Strategic management 3

Resource analysis, competences,

value chain, and strategic position
Analysing strategic capability

Resource audit

Competences
In separate activities
Through linking activities

Value chain analysis

Comparisons
Historical
Industry norms
Benchmarking

Identifying key issues

SWOT analysis
Critical success factors

Understanding strategic
capability
 Resources, competences, and value chain analysis

Resource Audit Audit Competences

Value chain
analysis
Identify core resources Identify core competences

Strategic capabilities

Comparisons

Historical basis Industry Norms Benchmarking

Identifying key issues

SWOT Analysis
 Resources audit
 Physical resources: Machines, buildings,
production capacity
 Technological resources: Pc, equipments,
networks
 Financial resources: Capital, cash,
debtors/creditors, suppliers of money
(shareholders, bankers etc)
 Human resources: Number and mix of people,
skills, competences and knowledge
 Intellectual capital: Patents, brands, business
systems, customer databases,
 Intangible resources: reputation, “goodwill”
 Appraising Resources
RESOURCE CHARACTERISTICS INDICATORS

Financial Borrowing capacity Debt/ Equity ratio

Internal funds generation Credit rating
Tangible Net cash flow
Resources Physical Plant and equipment: Market value
of
size, location, technology fixed assets.
flexibility. Scale of plants
Land and buildings. Alternative uses for
Raw materials. fixed assets

Technology Patents, copyrights, know how No. of patents owned

R&D facilities. Royalty income
Intangible Technical and scientific R&D expenditure
Resources employees R&D staff

Reputation Brands. Customer loyalty. Company Brand equity

reputation (with suppliers, customers, Customer retention
government) Supplier loyalty

Human Training, experience, adaptability, Employee

qualifications,
Resources commitment and loyalty of employees 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

Resources can be grouped

Physical resources Human resources Financial resources Intangibles

•
• Material assets • Number of employees • Equity • Goodwill
• Immobility • Skills • Debt • Loyalty of consumers
• Machines • Education • Credibility • Brand name
• Others • Experience • Relationship with • Good contacts with
• Current assets • Loyalty • Suppliers • Politicians
• Inventory •Corporate culture • Investors • CEOs
• Nature of assets • Bankers • Corporate image
• age • Managing cash
• condition
• location
 Audit resources- core resources 2.

Define core resources

Easy to Difficult to
imitate imitate

Resources Necessary Unique Core resources

Resources Resources

Same as Better than

competitors competitors
 Competences
 How an organisation employs and
deploys its resources
 Efficiency and effectiveness of physical,
financial, human and intellectual
resources
• How they are managed
• Cooperation between people
• Adaptability
• Innovation
• Customer and supplier relationships
• Learning
 The differences between resources and
competences
Resources Competences
Tangible Intangible

Measureble Mostly difficult to

measure
Easy to identify the Difficult to identify
„owners” the „owners”
You can buy and sell You can acquire by
„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

Bases of
competences

Economies of scale: offers the ability in mass consumer advertising,

Cost efficiency
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
Value added
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

Managing linkages
are linkages within the organisation’s value chain and linkages into the
supply and distribution channels.

Robustness The strategic importance of an organisation’s competences relates to how

easy or difficult they are to imitate.
 Unique Resources and
Core Competences
 Unique resources
• Critically underpin competitive advantage
and cannot be imitated or obtained by others
 Core competences
• Activities and processes through which
resources are deployed such as to achieve
competitive advantages in ways which others
cannot imitate or obtain
How core competences change over time: the world automobile industry

Market access
Global network
Overseas plants

Quality/Reliability
Production processes
Supplier management

Product features
(at low volume)
Life-style niche marketing
'Agile' production

??
 Strategic Capability (1)
Strategic capability is the adequacy and suitability
of the resources and competences of an
organisation for it to survive and prosper

 Resources
• Tangible resources – physical assets of
an organisation
• Intangible resources – non-physical
assets of an organisation
 Strategic Capability (2)
 Competences
• The activities and processes through
which an organisation deploys its
resources effectively
 Identifying Organizational Capabilities:
A Functional Classification
FUNCTION CAPABILITY EXEMPLARS
Corporate Financial management ExxonMobil, GE
Management Strategic control IBM, Samsung
Coordinating business units BP, P&G
Managing acquisitions Citigroup, Cisco
MIS Speed and responsiveness through Wal-Mart, Dell
rapid information transfer Capital One
R&D Research capability Merck, IBM
Development of innovative new products Apple, 3M
Manufacturing Efficient volume manufacturing Briggs & Stratton
Continuous Improvement Nucor, Harley-D
Flexibility Zara, Four Seasons
Design Design Capability Apple, Nokia
Marketing Brand Management P&G, LVMH
Quality reputation Johnson & Johnson
Responsiveness to market trends MTV, L’Oreal
Sales, Distribution Sales Responsiveness PepsiCo, Pfizer
& Service Efficiency and speed of distribution LL Bean, Dell
Customer Service Singapore Airlines
Caterpillar
Value Chain and Value Network
The value chain describes the activities within
and around an organisation which together
create a product or service

The main roles of the value chain

analysis:
 To diagnose strategic capability
 To understand how value is created or lost
in terms of the activities undertaken
 Value Chain Analysis
 Identifies clusters of activities providing
particular benefit to customers
 Highlights activities which are less
efficient and which might be de-
emphasised or outsourced
 Requires managers to think about the
role of such activities
 Can be used to identify the cost and
value of activities
 The value system of an industry

Supplier Channel Customer

value chains value chains value chains

Organisation's
value chain
 The Porter’s Value Chain modell

Exhibit 3.6
 Main areas of primarry activitions

 Inbound logistics: concerned with receiving,

storing, and distributing inputs,
 Operations: trnasformation the inputs into final
products and services,
 Outbound logistics: moving the product ti buyer
(including warehousing and distributinon) ,
 Marketind and sales: bringing the product to
buyers and inducing them to buy and use it,
 Services: activities to enhence or maintain the
value of product and service (installing, repairing,
maintenace, training, and other services)
 Main areas of supporting activitions

 Procurement: process for acquiring

resources and input,
 Technology development: covering
product, process and raw material
development and „know how”,
 Human resource management:
recruitment, training, motivating,
development, and rewards
 Management infrastructure: strategic, and
operational decision-making problem-
solving, financial planning, leading
 The Value Network – Key Questions (1)

 Where are cost and value created?

 Which activities are vital to an organisation?
• Retain direct control of core capabilities
• Outsource less important activities
 Where are the profit pools?
• Potential profits at different parts of the value
network
• Availability of competences to compete in these
areas
 Vertical Segmentation & Industry Profit Pools
—The US Auto Industry

25
%
20
Operating margin

Leasing Service & repair

15

Warranty Aftermarket
Auto parts
10 Auto
manufacturing
Auto Auto rental
New car insurance
dealers loans
5 Used car dealers

0 Gasoline
0 100%
Share of industry revenue
 The Value Network – Key Questions (2)

 Make or buy?
• Outsourcing
• Develop competence in influencing performance
of other organisations
 Who are the best partners?
• What kind of relationships are required?
 Benchmarking Strategic Capability

• Historical – performance compared to

previous years
• Industry/sector – comparative performance of
other organisations (strategic groups)
• Best in class – wider search for best practice
 Increased expectations due to improved
performance in another sector
 Breaking the frame about performance standards to
be achieved
 Spot opportunities to outperform incumbents in
other markets – stretch core competences
 SWOT (1)
 Summarise of the strategic position of
the organizations
 Made by providing analysis of
• Business environment
 Opportunities and threats
• Strategic capabilities
 Strengths and weaknesses
 Used for comparison with competitors
 Focuses on future choices and
capability of organisation to support
them
 The SWOT analysis (2)

 Strengths: internal resources in which you

have advantage to competitors,
 Weaknesses: internal resources in which
you have disadvantages to comeptitors,
 Opportunities: environmental factors
which favorable for your organization,
 Threats: environmental factors which
unfavorable for your organization
 Simple SWOT matrix (3)

STRENGHTS WEAKNESSES
(Resource factors) (Resource factors)
List: List:

OPPORTUNITIES THREATS
(Factors of the Factors of the
environments): environments):
List: List:
 Extended SWOT matrix (4)

Strenghts Weaknesses
1, 1,
2, 2,
3, 3,

Opportunities SO strategic WO strategic

1, projects: projects:
2, 1, 1,
3, 2, 2,

Threats ST strategic
1, projects:
2, 1,
3, 2,
 SWOT (5)

 Problems of SWOT analysis

• Can generate long lists: need to focus on
key issues
• Danger of over-generalisation: not a
substitute for rigorous strategic analysis
• It create illusion: we have a strategy
 Stretching and Adding Capabilities

 Extending best practices

 Adding and changing activities
 Stretching competences
 Building on apparent “weaknesses”
 Ceasing activities
 Trade-offs
 External capability development
 Building Dynamic Capabilities

 Promote a learning organisation

• Recognise intuition of people
• Accept conflicting ideas
• Experimentation as the norm
 Add activities to support learning, e.g. “venturing”
business units
 Manage organisational knowledge
• Need right culture and structure
 Develop spiral of interaction between tacit and explicit
knowledge
 Question core rigidities
 Strategic Capability – Key Points (1)

 Competitive advantage derives from strategic

capabilities
 Strategic capability comprises tangible and
intangible resources deployed via competences
 Continual improvement of cost efficiency is vital
 For sustainable competitive advantage strategic
capabilities must be valuable, rare, robust or non-
substitutable
 Dynamic capabilities are needed in a changing
environment
 Value chain/value network/activity mapping to
understand cost and value creation
 Strategic Capability – Key Points (2)

 Benchmarking establishes relative

performance and challenges assumptions
 Management of strategic capabilities
involves stretching capabilities and building
dynamic capabilities
 Strategic Capability - Outline
 Resources, competences and dynamic
capabilities
 Continual improvement in cost efficiency
 Strategic capabilities and competitive
advantage
 Organisational knowledge and strategic
capability
 Diagnosing strategic capability: value chain,
value networks, activity maps,
benchmarking
 Developing strategic capabilities