Resources, Competences and Strategic Capability

1. Resources, Competences and Strategic Capability

2. Learning Outcomes At the end of this session you should be able to: • Describe the procedure for analysing strategic capability • Define unique resources and core competences • Draw up a value chain for an organisation and the ‘industry’ in which it operates • Identify sources of cost efficiency and added value for an organisation • Explain how linkages can underpin competitive advantage • Explain the purpose of benchmarking and portfolio analysis

3. Strategic Capability • Successful strategies depend (among other things) upon the organisation having the strategic capability to perform at the level required for success • Strategic capability is related to the: • resources available to the organisation • competence with which the activities are performed, and • balance of resources, activities and business units in the organisation

4. Analysing strategic capability Resource audit Competences In separate activities Through linking activities Some are ... Comparisons Rigidities Core competences Historical To outperform competition Industry norms Preventing change To create new opportunities Benchmarking Assessing balance Resources Competences Business units Identifying key issues SWOT analysis Critical success factors Understanding strategic capability

5. Resources, Competences and Competitive Advantage LINK TO COMPETITIVE ADVANTAGE Same as competitors or Easy to imitate Better than competitors* and Difficult to imitate Unique resources Necessary resources RESOURCES Core competences Threshold competences COMPETENCES * Provides the basis to outperform competitors or demonstrably provide better value for money.

6. Resource Audit “identifies and classifies the resources that an organisation owns or can access to support its strategies” • Physical resources • Human resources • Financial resources • Intangibles

7. Unique Resources • “ are those which create competitive advantage and are difficult to imitate” (e.g. a patented product)

8. Analysing competences and core competences Identifying competences Value chain analysis Organisational competences Bases of competences Cost efficiency Value added Managing linkages Robustness

9. Value Chain Analysis • “ describes the activities in and around an organisation, and relates them to an analysis of the competitive strength of the organisation” • Primary activities are directly concerned with the creation or delivery of a product or service • Support activities help to improve the effectiveness or efficiency of primary activities

10. The value chain Firm infrastructure Margin Human resource management Support activities Technology development Procurement Outbound logistics Marketing and sales Inbound logistics Operations Service Margin Primary activities

11. The value system Channel value chains Supplier value chains Customer value chains Org's value chain

12. Core Competences • “are those competences which critically underpin the organisation’s competitive advantage”

13. Sources of Cost Efficiency Economies of scale Experience Cost Efficiency Supply costs Product/Process design

14. Efficiency and Effectiveness • Cost efficiency is a measure of the level of resources needed to create a given level of value • Effectiveness is a measure of the level of value which can be created from a given level of resources

15. Analysing Value-Added - Assessing Effectiveness Customer requirements • Product attributes • Service expectations • Price sensitivity Degree of matching Value-added features • Product features • Service performance • Communication

16. Managing Linkages • Leverage is a measure of the improvement in performance achieved through the management of linkages between separate resources and activities

17. Core competences through managing linkages Internal linkage: Type of Activity Example Primary-primary Interdepartmental co-ordination Primary-support Computer-based operational systems Support-support HRM for new technologies External linkage: Type of Activity Example Vertical integration Extend ownership of activities in supply/distribution chain Specification and testing .....of supplier/distributor performance Total quality management Merchandising activities Working with suppliers/distributors to improve their performance Reconfigure value chain .....by deleting activities Strategic alliances will be covered later

18. Sustainability of Competitive Advantage Depends on: • Robustness of the competences • Extent to which they can be imitated • Extent to which they are embedded in routines, tacit knowledge and culture

19. Competences and Core Competences • Competences exist in activities • Resources are deployed to create competences • Core competences underpin competitive advantage • only some competences are core • core varies withstrategy • core varies withtime • core can be exploited inseveral ways • Mismatches resolved by • changing core competences • changing strategy

20. Comparisons • Historical • Industry norms • Benchmarking • ideally should seek to assess the competences of the organisation against the ‘best-in-class’

21. Benchmarking - at Three Levels Level of benchmarking Through Examples of measures Resources Resource audit • Quantity of resources, e.g. • revenue • capital intensity • Quality of resources, e.g. • qualifications of employees • age of machinery • uniqueness (e.g. patents) Competences in separate activities Analysing activities Sales calls/sales person Output/employee Materials wastage Competences through managing linkages Analysing overall performance Market share Profitability Productivity

22. Assessing the Balance - Product Portfolio Matrices (a) The original Boston Consulting Group Matrix (BCG) MARKET SHARE Low High High Question marks Stars MARKET GROWTH Cash cows Dogs Low

23. Product Portfolio Matrices (b) Attractiveness Matrix* COMPETITIVE POSITION Strong Avg. Weak High INDUSTRY ATTRACTIVENESS Med Low *Also known as the 'Directional Policy Matrix'

24. Portfolio Analyses Over-coming some pitfalls: • Defining `high’ and `low’ (growth or share) can be difficult • `Plot’ SBU’s not products • Apply to market segments not whole markets • Assess the `role’ of each SBU • Consider wider resource implications - not just cash • Dogs may have a positive role