1. Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li1 Lecture #6: Analyzing Resources & Capabilities The role of resources and capabilities in strategy Appraising the profit potential of resources and capabilities Developing the firm’s resources and capabilities

2. Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li2 From an Industry Focus to a Resource Focus THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers STRATEGY THE FIRM Goals and Values Resources and Capabilities Structure and Systems The Firm-Strategy interface The Strategy-Environment Interface

3. Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li3 The Relationships Between Resources, Capabilities and Competitive Advantage STRATEGY INDUSTRY KEY SUCCESS FACTORS COMPETITIVE ADVANTAGE ORGANIZATIONAL CAPABILITIES RESOURCES TANGIBLE INTANGIBLE HUMAN Financial Physical Technology Reputation Culture Specialized skills and knowledge Communication & interactive abilities Motivation

4. Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li4 Evolution of Honda: A Strategy Based Upon Resources and Capabilities 1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Founding of Honda motor company 50cc 2-cycle engine 4 cycle engines 405cc motor cycle Related products: ground tillers, marine engines, generators, pumps, chainsaws First product: clip-on engine for bicycles The 50cc super -cub N360 mini car 1000cc Goldwing touring motor cycle Acura Car division

5. Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li5 Appraising Resources RESOURCECHARACTERISTICS INDICATORS Tangible FinancialBorrowing capacityDebt/ Equity ratio ResourcesInternal fund generationCredit rating Net cash flow PhysicalPlant and equipmentValue of fixed assets Land and buildings Scale of plants Raw materials Intangible TechnologyPatents, copyrights, know howNo. of patents owned ResourcesR&D facilitiesRoyalty income Technical staffR&D staff ReputationBrandsBrand equity Customer loyaltyPrice premium Company reputationRecognition HumanTraining, experience, adaptability,Employee qualifications, Resourcescommitment pay rates, turnover.

6. Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li6 Identifying Organizational capabilities : Functional Approach FUNCTIONCAPABILITYEXAMPLES CorporateFinancial managementCoca Cola ManagementStrategic controlGE Coordinating decentralizedShell business units Managing acquisitionsNationsbank MISSpeed and responsiveness throughWal-Mart rapid information transfer R&DResearch capabilityMerck Development of innovative new productsSony ManufacturingEfficient volume manufacturingFord Motor Continuous improvementToyota FlexibilityBenetton Design & MarketingDesign capabilitySwatch Brand managementProctor & Gamble Sales & DistributionResponsiveness to market trendsThe Gap Efficiency and speed of distributionFederal Express Customer serviceWalt Disney

7. Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li7 The Value Chain FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUNDOPERATIONSOUTBOUNDMARKETINGSERVICE LOGISTICSLOGISTICS& SALES PRIMARY ACTIVITIES SUPPORT ACTIVITIES

8. Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li8 The Profit Earning Potential of Resources and Capabilities Scarcity Relevance Durability Mobility Replicability Property rights Relative bargaining power Embeddedness of resources THE EXTENT OF THE COMPETITIVE ADVANTAGE ESTABLISHED SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE APPROPRIABILITY THE PROFIT EARNING POTENTIAL OF A RESOURCE OR CAPABILITY

9. Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li9 The Framework for Analyzing Resources and Capabilities 5. Identify resource gaps that need to be filled. 4. Select a strategy 3. Appraise the profit-earning potential of resources/ capabilities 2. Identify capabilities 1. Identify the firm’s resources. Appraise strengths and weaknesses STRATEGY CAPABILITIES RESOURCES POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE