Corporate Strategy Lesson 4

Resources and Capabilities

So far we have emphasized the importance of the external environment of an organization and how
it can create both strategic opportunities and threats

It is not only the external environment that matters for strategy; there are also differences between
organisations in terms of resources and capabilities.

Organisations are not identical but have different resources and capabilities; they are
‘heterogeneous’

It can be difficult for one organization to obtain or imitate the resources and capabilities of another.

Strategic capabilities

Capabilities are the capabilities of an organization that contribute to its long-term survival or
competitive advantage.

There are two components of strategic capability: Resources and (core) competencies

Capabilities and competences are sometimes used interchangeably.

Resources are the assets that organisations have or can call upon

Capabilities (or competences) are the ways in which those assets are deployed.

Resources are ‘what we have’ and capabilities are ‘what we do’.

No point in having state of the art equipment were not used efficiently

Threshold versus distinctive resources and capabilities

Difference between resources and capabilities that are at a threshold level and those that might help
the organization achieve competitive advantage and superuior performance

Threshold resources and capabilitis= those needed for an organization to meet the necessary
requirements to compete at all in a given market and achieve parity with competitors in that market.

Without these, the organization cannot survive

Threshold and distinctive resources and capabilities

Threshold levels will change

E.g. Suppliers to major retailers did not require the same level of IT, digital and logistics support a
decade ago.

Distinctie resources and capabilities

Threshold resources and capabilities

Do not create competitive advantage or the basis of superior performance.

Qualifiers’ to compete with competitors.

Distinctive resourcxes and capabilities

Required to achieve competitive advantage dependent on an organization having a distinctiveness or

uniqueness that is of value to customers and which competitors find difficult to imitate

Winners required to triumph over competitors.

The organisations has distinctive resources that underpin competitive advantage that others cannot
imitate or obtain

E.g. long-established brand

The organization has competitive advantage because it has distinctive capabilities – ways of doing
things that are unique to the organization and effectively utilized so as to be valuable to sutomers
and difficult for competitors to obtain or imitate. Ex. Apple

Remain unique because they comprise a bundle of constituent skills and technologies rather than a
single, discrete skill or technology. Ex. Apple

Distinctive capabilities as core competences

Core competences are the linked set of skills, activities and resources that, together:

 Deliver customer value

 Differentiate a business from competitors
 Potentially can be extended and developed as the market changes and new opportunities arise

Redundant capabilities
Capabilities, however effective in the past, can become less relevant as industries evolve and change
Such capabilities can become rigidities that inhibit change and become a weakness.

Value chain and value system

 The value chain describes the categories of activities within an organization which, together,
create a product or a service
 The value system describes the set of inter-organisational links and relationships that are
necessary to create a product or service
 Both are useful in understanding the strategic position of an organization and where valuable
resources and capabilities reside.

The value chain

 The value chain describes the categories of activities within an organization which, together,
create a product or service.
 The value chain invites the strategist to think of an organization in terms of sets of activities –
sources of competitive advantage can be analysed in any or all of these activities.
Value chain is used to understand the strategic position of an organization and analyse resources
and capabilities in three ways
1. As a generic description of activities
 Which se[perate categories of activities best describe the operations of the organization;
 Which of these are most significant in delivering the strategy and achieving advantage over
competitors
2. Analysing the competitive position of the organization
3. Analysing the value and cost of activities of an organization identifying:
a. Sets of Value activities
b. Relative importance of activity costys internally

The Value System

The value System comprises the set of inter-organisational links and relationships that are necessary
to create a product or service
Competitive advantage can be derived from linkages within the value network

Uses of the value network

 The make or buy decision: decifing what activities we can do in house and what activities to out
source
 Understanding cost/price structures across the value network – analysing the best area of focus
and to develop a more profitable best business model.

Uses of the value network

 Identifying the profit pools within the value network and seek to exploit these
 Partnering and relationships – deciding who to work with and the nature of these relationships

RECAP: The value chain are the internal activities we engage in to create a product or a service. The
value system or network are the inter organizational (us and other organisations) activities that
we engage in

Mapping activity systems

 The way in which resources are deployed through the organization takes form in the activities
pursued by that porganisation;
 It is important to identify what these activities are, why they are valuable to customers, how the
various activities fit together and how they are different from competitors
Identifying:
 High order strategic themes – the ways in which the organization meets the critical success
factors determining them in the industry.
 The cluster of activities that underpin each of these themes and how these do or do not fit
together.

Mapping activity systems

 When mapping activity systems three points need to be emphasized:
 Relationship to the value chain. The various activities represented in an activity map can also be
seen as parts of a value chain
 The importance of linkages and fit between different activities
 Superfluous activities – ask if any activities are not required to pursue a particular strategy or if
some activities do not contribute to value creation

Benchmarking
 Benchmarking is a means of understanding how an organization compares with others typically
competitors
 Two approaches to benchmarking:
  Industry/sector benchmarking – comparing performance agains other organisations in the
same industry/sector or against a set of performance indicators
 Best in class benchmarking – comparing an organisation’s performance or capabilities
against best in class performance – wherever that is found even in a very different industry.

Benchamrking: risks
 Surfance comparisons: it does not directly identify the reasons for relative performance in
terms of underlying resources and capabilities. E.g. one organization is poorer at customer
service than another, but not show the underlying reasons
 Simply achieving competitive parity: help an organization to develop capabilities and create
value in the same way as its competitors. To achieve competitive advantage an organization
needs to move further and develop its own distinctive resources and capabilities

SWOT

 SWOT provides a general summary of the strengths, weaknesses, opportunities and threats
explored in an analysis of the resources and capabilities and in an analysis of the
environment.
 This analysis can also be useful as a basis for generating strategic options and assessing
future courses of action.

Most useful when it is comparative

Not so imp: SWOT ANALYSIS SCORING MECHANISM CHECK ON BOOK AND PHOTOS ON PHONE.

Dangers in SWOT Analysis

Long lists with no attempt at prioritization.
Over generalization – sweeping statements often based on biased and unsupported opinions
Swot used as a substitute fr………….. continue from photo

SWOT MATRIX PHOTO

TOWS MATRIX PHOTO

SUMMARY PHOTO