Chapter 5 Exhibits

1. Chapter 5 Exhibits from Strategy and the Business Landscape

2. Three Interplays, Three Tests Internal consistency Fit among strategic choices and policies Strategy External consistency Fit between the strategy and the outside world Dynamic consistency Fit between the strategy and the firm’s capabilities and resources Capabilities & Resources Landscape

3. Southwest Airlines’ Activity System No baggage transfers No meals Limited passenger amenities No seat assignments No connections with other airlines Frequent, reliable departures Short-haul, point-to-point routes between midsize cities and secondary airports Limited use of travel agents 15-minute gate turnarounds Standardized fleet of 737 aircraft Automatic ticketing machines Lean, highly productive ground and gate crews Very low ticket prices High compensation of employees High aircraft utilization “Southwest, the low-fare airline” Flexible union contracts High level of employee stock ownership Source: Michael E. Porter “What is Strategy” Harvard Business Review, Nov-Dec 1966

4. The Resource-Based View of the Firm Activities Resource Endowments

5. A Dynamic View of the Firm Resource Commitments Activities Resource Endowments

6. Aligning Elements of Strategy Source: Excerpted from Heskett (1987)

7. Patterns of Strategic Change B A C TIME

8. Chapter 5 Text Related Slides from Strategy and the Business Landscape

9. Activity Systems As A Source of Sustainability? • Empirical evidence • Statics vs dynamics • Logic

10. Changing Labels • 1957: Distinctive Competence • 1959: Resources • 1971: Distinctive Competence Resources • 1984: The Resource-Based View of the Firm • 1987: Invisible Assets • 1990: Core Competencies • 1991: Commitments • 1994: Dynamic Capabilities

11. Capabilities and Commitments • Two Routes to Sustainability • Building organizational or technical capabilities over time • Making lumpy commitments Organizational abilities or skills • Capacity to learn and adapt • Ability to integrate across functions • Process development skills • Ability to design products • Consumer marketing skills Capabilities Commitments • Tangible and intangible assets • Technology (Gillette) • Intellectual property (Intel) • Location assets (British Airways) • Physical capacity (NutraSweet)

12. Capabilities • Take time to build (cumulative) • Typically firm-specific (tacit organizational know-how) • Often usage-specific (specialization to a strategy) • Static test of value: Competitive advantage • Dynamic test of value: Growth options

13. Environmental Changes • Alignment or consistency is challenged by changes in • Policies / Institutions • Demand • Inputs • Technology

14. Attributes of Environmental Change • Severe uncertainty with implications for … the tools you use to craft strategy (e.g., scenario analysis, attempts to envisage future industry structure) … the metrics by which you assess a strategy (e.g., robustness) … the form a strategy takes … the demands a strategy places on an organization

15. Common Forms of Strategy Under Uncertainty Commitment Experimentation Flexibility • A big bet • Often intended to shape the future • Attractive when you have a better grasp of future than others • Examples: Du Pont, Nucor, Republic • A series of small bets • Exploits the correlation structure of the underlying uncertainty (e.g., through hedges) • Attractive when landscape is unknown but knowable • Examples: Disney, Intel, Wal-Mart • Investment in the ability to change • Relies upon organizational flexibility and adaptiveness • Attractive when landscape changes continually • Counterexample: Coors Source: Jan W. Rivkin

16. Barriers to Learning • Denial • Disincentives • Lack of Leadership • Political Deadlocks • Capabilities Rigidities Source: Richard P. Rumelt, “Inertia and Transformation,” INSEAD, October 17, 1994.

17. Tools for Learning • Vigorous and frank debate • Analytical frameworks • Careful observation of others • Beyond one’s own industry • … to understand common industry dynamics • Trial and error • Close attention to history • Especially one’s own history • But also others’

18. Chapter 5 Case Related Slides Barnes & Noble vs. Amazon.com

19. Business Models in Online Book Retailing Procurement and Logistics Operations Marketing B&N Offline Amazon Original B&N Online Amazon Response

20. Disaggregated Cost Comparisons of Online vs. Offline Business Models

21. Labor Productivity Advantage of the Online Model

22. Barnes & Noble’s Return on Invested Capital in 1996

23. Chapter 5 Case Related Slides Nucor

24. Nucor: Market Value 1973-1986 Source: Datastream

25. Nucor: Market Value 1987-1995 Source: Datastream

26. Nonimitation of Thin-slab Casting • USX’s precommitments • strategy • site geometry • target capacity • HRM capacity • customer base • Chaparral’s precommitments • strategy • single site • HRM practices

27. Nucor’s Operating Performance Source: Neiva de Figuereido [1993]

28. Capital Efficiency at Nucor

29. Capital Resource Management • Low leverage • Tight screening • One plant built/rebuilt per year • Links with low cost strategy/position • attractive menu of investment opportunities • organic progress • experience transmission • Other complementarities • managerial reputation • human resources management

30. Comparative Human Resource Variables Source: Arthur [1994]

31. Human Resource Management • High-powered, objective, output-based, linear, group-level incentives • Links with low cost strategy/position • measurability • high capacity utilization • expanding output • Other complementarities • managerial reputation • flat structure • self-selection/mutual monitoring

32. Competitive Advantage and Internal Organization at Nucor Human Resource Management Operating Efficiencies High Utilization Low Cost Investment Efficiencies Rapid Expansion Capital Resource Management