1. MKT 450 Strategic Management Mishari Alnahedh

2. LECTURE 3: RESOURCES & CAPABILITIES

3. What are the drivers of sustainable competitive advantage?
Learning Objectives
Mishari Alnahedh
What are the drivers of sustainable competitive advantage?
How do firms create capabilities?
What are four criteria used to determine if a firm’s resources are core competencies?
How is value-chain analysis related to “core competencies?”
How can a firm prevent core competencies from becoming core rigidities?

4. Environment-Strategy
Analyzing Resources & Capabilities
Mishari Alnahedh
Shifting the Focus of Strategy Analysis: From the external to the internal environment
THE
INDUSTRY
ENVIRONMENT
Competitors
Customers
Suppliers
THE FIRM
Goals and Values
Resources and
Capabilities
Structure and
Systems
STRATEGY
STRATEGY
The
Firm-Strategy
Interface
The
Environment-Strategy
Interface
© 2013 Robert M. Grant

5. Rationale for the Resource-based Approach to Strategy
Mishari Alnahedh
Rationale for the Resource-based Approach to Strategy
When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus.
Resources and capabilities are the primary sources of profitability

6. Differentiation Advantage
Competitive Advantage Through Resources & Capabilities
Mishari Alnahedh
Cost Advantage
Technology
Manufacturing
Organization and Culture
Differentiation Advantage
Marketing, Sales and Service
Brand Name Capital
Product Development Organization

7. COMPETITIVE ADVANTAGE COMPETITIVE ADVANTAGE
Appraising the Strategic Importance of Resources & Capabilities
Mishari Alnahedh
THE EXTENT OF THE
COMPETITIVE ADVANTAGE
ESTABLISHED
Scarcity
Relevance
Durability
THE PROFIT
EARNING POTENTIAL
OF A RESOURCE OR
CAPABILITY
SUSTAINABILITY OF THE
COMPETITIVE ADVANTAGE
Transferability
Replicability
Property rights
Relative
bargaining power
APPROPRIABILITY
Embeddedness
© 2013 Robert M. Grant

8. Links between Resources, Capabilities & Competitive Advantage
Mishari Alnahedh
COMPETITIVE ADVANTAGE
INDUSTRY KEY SUCCESS FACTORS
STRATEGY
ORGANIZATIONAL CAPABILITIES
RESOURCES
TANGIBLE
INTANGIBLE
HUMAN
Financial
Physical
Technology
Reputation
Culture
Skills/Know how
Capacity for communication & collaboration
Motivation
© 2013 Robert M. Grant

9. Precision Fine Mechanics Optics Micro- Electronics
Canon : Products & Core Technical Capabilities
Mishari Alnahedh
Precision
Mechanics
Fine
Optics
35mm SLR camera
Compact fashion camera
EOS autofocus camera
Digital camera
Video still camera
Video security systems
Camcorders
Plain-paper copier
Color copier
Color laser copier
Laser copier
Basic fax
Laser fax
Scanners
Binoculars
Mask aligners
Excimer laser aligners
Stepper aligners
Inkjet printer
Laser printer
Color video printer
Digital commercial
printer
Calculator
Notebook computer
Micro-
Electronics
© 2013 Robert M. Grant

10. 3M: Evolution of Products & Capabilities
Mishari Alnahedh
Road signs
& markings
Videotape
Sandpaper
Carborundum
mining
Floppy disks &
data storage
products
Scotchtape
Audio tape
Acetate
film
Post-it notes
Housewares/kit-
chen products
PRODUCTS
Surgical tapes
& dressings
Pharmaceuticals
Materials sciences
Flexible
circuitry
Health sciences
CAPABILITIES
Microreplication
New-product
development &
introduction
Thin-film
technologies
Abrasives
Adhesives
© 2013 Robert M. Grant

11. A Hierarchy of Capabilities: A Telecom Manufacturer
Mishari Alnahedh
© 2013 Robert M. Grant

12. Appraising Resources Resource Characteristics Indicators
Mishari Alnahedh
Resource
Characteristics
Indicators
Tangible Resources
Financial
Borrowing capacity
Internal funds generation
Debt/Equity ratio
Credit rating
Net cash flow
Physical
Plant and equipment:
Size, location, technology flexibility.
Land and buildings
Raw materials
Market value of fixed assets.
Scale of plants
Alternative uses for fixed assets
Intangible Resources
Technology
Patent, copyrights, know how, R&D facilities
Technical and scientific employees
No. Of patents owned
Royalty income
R&D expenditure
R&D staff
Reputation
Brands. Customer loyalty, company reputation (with suppliers, customers, government)
Brand equity
Customer retention
Supplier loyalty
Human Resources
Training, experience, adaptability, commitment and loyalty of employees
Employee qualifications,
Pay rates, turnover
© 2013 Robert M. Grant

13. How Do Resources Lead to Competitive Advantage ?
Mishari Alnahedh
How Do Resources Lead to Competitive Advantage ?
Valuable
Does it create “value” for the customer?
Rare
Do other firms have similar resources?
Difficult to Imitate/Substitute
Unique Historical Conditions
Causal Ambiguity
Organization
Are you organized to take advantage of your resources?

14. Value Chain Analysis
Mishari Alnahedh
Using Value Chain Analysis to Determine The Sources of Competitive Advantage
Value chain represents the internal activities a firm engages in when transforming inputs into outputs.
Value chain analysis is a process where a firm identifies its primary and support activities that add value to its final product and then analyze these activities to reduce costs or increase differentiation.
Beyond simply using a value chain analysis to “map out” the sequence of activities, we need to ask the following:
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?

15. The Porter Value Chain
Mishari Alnahedh
Identifying a Firm’s Resources & Capabilities Through Value Chain Analysis
What sequence of activities are involved in creating value?
Firm Infrastructure
Human Resource Management
Technology & Product Development
Purchasing
& Inbound
Logistics
Production
Distribution
Marketing
& Sales
Service
MARGIN
© 2013 Robert M. Grant

16. Value Chain Analysis : Example
Mishari Alnahedh
An automobile manufacturing company
© 2013 Robert M. Grant

17. Value Chain Analysis : Example
Mishari Alnahedh
WashyWashy Inc.
© 2013 Robert M. Grant

18. Value Chain Analysis
Mishari Alnahedh
Outsourcing is the purchase of a value creating activity from an external supplier
Nissan Motor Co. has signed a $1 billion contract with IBM. Covering a 9-year period, the arrangement calls for IBM to manage Nissan’s North American computer systems.
● IBM will handle software and hardware for various functions, including payroll, human resources, and car distribution. Nissan expects its outsourcing decision to reduce its costs.

19. Value Chain Analysis
Mishari Alnahedh
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 outsources most of its manufacturing and customer service activities, so it can concentrate on creating value through its distribution channels.

20. Value Chain Analysis
Mishari Alnahedh
Outsourcing 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.

21. Summary: The Framework for Analyzing Resources & Capabilities
Mishari Alnahedh
3. Develop strategy implications:
(a) How can strengths be exploited most
effectively?
(b) In relation to weaknesses:
--Which activities can be outsourced?
--Can a strategy that minimizes the
impact of weaknesses be selected?
--Can resources/capabilities be
strengthened by investment?
STRATEGY
POTENTIAL FOR
SUSTAINABLE
COMPETITIVE
ADVANTAGE
2. Appraise the firm’s resources and
capabilities in terms of:
(a) strategic importance
(b) relative strength
CAPABILITIES
1. Identify the firm’s resources and
capabilities
RESOURCES
© 2013 Robert M. Grant

22. The downside of the resource-based approach:
Inertia & Flexibility
Mishari Alnahedh
The downside of the resource-based approach:
The Problem of Inertia
Prior Strategic Commitments
Overcoming these Obstacles
Experimentation and Renewal

23. Case: Eastman Kodak’s Quest for a Digital Fortune
NEXT CLASS !
Case: Eastman Kodak’s Quest for a Digital Fortune
Often, we learn from failures more than from successes
Focus on resources and capabilities