Strategic management 3 Resource analysis competences value chain

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 Value chain analysis Identify core resources Audit Competences Identify core competences Strategic capabilities Comparisons Historical basis Industry Norms Identifying key issues SWOT Analysis Benchmarking

Resources audit n n n 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 Financial Plant and equipment: Debt/ Equity ratio Credit rating Net cash flow Market value of size, location, technology flexibility. Land buildings. Raw materials. fixed assets. Scale of plants Alternative uses for fixed assets Technology Patents, copyrights, know how R&D facilities. Technical and scientific employees No. of patents owned Royalty income R&D expenditure R&D staff Reputation Tangible Resources Brands. Customer loyalty. Company reputation (with suppliers, customers, government) Brand equity Customer retention Supplier loyalty Training, experience, adaptability, commitment and loyalty of employees Employee qualifications, pay rates, turnover. Physical Intangible Resources Human Resources Borrowing capacity Internal funds generation INDICATORS

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

Audit resources- core resources 2. Define core resources Easy to imitate Resources Difficult to imitate Necessary Resources Unique Resources Same as competitors Better than competitors Core resources

Competences n n 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 Difficult to identify the „owners” You can acquire by „learnind by doing” Easy to identify the „owners” You can buy and sell

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 Cost efficiency Value added Managing linkages Robustness Economies of scale: offers the ability in mass consumer advertising, 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 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 are linkages within the organisation’s value chain and linkages into the supply and distribution channels. The strategic importance of an organisation’s competences relates to how easy or difficult they are to imitate.

Unique Resources and Core Competences n Unique resources • Critically underpin competitive advantage and cannot be imitated or obtained by others n 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 n Resources • Tangible resources – physical assets of an organisation • Intangible resources – non-physical assets of an organisation

Strategic Capability (2) n Competences • The activities and processes through which an organisation deploys its resources effectively

Identifying Organizational Capabilities: A Functional Classification FUNCTION Corporate Management CAPABILITY Financial management Strategic control Coordinating business units Managing acquisitions EXEMPLARS Exxon. Mobil, GE IBM, Samsung BP, P&G Citigroup, Cisco MIS Speed and responsiveness through rapid information transfer Wal-Mart, Dell Capital One R&D Research capability Development of innovative new products Merck, IBM Apple, 3 M Manufacturing Efficient volume manufacturing Continuous Improvement Flexibility Briggs & Stratton Nucor, Harley-D Zara, Four Seasons Design Capability Apple, Nokia Marketing Brand Management Quality reputation Responsiveness to market trends P&G, LVMH Johnson & Johnson MTV, L’Oreal Sales, Distribution & Service Sales Responsiveness Efficiency and speed of distribution Customer Service Pepsi. Co, Pfizer LL Bean, Dell 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: n n To diagnose strategic capability To understand how value is created or lost in terms of the activities undertaken

Value Chain Analysis n n Identifies clusters of activities providing particular benefit to customers Highlights activities which are less efficient and which might be deemphasised 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 value chains Channel value chains Organisation's value chain Customer value chains

The Porter’s Value Chain modell Exhibit 3. 6

Main areas of primarry activitions n n n 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 n n 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 problemsolving, financial planning, leading

The Value Network – Key Questions (1) n n Where are cost and Which activities are value created? vital to an organisation? • Retain direct control of core capabilities • Outsource less important activities n 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 % Operating margin 20 Service & repair Leasing 15 Warranty Auto manufacturing New car dealers 10 5 Auto loans Used car dealers Auto insurance Aftermarket parts Auto rental 0 0 Gasoline Share of industry revenue 100%

The Value Network – Key Questions (2) n Make or buy? • Outsourcing • Develop competence in influencing performance of other organisations n 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 n n n 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) n n Summarise of the strategic position of the organizations Made by providing analysis of • Business environment n Opportunities and threats • Strategic capabilities n n n Strengths and weaknesses Used for comparison with competitors Focuses on future choices and capability of organisation to support them

The SWOT analysis (2) n n 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 List: WEAKNESSES (Resource factors) List: OPPORTUNITIES (Factors of the environments): List: THREATS Factors of the environments): List: (Resource factors)

Extended SWOT matrix (4) Strenghts Weaknesses 1, 2, 3, Opportunities SO 1, 2, 3, strategic projects: 1, 2, Threats ST 1, 2, 3, strategic projects: 1, 2, WO strategic projects: 1, 2,

SWOT (5) n 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 n n n n Extending best practices Adding and changing activities Stretching competences Building on apparent “weaknesses” Ceasing activities Trade-offs External capability development

Building Dynamic Capabilities n n n 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) n n n 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) n n Benchmarking establishes relative performance and challenges assumptions Management of strategic capabilities involves stretching capabilities and building dynamic capabilities

Strategic Capability - Outline n n n 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