Strategy: A View From the Top

Chapter 5: Analyzing an Organization’s Strategic Resource Base

Team 3John Wise

Jacob WeemsEthan Noble

Amanda BarrientesCharles Hodges

Introduction

What strategies to pursue?

› Strategic resources

› Capabilities

Two Principal Strategies:

› A. Evaluate current resources and core competencies used for competitive advantage.

› B. Identify internal pressures and forces of resistance.

Strategic Resource Base

Physical Assets› i.e. facilities

Financial Strength› i.e. cash flow

Human Resources› i.e. Strong leadership

Organizational Assets› i.e. brand equity

4 Questions examining Worth of company resources

1. How valuable is a resource?

2. Is this a unique resource or do other companies have similar resources?

3. Is the strategic resource easy to imitate?

4. Is the company positioned to exploit the resource?

* Issue: Can a resource be leveraged for competitive advantage?

Physical Assets

Can materially affect company’s competitiveness.

Examples: Airline companies, Telecommunication

“Location, location, location”

Physical Assets not necessary to own. › i.e. outsourcing, leasing, etc.

Analyzing a Company’s Financial Resource Base

There are four types of Financial Ratios› Profitability Ratios

› Liquidity Ratios

› Leverage Ratios

› Activity Ratios

Financial Ratios

Gross Profit Margin

Quick Ratio

Debt-to-equity Ratio

Inventory Turnover

Sales – cost of goods soldSales

Current AssetsCurrent Liabilities

Total DebtTotal Assets

SalesInventory

DuPont Formula for ROACost of goods Sales Earnings Before Sold Minus Interest EBIT Earnings as

a % Plus Costs Divided by of Sales

Operating SalesExpenses

Return Inventories Multiplied by On Asset

Plus

Accounts Receivable Sales Plus Asset

Cash Current turnoverassets Divided by

Plus Total AssetsPrepaid Plus

Expenses Fixed assets

Human Capital: A Company’s most valuable strategic resource

The right people are a company’s greatest asset

Investing in people pays

FedEx & Motorola

Organizational Strategic Resources› Organizational Resources:

Knowledge and Intellectual Capital Base Reputation Competencies Processes Skill Sets Corporate Culture

Knowledge and Intellectual Capital Base

Essential for sustainable competitive advantage

Intellectual Capital

Hard to quantify

Patents as Assets Patents issued in the US have doubled

in the last decade

Areas of patentability are expanding

IP protection is crucial in sustaining a competitive advantage

“Strategic Patenting”

Knowledge as an Asset

More knowledge = Ability to make better decision

Knowledge only an asset when it is managed properly

Caterpillar management plan

Knowledge as an Asset

Knowledge- Implicit vs. Explicit (Tacit)

Xerox repairmen

Caterpillar University

The Importance of Brands

Physical distance between customers, distributors and manufactures created the need for brands.

Provide a guarantee of reliability and quality.

Build and retain customer loyalty.

Business Week: Identifiable qualities of good brands

Do not fear public flops

Face your weaknesses

Protect your culture

Core Competencies

Core Competencies is the key element in building long-term strategic advantage.

They are a set of skills or systems that create a uniquely high value for the customers.

Picking the right core competencies for your company is key.

Internal Forces for Change

Organizational Drivers For Strategic Change:› Poor financial performance› New owners/executives› Limited growth with current strategies› Scarcity of critical resources› Internal cultural changes

Resistance to change:› Structural/ organizational rigidities› Strong support for old business beliefs and strategies› Strong culture (Un-open to change) that sticks to traditional

values, behaviors, and skills› Counterproductive change momentum

The Company Life Cycle

Beginning characteristics of an organization:› Ambiguous structure, entrepreneur mindset, lack of

control

“Entrepreneurial- managerial” transition

Greater company growth brings potential for greater development issues

Strategic Forces for Change

7-S model: strategy, structure, systems, shared values, skills, staff, style

If one fails, they all fail

Caterpillar during the recession

Stakeholder Analysis

Assess key stakeholders inside and outside organization. › External Stakeholders – Key customers, suppliers, alliances› Internal Stakeholder – CEO, Board of directors, owners

Recognize legitimate rights of firm’s stakeholders› Stockholders, employees, customers, suppliers, general

public

General claims reflect specific demands i.e. high wages, pure air, safety, etc.

These claims must be assigned priority, in accordance with emphasis the firm will give them.

In Closing

Leverage resources for competitive advantage

Knowledge must be managed

Good branding creates loyalty

Growth leads to the need for strategic change