RESOURCES AND CAPABILITIES

FOUNDATIONS OF STRATEGY: CHAPTER 3

Arturo Luna. Jose Mendoza. Jerry Cuellar. Vanessa Garcia

Resources Tangible Resources Intangible Resources

Ex: Goal/Objective of Southwest Airlines is to provide the highest quality of customer service. Certain resources are needed to obtain that goal

Human Resources

Capabilities What a firm can do Essence of a firm’s superior performance Roots of competitiveness

Objectives The important role of a firm’s resources

and capabilities Identify and appraise Competitive advantage Formulate a strategy How can a firm develop those resources

and capabilities Difficulties management faces

Hyundai Motor Company Case Considered low quality Low foreign sales (US, China, Europe) Recognized the need to acquire key

capabilities with clear objectivesBuild production sitesDevelop research capabilitiesEnhance market knowledge and marketing

skillsLow foreign sales (US, China, Europe)

By 2009, became 4th in sales, passing Ford

Role of Resources & Capabilities

As an industry becomes unstable… Competitive Advantage vs. Industry

Attractiveness

Developing a Strategy Market-focused strategies do not provide

stability or constancy of direction Have to use a Resource-Based View If the rate of change is greater than the

change of the external environment…

Identifying the organizations resources

The corporate balance sheet provides a limited view on a firm’s resources. Three principles allow the company to identify the resources in a broader view:• Tangible Resources • Intangible Resources • Human Resources

Tangible Resources

•Easiest to identify and evaluate•Financial resources and physical assets in the firm’s financial statements • Primary goal of resource analysis is not to value a company’s assets, but to understand their potential for creating competitive advantage.

Intangible Resources For most companies,

intangible resources are more valuable than tangible resources

Brand names are the most important of these undervalued or unvalued intangible resources

Reputation asset: value is in the confidence they instill in customers

What company holds the most valuable brand?

http://www.youtube.com/watch?v=gQd7ROXzFmA

Human Resources Comprise the expertise and effort offered

by the employees Competency modeling- identifying the set

of skills, content knowledge, attitudes and values associated with superior performers

Organizational culture – relates to the organization's values, traditions and social norms

Identifying the organizations capabilities

Organizational Capability- a firm’s capacity to deploy resources for a desired end result

Core Competences according to Hamel and Prahalad include- Make a contribution to ultimate customer

value, or to the efficiency with which that value is delivered

Provide a basis for entering new markets

Two approaches to Classifying capabilities

Functional Analysis- identifies organizational capabilities in relation to each of the principal functional areas of the firm

Value Chain Analysis- separates the activities of the firm into a sequential chain

Appraising resources & capabilities

Provide a long-term focus for a company’s strategy and how we can go about identifying them.

Must appraise the potential for resources and capabilities to earn profits for the company.

This all depends on three factors:1. Establish a competitive advantage2. Sustain that competitive advantage3. Appropriate the returns to that competitive

advantage.

Establishing Competitive Advantage

For a resource or capability to establish a competitive advantage, two conditions must be present:

1. Scarcity- If a resource or capability is widely available within the industry, then it may be essential to compete, but it will not be a sufficient basis for competitive advantage.

2. Relevance- A resource or capability must be relevant to the key success factors in the market.

Sustaining Competitive Advantage

The profits earned from resources and capabilities depend not just on their ability to establish competitive advantage, but on how long that advantage can be sustained. Resources and capabilities must be durable and imitable.

Replicability- If a firm cannot buy a resource or capability, it must build it.

You have to keep looking for opportunities to grow and stay on top! http://www.youtube.com/watch?v=Qz4tfy9EYFc

Appropriating the returns to Competitive Advantage

Who gains the returns generated by superior capabilities? We should normally expect that such returns accrue to the owner of that capability.

Capabilities depend heavily on the skills and efforts of employees – who are not owned by the firm.

Putting resource and capability analysis to work: A practical guide

Step 1: Identify the key resources and capabilities. What factors determine why some firms in an industry are more successful than others?

Step 2: Appraising resources and capabilities. Need to be appraised against two key criteria. First is their importance. Second, where are our strengths and weaknesses as compared to competitors? Benchmarking is a powerful tool used in this step.

Step 3: Developing strategy implications. Must exploit all the key strengths and manage key weaknesses.

Developing Resources & Capabilities

Linkage between Resources & Capabilities isn’t entirely well understood.

Access to plentiful Resources does NOT guarantee great organization Capabilities.

Smaller organizations with focused resources can create impressive capabilities.

Path Dependency & Early Experiences

Managers play a critical role in developing capabilities.

Founders of new companies generally have experience in the same or a similar industry sector.

Distinctive Capabilities can be traced to circumstances present during a company’s creation.

Linkage between Resources & Capabilities

Capabilities involves coordinating team members to integrate their skills with each other and organization resources.

Factors Affecting Coordination1. Organizational Learning: coordination is

perfected through repetition2. Organizational Culture: team members are

allowed to collaborate freely without fear of micro-management

Rigid or Dynamic Capabilities? Highly developed capabilities are difficult to adapt to

new circumstances, therefore capabilities are rigid.

Arguments Against Rigidity of Capabilities1. Flexibility in Organizational Routines2. Dynamic Capability

Dynamic Capabilities are rare and can inhibit developing capabilities in new products or technologies.

Developing Capabilities Externally

Acquisitions are an easy way to obtain a desired capability.

Downsides:1. High Premium2. Surplus of Resources & Capabilities3. Assimilation and Integration

Strategic Alliances grant access to competing firms’ capabilities through cooperation.

Requires a high Relational Capability.

Developing Capabilities Internally

Capabilities developed internally must be systematic.

1st Step:Concentrate resources on a few specific priorities

2nd Step:Accumulate resources to accelerate learning

Over time, firms develop integrative knowledge.

Summary Firm’s internal environment focuses on

what a firm can do Analyze available resources to understand

what capabilities can be developed Able to form a strategy for the firm