1. Strategic Capability By Nilantha

2. Focused questions What do you mean by Resources
What do you mean by a firms' capability
Define core competency
why core competencies are difficult to be imitated
Define "value chain analysis"
define outsourcing and discuss what benefits it has
Define total value system
Compare Strategic intent with strategic mission

3. The Strategic Management Process Strategy Formulation
Chapter 2
The Strategic
Management
Process
External
Strategic
Inputs
Environment
Strategic Intent
Strategic Mission
Chapter 3
Internal
Environment
Strategy Formulation
Strategy Implementation
Chapter 4
Chapter 5
Chapter 6
Chapter 10
Chapter 11
Business-Level
Competitive
Corporate-Level
Corporate
Structure
Strategy
Dynamics
Strategy
Governance
& Control
Strategic
Actions
Chapter 7
Chapter 8
Chapter 9
Chapter 12
Chapter 13
Acquisitions &
International
Cooperative
Strategic
Entrepreneurship
& Innovation
Restructuring
Strategy
Strategies
Leadership
Strategic
Outcomes
Strategic
Competitiveness
Above Average
Feedback
Returns 2

4. Sustainable Competitive Advantage
Chapter 2
External Environment
What the Firm Might Do
Sustainable
Competitive
Advantage
Chapter 3
Internal Environment
What the Firm Can Do 5

5. Discovering Core Competencies
Resources *
Tangible
Intangible
Capabilities
Teams of
Sources of
Core
Competencies
Competitive
Advantage
Strategic
Competitiveness
Above-Average
Returns
Gained through
Core Competencies
Discovering
Discovering Core Competencies
Criteria of
Sustainable
Advantages
Value
Chain
Analysis
Valuable
Rare
Costly to Imitate
Nonsubstitutable *
Outsource 7

6. Key Questions for Managers
in Internal Analysis
How do we assemble bundles of Resources, Capabilities and Core Competencies to create VALUE for customers?
And...
Will environmental changes make our core competencies obsolete?
Are substitutes available for our core competencies?
Are our core competencies easily imitated? 14

7. Intraorganizational Conflicts
Conditions Affecting Managerial Decisions About Resources, Capabilities and Core Competencies
Uncertainty
regarding characteristics of the general and the industry environments, competitor’s actions, and customer’s preferences.
Complexity
regarding the interrelated causes shaping a firm’s environments and perceptions of the environments
Intraorganizational Conflicts
among people making managerial decisions and those affected by them 15

8. Discovering Core Competencies
Resources *
Tangible
Intangible 16

9. Resources What a firm Has... What a firm has to work with:
its assets, including its people and the value of its brand name
Tangible Resources
Financial *
Physical
Human Resources
Organizational
Resources represent inputs into a firm’s production process...
such as capital equipment, skills of employees, brand names, finances and talented managers
Intangible Resources
Technological *
Innovation
Reputation
“Some genius invented the Oreo. We’re just living off the inheritance.”
F. Ross Johnson,
Former President & CEO, RJR Nabisco 21

10. Discovering Core Competencies
Capabilities
Teams of
Resources
Resources *
Tangible
Intangible 23

11. Capabilities What a firm Does...
Capabilities represent:
the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.
Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees.
Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage. 26

12. Discovering Core Competencies
Sources of
Core
Competencies
Competitive
Advantage
Capabilities
Teams of
Resources
Resources *
Tangible
Intangible 27

13. Core Competencies What a firm Does... that is Strategically Valuable
“…are the essence of what makes an organization unique in its ability to provide value to customers.”
Leonard-Barton, Bowen, Clark, Holloway & Wheelwright
McKinsey & Co. recommends identifying three to four competencies to use in framing strategic actions. 31

14. Discovering Core Competencies
Sources of
Core
Competencies
Competitive
Advantage
Criteria of
Sustainable
Advantages
Valuable
Rare
Costly to Imitate
Nonsubstitutable *
Capabilities
Teams of
Resources
Resources *
Tangible
Intangible
* Outsource 33

15. Core Competencies What a firm Does... that is Strategically Valuable
For a strategic capability to be a Core Competency, it must be:
Valuable
Rare
Costly to Imitate
Nonsubstitutable 34

16. Core Competencies What a firm Does... that is Strategically Valuable
Capabilities that help a firm neutralize threats or exploit opportunities
Rare
Capabilities that are not possessed by many others
Costly to Imitate
Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity 37

17. What Criteria Make Core Competencies Costly to Imitate?
Unique Historical Conditions
An unusual evolutionary pattern of growth may contribute to the development of competencies in a manner that is unique to those particular circumstances
Example:
Disney created Mickey Mouse at a time when animated motion pictures were new
Causal Ambiguity
This occurs when competitors are unable to detect how a firm uses its competencies as a foundation for competitive advantage
Social Complexity
Occurs when the firm’s capabilities are the result of complex social phenomena, such as interpersonal relationships, trust and friendships among managers or a firm’s reputation with suppliers and customers 41

18. Core Competencies What a firm Does... that is Strategically Valuable
Core Competencies must be:
Valuable
Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment
Rare
Capabilities that are possessed by few, if any, current or potential competitors
Costly to Imitate
Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity
Nonsubstitutable
Capabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships 42

19. Core Competencies Resources Core Competence Capability Capability
Inputs to a firm’s production process
Core Competence
A strategic capability
YES
Does the capability satisfy the criteria of sustainable competitive advantage?
Capability
Integration of a team of resources
The source of NO
Capability
A nonstrategic team of resources 42

20. Competitive Consequences Performance Implications
Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage
Valuable
Rare
Costly to Imitate
Nonsub-stitutable
Competitive Consequences
Performance Implications NO
Competitive
Disadvantage
Below Average
Returns
YES NO
YES/NO
Competitive
Parity
Average
Returns
YES NO
YES/NO
Temporary
Competitive
Advantage
Aver./Above Average
Returns
Above
Average
Returns
YES
Sustainable
Competitive
Advantage 46

21. Discovering Core Competencies
Sources of
Core
Competencies
Competitive
Advantage
Value
Chain
Analysis
Capabilities
Teams of
Resources
Criteria of
Sustainable
Advantages
Resources *
Tangible
Intangible
Valuable
Rare
Costly to Imitate
Nonsubstitutable *
* Outsource 48

22. Outsourcing Firm Infrastructure Human Resource Management MARGIN
Strategic Choice to Purchase Some Activities From Outside Suppliers
Firm Infrastructure
Human Resource Management
Support
Activities
MARGIN
Technological Development
Procurement
Service
Inbound
Logistics
Outbound
Logistics
Marketing
& Sales
MARGIN
Operations
Primary Activities

23. Outsourcing Firm Infrastructure Human Resource Management MARGIN
Strategic Choice to Purchase Some Activities From Outside Suppliers
Firm Infrastructure
Human Resource Management
Human Resource Management
Firms often purchase a portion of their value-creating activities from specialty external suppliers who can perform these functions more efficiently
Support
Activities
Technological Development
MARGIN
Technological Development
Procurement
Procurement
Service
Service
Inbound
Logistics
Outbound
Logistics
Marketing
& Sales
MARGIN
Operations
Outbound
Logistics
Marketing
& Sales
Inbound
Logistics
Operations
Primary Activities

24. Strategic Rationales for Outsourcing
Improve Business Focus
Lets company focus on broader business issues by having outside experts handle various operational details
Provide Access to World-Class Capabilities
The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications
Accelerate Business Re-Engineering Benefits
Achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process
Share Risks
Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities
Free Resources for Other Purposes
Permits firm to redirect efforts from non-core activities toward those that serve customers more effectively 67

25. Value Chains are part of a Total Value System
Supplier Value Chain
Firm Value Chain
Channel Value Chain
Buyer Value Chain
Upstream Value
Each firm must eventually find a way to become a part of some buyer’s value chain
Perform valuable activities that complement the firm’s activities
Ultimate basis for differentiation is the ability to play a role in a buyer’s value chain
This creates VALUE!!
Value chains vary for firms in an industry, reflecting each firm’s unique qualities:
History
Strategy
Success at Implementation 73

26. Core Competencies--Cautions and Reminders
Never take for granted that core competencies will continue to provide a source of competitive advantage
All core competencies have the potential to become Core Rigidities
Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment
Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats 78

27. Discovering Core Competencies
Strategic
Competitiveness
Above-Average
Returns
Discovering
Core
Competencies
Sources of
Core
Competencies
Competitive
Advantage
Capabilities
Teams of
Resources
Criteria of
Sustainable
Advantages
Value
Chain
Analysis
Resources *
Tangible
Intangible
Valuable
Rare
Costly to Imitate
Nonsubstitutable *
* Outsource 79

28. The Strategic Management Process Chapter 2 External Environment
Internal
Strategic Intent
Strategic Mission
The Strategic
Management
Process 80

29. The Strategic Management Process Strategic Intent Strategic Intent
Chapter 2
External
Environment
Chapter 3
Internal
The Strategic
Management
Process
Strategic Intent
Strategic Intent
Strategic Mission 81

30. The Strategic Management Process Strategic Intent Strategic Mission
Chapter 2
External
Environment
The Strategic
Management
Process
Strategic Intent
Strategic Mission
Chapter 3
Internal
Environment
Leveraging of a firm’s resources, capabilities and core competencies to accomplish what may appear to be unattainable goals in the compe- titive environment
Strategic Intent
A statement of the firm’s unique purpose and the scope of its operations in product market terms
Strategic Mission 83

31. Discovering Core Competencies
Competitive
Advantage
Gained through
Core Competencies
Strategic
Competitiveness
Above-Average
Returns
Discovering
Core
Competencies
Sources of
Core
Competencies
Competitive
Advantage
Capabilities
Teams of
Resources
Criteria of
Sustainable
Advantages
Value
Chain
Analysis
Resources *
Tangible
Intangible
Valuable
Rare
Costly to Imitate
Nonsubstitutable *
* Outsource 85