5-1 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Five Analyzing an Organization’s Strategic Resource Base Cornelis A. de Kluyver and John A. Pearce II Third Edition Strategy A View From The Top Prentice Hall

Evaluating a Company’s Strategic Resource Base Strategic resources:  Physical Resources  Financial Resources  Human Resource  Organizational Asset Key questions:  How valuable is the resource?  Is this a unique resource?  Is the strategic resource easy to imitate?  Is the company positioned to exploit this resource

Measures of Financial Performance  Return on Investment (ROI)  Economic Value Added (EVA) EVA = Profit – [(cost of Capital)/(Total Capital)]  Market Value Added (MVA) MVA = Market Value – Capital Invested

Cost Benchmarking Can Help Assess competitiveness Competitors Cost Our Data Vs. Key Drivers Their Data Vs. Key Drivers Identify Key Drivers Of Cost Our Cost Compare Cost Model

Analyzing Financial Resources: The Dupont Formula for RoA Cost of Goods Sold Plus Operating Expenses Inventories Plus Accounts Receivable Plus Cash Plus Prepaid Expenses Current Assets Plus Fixed Assets Sales Minus Costs Earnings Before Interests & Taxes Divided by Sales Earnings as Percentage of Sales Multiplied by Asset Turnover Sales Divided by Total Assets Return on Assets

People Make the Difference  People drive forklifts  People serve customers  People process claims  People solve problems  People decide to ship quality products  People send legal briefs  People warn other people  People bid jobs  People do the jobs right the first time  People greet people  People pick up blood samples  People lift boxes  People take workers’ compensation “vacations”  People quit to join the competition  People call in sick  People chew gum

People Make the Difference  Stakeholder analysis identifies key stakeholders  Inside and outside the organization  Internal stakeholders Executives, employees and their families  External stakeholders Customers, suppliers, alliance partners, directors, government and regulatory agencies, and the local community

World-Class Organizations Focus On People…  A clear, shared vision that represents what the organization wants to become and embodies values that drive people’s behavior.  An external focus with primary emphasis on customers, but also on best-in-class organizations, shareholders, regulatory bodies, the community, families, etc..  Leadership committed to shaping values, providing resources, removing obstacles, building teams, empowering people and generating commitment rather than being managers who command, control, give orders, direct and check.  Involved employees actively engaged in continuously improving ever nook.

World-Class Organizations Focus On People…  Competence that assures the right people with the right mix of skills are doing precisely the right jobs at all times.  Flexible organizational structures that foster speed, agility, the ability to turn on a dime, move in and out of markets quickly, change product or service features and add new value.  Measurement that matters, which means measuring that which is necessary for strategic success.  Alignment of systems that represent the supporting infrastructure and help drive the organization, including reward and recognition systems, financial and accounting systems, performance management processes, distribution systems, training and development, etc…

Organizational Strategic Resources  Knowledge/ Intellectual Capital  Reputation with customers, partners, suppliers and the financial community  Brands  Competences, processes and skill sets  Corporate culture

Core Competencies  Are unique capabilities that allow a company to create a competitive advantage  3M in coatings  Canon in optics, imaging  P&G in marketing  Honda in small engines  Are focused on creating value for customers, and therefore should adapt as customer needs evolve Core competencies should:  Provide access to a broad array of markets  Help differentiate core products and services  Be hard to imitate

Analysis of Internal Change and Resistance Forces are Key  Company life cycle analysis helps identify the need for change  Resistance forces often have cultural roots  Structural & organizational rigidities  Closed mindsets  Entrenched cultures  Counterproductive change momentum

Strategy Skills Structure Shared Values Staff Systems Style McKinsey’s 7-S Model

SWOT Analysis Four Key Questions:  Will the companies competitive position be strengthened or weakened if the present strategy is continued?  How does the company rank relative to its key competitors ?  Does the company enjoy a distinct sustainable competitive advantage?  How well can the company defend its current position?

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