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

Resources audit 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 INDICATORS Financial Borrowing capacity Debt/ Equity ratio Internal funds generation Credit rating Tangible Net cash flow Resources Physical Plant and equipment: Market value of size, location, technology fixed assets. flexibility. Scale of plants Land and buildings. Alternative uses for Raw materials. fixed 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 reputation (with suppliers, customers, Customer retention government) Supplier loyalty Human Training, experience, adaptability, Employee qualifications, Resources commitment and loyalty of employees pay rates, turnover.

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 Number of employees Skills Education Experience Loyalty Corporate culture Human resources Financial resources Equity Debt Credibility Relationship with Suppliers Investors Bankers Managing cash Goodwill Loyalty of consumers Brand name Good contacts with Politicians CEOs Corporate image Intangibles

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

Competences 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 Tangible Intangible Measureble Mostly difficult to measure Easy to identify the „owners” Difficult to identify the „owners” You can buy and sell You can acquire by „learnind by doing”

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 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 Value added 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. Managing linkages 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. Robustness The strategic importance of an organisation’s competences relates to how easy or difficult they are to imitate.

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

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

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

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

The Porter’s Value Chain modell Exhibit 3.6

Main areas of primarry activitions 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 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 problem-solving, financial planning, leading

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

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

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

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

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

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

Strategic Capability - Outline 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