Presentation on theme: "The Role of Resources and Capabilities in Strategy Formulation"— Presentation transcript:
1 The Role of Resources and Capabilities in Strategy Formulation
2 Internal EnvironmentAnalysis of the Internal Environment has been concerned with issues of strategy implementation:appropriate organisational structuresystems of controltop management structure and style
3 “concentration of strength against weakness.” Internal EnvironmentLiddell Hart, a prominent military historian, argued that there is only one underlying principle of war:“concentration of strength against weakness.”
4 Resource-based Strategy What is our business?Who are our customers?Which of their needs are we seeking to serve?
5 In general ...the greater the rate of change in a company’s external environment, the more it must seek to base long-term strategy upon its internal resources and capabilities than upon an external market focus.
6 Resource as the basis for corporate profitability Conventional approaches to competitive advantage focus upon the “generic” sources (cost, differentiation)Resource-based view concentrates upon the resources and capabilities that underlie these advantages.
7 Resource as the Basis for Corporate Profitability Other structural sources of market power are similarly based upon firms’ resources:Monopolistic price-setting power depends upon market share that is a consequence of cost efficiency, financial strength, or some other resource.
8 Resources as the Basis of Superior Profitability PatentsBrandsRetaliatory capacityBarriers to EntryIndustryAttractivenessMarket ShareMonopolyRate of Profitin Excess of theCompetitive LevelFirm SizeFinancial ResourcesVerticalBargaining PowerProcess TechnologySize of PlantsAccess to Low-costInputsCostAdvantageCompetitiveAdvantageDifferentiationAdvantageBrandsProduct TechnologyMarketing, Distrib.,Service Capabilities
9 A Resource-based Approach Comprises Three Key Elements Selecting a strategy that exploits a company’s principle resources and capabilities,e.g Sony, Black&Decker, Marks & Spencer, BMW, Motorola
10 A Resource-based Approach Comprises Three Key Elements Ensuring that the firm’s resources are fully employed and its profit potential is exploited to the limit.Walt Disney’s remarkable turnaround between 1980 and 1990 involved very little change in basic strategy.
11 A Resource-based Approach Comprises Three Key Elements Building the company’s resource base. Resource analysis is not just about deploying assets; it is crucially concerned with filling current resource gaps and building company’s future resource base.Procter & Gamble, Johnson & Johnson, Motorola.
12 The starting point for analysis is to identify and assess the resources and capabilities that the firm has available to it.
13 The Resources of the Firm - at two levels of aggregation Individual resources; items of capital equipment, the skills of individual employees, patents, brand names, etc.How the resources work together to create capabilities and competitive advantage
15 Financial Resources Main characteristics Key indicators The firm’s borrowing capacity and itsinternal funds generation determine itsinvestment capacity and its cyclicalresilience.Key indicatorsDebt/equity ratio.Ratio of net cash to capital expenditure.Credit rating.
16 Physical Resources Main characteristics Key indicators The size, location, technical sophistication, and flexibility of plant and equipment, location and alternative uses for land and buildings, reserves of raw materials ...Key indicatorsResale values of fixed assetsVintage of capital equipmentScale of plantsAlternative uses of fixed assets.
17 Human Resources Main characteristics Key indicators The training and expertise of employees determine the skills available to the firm. The adaptability of employees determines the strategic flexibility of the firm.The commitment and loyalty of employees determines the firm’s ability to maintain competitive advantage.Key indicatorsEducational, technical, professional qualifications of employees. Pay rates relative to industry average.
18 Technological Resources Main characteristicsStock of technology including proprietary technology (patents, copyrights, trade secrets) and expertise in its application of know-how. Resources for innovation (research facilities, technical and scientific employees).Key indicatorsNumber and significance of patents. Revenue from patent licenses. R&D staff as a percentage of total employment.
19 Reputation Main characteristics Key indicators Reputation with customers through the ownership of brands, established relationships with customers, the association of the firm’s products with quality, reliability, etc. The reputation of the company with the suppliers of components, finance, labour services, and other inputs.Key indicatorsBrand recognition. Price-premium over competing brands. Percentage of repeat buying. Objective measures of product performance. Level and consistency of company performance.