugs are discovered using same capability

Conclusion
Strength & distinctive competence
 MCDONALD- USA

Wide network of stores at best locations

Valuable
Good locations - lead to sales

Rare
Best in scale & locations
(% of good locations > competition)

Difficult to imitate
Good locations are limited
If Walmart occupies it -not available to competitors

Organized for usage

Large Scale-All locations are good locations

Conclusion
Strength & distinctive competence
 APPLE

Outsourcing manufacture

Valuable
outsourcing

Reduces cost

Organized for usage

Large scale usage

Rare
Competition also does it

Inimitable
Can be copied

Conclusion
Competitive parity
(its distinctive competence is in other capabilities)
 VRIO IMPACT
ON R&C

Nothing Valuable Weakness

(Competitive disadvantage)

Only V & O Equivalent

(Competitive parity)

V&R&O Strength
& short term distinctive competence

V & R & I &O Strength

& long term distinctive competence
 NIKE

1. Nike with $ 35 billion in turnover is much larger than Adidas.

2. It focusses on its core competencies of design & brand building while

outsourcing manufacturing & major part of retailing

3. Nike brand has been built on iconic advertising- and its ad approach is
just as revolutionary. Ad approach is based on ‘hero athlete campaign’-
it potrays athletes as ‘heroes’ – a person of humble origin – after a great
struggle emerges triumphant.

4. In 1984 it signed up Michael Jordan, a boy from disadvantageous

background, even though he was not selected for his college team. He
ultimately became the greatest basketball player of all times. Michael
Jordan basketball shoes are ‘classics’ & remain popular to this day.

5. In 2000s Nike continued to sponsor athletes from different sports - but

all from difficult backgrounds – much before they became successful.
Examples are golfing great Tiger Woods -cycling great Lawrence
Armstrong-tennis greats Rafael Nadal & Serena Williams – footballer
greats Ronaldo etc. Contracts tie up athletes to endorse brands
exclusively.

6. What is the powerful message in their ads? Nike is not only about
running shoes but also about unlocking the human potential. This is
captured in Nikes mission to bring inspiration and innovation to every
athlete in the world. The iconic ‘tick’ & ‘Just do it’ slogan makes Nike
ad recognizable everywhere in the world but it is the ‘heroes ad
campaign’ that tells the story that through hard work & tenacity any
athlete can unlock the hero within and achieve amazing things. This
has helped Nike dominate all athletic shoes from running shoes to ice
hockey shoes.
 7. To create heroes Nike has to engage in several activities- find athletes
from difficult backgrounds that ultimately become superstars- sponsor
them before they become superstars-create products linked to athletes-
promote these athletes through mass media.

8. If some of these names trigger memories of scandals-you see the risks

associated with such sponsorships. Repeatedly Nike heroes have been
unmasked as cheaters & frauds eg Tiger woods in adultery scandal -
Lawrence in doping scandal- Pistorius on murder charges of girlfriend
etc. Phil Knight says that risk is ‘part of the game’.

Q- What is Nike’s ‘ad approach’?

Q- Should we call their ‘ad approach’ a strength or a distinctive competence?
Naomi Osaka
African – Japanese US citizen

Woman of color in a white dominated sport

Ranked Number 1

4 times grand slam champion

Activist for ‘Black lives matter’

 VRIO ANALYSIS

Heroes campaign

Valuable

Ads create sales

Rare

% of athletes with ‘heroes’ background > competition

Inimitable

Nike doing this for decades

If Adidas copies the approach – it will take too long to duplicate
As good as ‘difficult to imitate’

Organized for usage

The ad approach is used to sell all sneakers