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Strategic Capability

Strategic Capability. Internal Analysis. Strategic Capability. Resource-based view of the firm Value chain –identifying where value is created Internal audit Benchmarking SWOT.

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Strategic Capability

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  1. Strategic Capability Internal Analysis

  2. Strategic Capability • Resource-based view of the firm • Value chain –identifying where value is created • Internal audit • Benchmarking • SWOT

  3. Scanning the external environment for opportunities and threats is not enough to provide an organisation a competitive advantage. Strategic managers also need to identify internal strategic factors.

  4. Internal strategic factors: Critical strengths and weaknesses that are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats. i.e RESOURCES & COMPETENCIES

  5. Resource-Based Approach Resource: An asset, competency, process, skill, or knowledge controlled by the corporation.

  6. Resources • Tangible resources – physical assets of an organisation • Intangible resources – non-physical assets of an organisation • Human Resources • Physical Resources • Financial Resources • Intellectual Capital

  7. Evaluating Key Resources • VRIO Framework • Value: Does it provide competitive advantage? • Rareness: Do other competitors possess it? • Imitability: Is it costly for others to imitate? • Organization: Is the firm organized to exploit the resource?

  8. Competences • The activities and processes through which an organisation deploys its resources effectively • I.e the combination of the firm’s bundle of resources • It is when these these competencies are translated into products/services that they are of value to customers. Eg. Gillette Razors, South-West Airlines

  9. Sustainable Competencies Durability: Rate at which a firm’s underlying resources and capabilities (core competencies) depreciate or become obsolete. Imitability: Rate at which a firm’s underlying resources and capabilities (core competencies) can be duplicated by others.- reverse engineering

  10. If firms are to achieve competitive advantage by delivering value to customers, they need to know how this value is created or lost

  11. Value chain

  12. Corporate Value Chain

  13. Value Chain Analysis Assessing the PRIMARY Activities in the Value Chain Inbound Logistics • • • Materials control system Inventory control system Raw material handling and warehousing Operations • • • • Equipment comparison to competitors Plant layout Production control system Level of automation in production processes

  14. Value Chain Analysis Assessing the PRIMARY Activities in the Value Chain Outbound Logistics • • Timeliness and efficiency of finished products delivery Warehousing of finished products Marketing and Sales • • • • • • • • Marketing research Sales promotions and advertising Alternative distribution channels Competency and motivation of sales force Organization’s image of quality Organization’s reputation Brand loyalty of customers Domination of various market segments

  15. Value Chain Analysis Assessing the PRIMARY Activities in the Value Chain (continued) ( from Table 4-1) Customer Service • • • • • Customer input for product improvements Handling of customer complaints Warranty and guarantee policies Employee training in customer education & service issues Replacement parts and services

  16. Value Chain Analysis Assessing the SUPPORT Activities in the Value Chain ( from Table 4-2) Procurement • • • • • Alternate sources for obtaining needed resources Timeliness of resources procurement Procurement of large capital expenditure resources Lease-versus-purchase decisions Long-term relationships with reliable suppliers Technological Development • • • • • • R&D activities in product and process innovations Relationship between R&D and other departments Meeting deadlines in technological development activities Quality of labs and other research facilities Qualifications of lab technicians and scientists Creativity and innovation in organizational culture

  17. Value Chain Analysis Assessing the SUPPORT Activities in the Value Chain (continued) ( from Table 4-2) Human Resource Management • • • • • • • Recruiting, selecting, orienting, and training employees Employee promotion policies Reward systems to motivate and challenge employees Absenteeism and turnover Union-organization relations Employee participation in professional organizations Employee motivation, job commitment, and satisfaction

  18. Value Chain Analysis Assessing the SUPPORT Activities in the Value Chain (continued) ( from Table 4-2) Firm Infrastructure • • • • • • • Identification of external opportunities and threats Accomplishing goals with strategic planning system Coordination and integration of value chain activities Low-cost capital expenditures & working capital funds IS support for strategic and operational decisions Relationships with stakeholders Public image as a responsible corporate citizen

  19. Corporate Value Chain Analysis • Examine each product line’s value chain • Core competencies & core deficiencies • Examine the “linkages” within each product line’s value chain • Connections between the way one value activity is performed and the cost of performance of another activity • Examine the synergies among the value chains of different product lines or business units • Economies of scope

  20. The Value Network • The value network • Set of inter-organisational links/relationships necessary to create a product or service • Specialisation of roles • Underpins excellence in creating best-value products • Need to understand whole process • Where cost/value is created in supply/distribution chains • How to manage links to improve customer value • How product quality is a function of linked activities of manufacturer, suppliers and distributors

  21. The Value Network Exhibit 3.7

  22. Internal audit • Each organisation has certain functions that it must perform • These functions can differ from organisation to organisation • To gain a competitive advantage it must perform these well “internal audit is an assessment of a company’s internal function areas”

  23. Internal audit- key questions • Are the necessary resources available to people in the functional areas, so they can perform their activities/ • How well do they perform these activities – I.e. what are their capabilities and competencies?

  24. Functional areas • HRM, marketing, finance, R&D etc. • Example hotel industry: • Front desk • Housekeeping • Food Service • Customer Service

  25. Why Do an Internal Analysis? • It is the only way to identify an organization’s strengths and weaknesses • It’s needed for making good strategic decisions

  26. Assessing Strategic Capability • An Organisation’s strategic capability needs to be assessed relative to its competitors, since a sustained competitive advantage, the aim of strategy, entails gaining and sustaining a competitive position over competitors

  27. Benchmarking StrategicCapability • Historical – performance compared to previous years • Industry/sector – comparative performance of other organisations • Best in class – wider search for best practice • Increased expectations due to improved performance in another sector • Breaking the frame about performance standards to be achieved • Spot opportunities to outperform incumbents in other markets – stretch core competences

  28. Benchmarking Issues • If the basis of benchmarking is flawed then it can set off a re-orientation of strategy that is flawed . Eg university sector. • Does not identify the real reason (s) for good performance, merely highlights the consequence • Benchmarking against who?…

  29. SWOT (1) • Summarises analysis of • Business environment • Opportunities and threats • Strategic capabilities • Strengths and weaknesses • Used for comparison with competitors • Focuses on future choices and capability of organisation to support them

  30. The Role of Strengths and Weaknesses Strengths: Resources that an organization possesses and capabilities that an organization has developed. Both can be exploited and developed into a sustainable competitive advantage Weaknesses: Resources and capabilities that are lacking or deficient. Prevent an organization from developing a sustainable competitive advantage

  31. SWOT (2) • Problems of SWOT analysis • Can generate long lists: need to focus on key issues • Danger of over-generalisation: not a substitute for rigorous strategic analysis

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