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Strategic Management/ Business Policy. Power Point Set #4: Resources & Capabilities. Resources and Capabilities. Strategy from a resource-based perspective How do resources create competitive advantage? Value-chain analysis - PowerPoint PPT Presentation
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Strategic Management/Business Policy
Power Point Set #4:Resources & Capabilities
Resources and CapabilitiesStrategy from a resource-based perspective
How do resources create competitive advantage?
Value-chain analysis
The linkage between organizational learning and capabilities
3-4Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
The Value Chain
Adapted from Exhibit 3.1 The Value Chain: Primary and Support Activities
Source: Adapted with permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter.
General administration
Human resource management
Technology development
Procurement
Inbound logistics
Operations Outbound logistics
Marketing and sales
Service
1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995
Founding ofHonda motor
company
50cc 2-cycle engine
4 cycle engines
405ccmotorcycle
Related products:ground tillers, marineengines, generators,pumps, chainsaws
First product: clip-on engine
for bicycles
The 50ccsuper-cub
N360 minicar
1000ccGoldwingtouring
motor cycle
Acura Cardivision
The Evolution of Honda Motor CompanyThe Evolution of Honda Motor Company
Precision Mechanics
FineOptics
Micro-Electronics
35mm SLR cameraCompact fashion cameraEOS autofocus camera
Digital cameraVideo still camera
Plain-paper copierColor copier
Color laser copier Laser copierBasic fax
Laser faxMask aligners
Excimer laser alignersStepper aligners
Inkjet printerLaser printer
Color video printerCalculator
Notebook computer
Canon: Products and Core Technical CapabilitiesCanon: Products and Core Technical Capabilities
The Role of Strategy In Business - The Linkage Between Strategy, Resources, & Organization
Strategy
Resources& Capabilities Organization
STRATEGYINDUSTRY KEY
SUCCESS FACTORSCOMPETITIVEADVANTAGE
ORGANIZATIONALCAPABILITIES
RESOURCESTANGIBLE INTANGIBLE HUMAN
•Financial•Physical
•Technology•Reputation•Culture
•Skills/know-how•Capacity for communication & collaboration•Motivation
Resources, Capabilities & Competitive Advantage
Appraising ResourcesAppraising ResourcesRESOURCE CHARACTERISTICS INDICATORS
Financial Borrowing capacity Debt/ Equity ratioInternal funds/ generation Credit rating
Tangible Net cash flowResources Physical Plant and equipment: Market value of
size, location, technology fixed assets.flexibility. Scale of plantsLand and buildings. Alternatives for fixedRaw materials. 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. Productreputation (with suppliers, customers, price premium.government) Recognition.
Human Training, experience, adaptability, Employee qualifications,Resources commitment and loyability of customers pay rates, turnover.
46
Performance ImplicationsPerformance Implications
Valuab
le?
Valuab
le?
Rare?
Rare?
Costly
to Im
itate?
Costly
to Im
itate?
Nonsub
stitut
able
Nonsub
stitut
able
CompetitiveCompetitiveConsequencesConsequences
PerformancePerformanceImplicationsImplications
NoNo NoNo NoNo NoNoCompetitiveCompetitiveDisadvantageDisadvantage
Below AverageBelow AverageReturnsReturns
YesYes NoNo NoNoYes/Yes/NoNo
CompetitiveCompetitiveParityParity Average ReturnsAverage Returns
YesYes YesYes NoNoYes/Yes/NoNo
Temporary ComTemporary Com--petitivepetitive AdvantageAdvantage
Above Average to Above Average to Average ReturnsAverage Returns
YesYes YesYes YesYes YesYesSustainable ComSustainable Com--petitivepetitive AdvantageAdvantage
Above Average Above Average ReturnsReturns
Scarcity
Relevance
Durability
Mobility
Replicability
Property rights
Relative bargainingpower
Embeddedness ofresources
THE EXTENT OF THE COMPETITIVE ADVANTAGE
ESTABLISHED
SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE
APPROPRIABILITY
THE PROFITEARNING POTENTIALOF A RESOURCE OR
CAPABILITY
The Rent-Earning Potential of Resources and Capabilities
The Rent-Earning Potential of Resources and Capabilities
2/28/2003 Southern Methodist University Slide # 6
Building Competitive AdvantageBuilding Competitive AdvantageResources and Capabilities
Competitive PositioningCompetitive Positioning Defending Defending
Value drivers Cost driversValue drivers Cost drivers Isolating mechanismsIsolating mechanisms
Retain customers Retain customers & Prevent imitation& Prevent imitation
Superior ContributionSuperior Contribution Sustainable PositionSustainable Position
Competitive AdvantageCompetitive Advantage
4/22/2003 Southern Methodist University Slide # 7
Competitive Positioning With Competitive Positioning With CustomersCustomers Economic contributionEconomic contribution
The value customers receives less the The value customers receives less the cost to the firmcost to the firm
Buyer’ surplus
Supplier’s profit
Economic contribution produced by supplier
Product value
Market price
Product cost
© 2005 Mara Lederman, Rotman School of Management
Types of Competitive Advantage
Buyer value generated (willingness to pay)
Costs incurred (including opportunity cost of capital)
Industry average
competitor
Successful differentiated
competitor
Successful low-cost
competitor
Competitor with dual
advantage
$
Value Created
© 2005 Mara Lederman, Rotman School of Management
Competitive Advantage and Activities – Porter’s Value Chain
InboundLogistics
(e.g. Incoming Material Storage, Data Collection,
Service, Customer Access)
Operations
(e.g. Assembly, Component Fabrication,
Branch Operations)
OutboundLogistics
(e.g. Order Processing,
Warehousing, Report
Preparation)
Marketing& Sales
(e.g. Sales Force, Promotion, Advertising,
Trade Shows, Proposal Writing)
After-Sales Service
(e.g. Installation, Customer Support,
Complaint Resolution,
Repair)
Firm Infrastructure(e.g. Financing, Planning, Investor Relations)
Human Resource Management(e.g. Recruiting, Training, Compensation System)
Technology Development(e.g. Product Design, Testing, Process Design, Material Research, Market Research)
Procurement(e.g. Components, Machinery, Advertising, Services)
Margin
Primary Activities
Support Activities
Firms are collections of discrete activities, in which competitive advantage resides
© 1999 Pankaj Ghemawat
Hostess’s Cost Components
0
10
20
30
40
50
60
70
80
Cen
ts p
er u
nit
Profit
Marketing: Promotions
Marketing: Advertising
Outbound logistics
Operations: Manufacturing
Operations: Packaging
Operations: Ingredients
© 1999 Pankaj Ghemawat
Relative Cost Analysis
0
10
20
30
40
50
60
70
80
90
Hostess Little Debbie Ontario Baking Savory Pastries
Cen
ts p
er u
nit
Profit
Marketing: Promotions
Operations: Manufacturing
Operations: Packaging
Operations: Ingredients
Marketing: AdvertisingOutbound logistics
Using Value Chain Analysis to Determine the Sources of Competitive Advantage
Beyond simply using a value chain analysis to “map out” the sequence of activities, we need to ask the following questions:
What is the cost structure of each of these activities?
How do we compare with other competitors in each of these areas?
What are our strengths and weaknesses?
Value Chain Analysis
Outsourcing activities in which it lacks capabilities, the firm can concentrate fully on those areas in which it can create value.
For example, Dell Computer Corporation out-sources most of its manufacturing and customer service activities, so it can concentrate on creating value through its distribution channels.
3-7
Boeing Suppliers (777)Boeing Suppliers (777)
Firm Country PartsAlenia Italy Wing flapsAeroSpaceTechnologies
Australia Rudder
CASA Spain Ailerons
doors, wing sectionFuji Japan Landing gear
GEC Avionics United Kingdom Flight computersKorean Air Korea Flap supportsMenascoAerospace Canada Landing gearsShort Brothers Ireland Landing gear doors
SingaporeAerospace
Singapore Landing gear doors
Value Chain AnalysisOutsourcing activities can have the unintended consequence of damaging the firm’s potential to evaluate continuously its key assumptions, learn, and create new capabilities and core competencies. Therefore, managers should verify that the firm does not outsource activities that stimulate the development of new capabilities and competencies.
Organization and ResourcesIncentive and Reward Systems
Creation of “Knowledge”“Gain-Sharing”
Organization StructureWhere “Knowledge” Is LocatedCross-functional Teams
Recruiting and Training PoliciesSpecificity of Knowledge
Organization ProcessThe Dynamics of Knowledge Creation
Knowledge Creation
• Research
KnowledgeAcquisition
KnowledgeGeneration
(“Exploration”)
• Training• Recruitment• Intellectual property
licensing• Benchmarking
KnowledgeApplication
(“Exploitation”)
KnowledgeIntegration
• New product development
• Operations
KnowledgeSharing
• Strategic planning• Communities of practice
Knowledge Storage &
Organization
Knowledge Replication
• Best practices transfer• On-the-job training
• Databases• Standard operating practices
Knowledge Measurement
• Intellectual capital accounting• Competency modeling
KnowledgeIdentification
• Project reviews• Competency modeling
Knowledge Processes within the Organization
IndividualIndividual OrganizationOrganization
ExplicitExplicit
TacitTacit
InformationFacts
Scientific kn.
DatabasesSystems & procedures
Intellectual property
Skills Organizationalcapabilities
CRAFTENTERPRISES
‘INDUSTRIAL’ ENTERPRISESTypes
ofKnowledge
Typesof
Knowledge
Levels of knowledgeLevels of knowledge
Knowledge Types and Knowledge ConversionKnowledge Types and Knowledge Conversion