Cap Guide 1

8/3/2019 Cap Guide 1

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Internal Analysis: Resources& Capabilities

The role of resources and capabilities in strategyformulation.

The resources of the firm

Organizational capabilities

Appraising the profit potential of resources andcapabilities

Putting resource and capability analysis toworka how-to guide

Creating new capabilities.

OUTLINE


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Does Industry Matter?

Percentage of variance in firmsreturn on assetsexplained by:

Industryeffects

Firm-specificeffects

Unexplainedvariance

Rumelt (1991) 4.0% 44.2% 44.8%

McGahan &Porter (1997)

18.7% 31.7% 48.4%

Hawawini et al(2003)

8.1% 35.8% 52.0%


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THE FIRM

Goals and

ValuesResources andCapabilities

Structure andSystems

THEINDUSTRY

ENVIRONMENT

Competitors

Customers

Suppliers

STRATEGY

STRATEGY

TheFirm-Strategy

Interface

TheEnvironment-Strategy

Interface

Shifting the Focus of Strategy Analysis:From the External to the Internal Environment


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Rationale for the Resource-basedApproach to Strategy

When the external environment is subject torapid change, internal resources and capabilitiesoffer a more secure basis for strategy thanmarket focus.

Resources and capabilities are the primarysources of profitability- the Honda example


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1946 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

HondaTechnicalResearch

Institutefounded

1st motorcycle:98cc, 2-cycle

Dream D

4 cycleengine

405ccmotorcycle

Power products:ground tillers, marineengines, generators,pumps, chainsaws

snowblowers

First product:Model A

clip-on enginefor bicycles

The 50ccSupercub

N360 minicar

1000cc

Goldwingtouring

motor cycle

Acura Cardivision

Competes in

Isle of Man TTmotorcycleraces

4-cylinder750cc

motorcycle

Portablegenerator

Enters Formula 1Gran Prix racing

HondaCivic

Enters Indycar racing

1st gasoline-poweredcar to meet US Low

Emission Vehicle Standard

Civic GS(natural

gaspowered)

Civic Hybrid

(dual gasoline/electric)

Home co-generation

system

Honda FCXfuel cell

car

The Evolution of Honda Motor Company


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PrecisionMechanics

FineOptics

Micro-

Electronics

35mm SLR cameraCompact fashion cameraEOS autofocus camera

Digital cameraVideo still camera

Plain-paper copierColor copier

Color laser copierLaser copierBasic fax

Laser faxMask aligners

Excimer laser alignersStepper aligners

Inkjet printer

Laser printerColor video printer

CalculatorNotebook computer

Canon: Products and Core Technical Capabilities


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Links between Products & Capabilities:Capability-Based Strategy at 3M

Carborundummining

Sandpaper

Scotchtape

Road signs& markings

Post-it notes

Audio tape

Surgical tapes& dressings

Videotape

Acetatefilm

Floppy disks &data storage

products

Pharmaceuticals

Housewares/kit-chen products

Abrasives AdhesivesNew-product

development &

introduction

Thin-filmtechnologies

PRODUCTS

CAPABILITIES

Materials sciencesHealth sciences

Microreplication

Flexiblecircuitry


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STRATEGY

INDUSTRY KEYSUCCESS FACTORSCOMPETITIVE

ADVANTAGE

ORGANIZATIONALCAPABILITIES

RESOURCES

TANGIBLE INTANGIBLE HUMAN

FinancialPhysical

TechnologyReputationCulture

Skills/know-howCapacity forcommunication& collaborationMotivation

The Links between Resources, Capabilitiesand Competitive Advantage


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Appraising Resources

RESOURCE CHARACTERISTICS INDICATORS

Financial Borrowing capacity Debt/ Equity ratio

Internal funds generation Credit rating

Tangible Net cash flow

Resources Physical Plant and equipment: Market value ofsize, location, technology fixed assets.

flexibility. Scale of plants

Land and buildings. Alternative uses for

Raw materials. fixed assets

Technology Patents, copyrights, know how No. of patents owned

R&D facilities. Royalty income

Intangible Technical and scientific R&D expenditure

Resources employees R&D staff

Reputation Brands. Customer loyalty. Company Brand equity

reputation (with suppliers, customers, Customer retention

government) Supplier loyalty

Human Training, experience, adaptability, Employee qualifications,

Resources commitment and loyalty of employees pay rates, turnover.


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FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

FINANCIAL MANAGEMENT & CONTROL

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

LOGISTICS LOGISTICS & SALES

PRIMARY

ACTIVITIES

SUPPORT

ACTIVITIES

Key Success Factors

From industry analysis

Opportunities and threats

What resources & capabilitiesdo we need to deliver theseKSFs?

Starting from the inside Starting from the outside

Two approaches to identifying anorganizations resources and capabilities


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Identifying Organizational Capabilities:A Functional Classification

FUNCTION CAPABILITY EXEMPLARS

Corporate Financial management ExxonMobil, GEManagement Strategic control IBM, Samsung

Coordinating business units BP, P&GManaging acquisitions Citigroup, Cisco

MIS Speed and responsiveness through Wal-Mart, Dellrapid information transfer

R&D Research capability Merck, IBM

Development of innovative new products Apple, 3M

Manufacturing Efficient volume manufacturing YKKContinuous Improvement Nucor, Harley-DFlexibility Zara, Four Seasons

Design Design Capability Apple, Nokia

Marketing Brand Management P&G, LVMH

Quality reputation Johnson & JohnsonResponsiveness to market trends MTV, LOreal

Sales, Distribution Sales Responsiveness PepsiCo, Pfizer& Service Efficiency and speed of distribution LL Bean, Dell

Customer Service Singapore AirlinesCaterpillar


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Importance

VWs

RelativeStrength

C1. Productdevelopment

9 4

C2. Purchasing 7 5

C3. Engineering 7 9

C4. Manufacturing 8 7

C5. Financialmanagement

6 3C6. R&D 6 4

C7. Marketing &sales

9 4C8. Governmentrelations 4 8

Importance VWs

RelativeStrength

R1. Finance 6 4

R2. Technology 7 5

R3. Plant and equipment 8 8

R4. Location 7 4

R5. Distribution 8 5

RESOURCES CAPABILITIES

Assessing a Companys Resources

and Capabilities: The Case of VW


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R

elative

Streng

th

Strategic Importance

Superfluous Strengths Key Strengths

Zone of Irrelevance Key Weaknesses

1

1

5 10

5

10

R1

R2

R3

R4

R5

C1

C2

C3

C4

C5C6 C7

C8

Appraising VWs Resources and Capabilities


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Appraising the Capabilities of aBusiness School

R

elativeStreng

th

Superior

Parity

Deficient

Notimportant

Criticallyimportant

5

6

9

3

2

48

10 7

1

C1 Alumni relationsC2 Student

placementC3 TeachingC4.AdministrationC5 Course devlpmntC6 Student

recruitmentC7 ResearchC8 Corporate

relationsC9 MarketingC10 ITC11 PRC12 HRM

Importance

Key weaknesses

Key strengthsSuperfluousstrengths

Inconsequentialweaknesses

1112


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Approaches to Capability Development

1) Acquire and develop the underlying resources. Especiallyhuman resources

--Externally (hiring)--Internally through developing individual skills (TSMG, TAS)

2) Acquire/access capabilities externally through acquisition or

alliance

3) Greenfield development of capabilities in separateorganizational unit (IBM & the PC, Xerox & PARC, GM & Saturn)

4) Build team-based capabilities through training and teamdevelopment (i.e. develop organizational routines)

5) Align structure & systems with required capabilities6) Change management to transform values and behaviors (GE,

BP)

7) Product sequencing (Intel , Sony, Hyundai)

8) Knowledge Management (systematic approaches to acquiring,

storing, replicating, and accessing knowledge)


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4. Develop strategy implications:

(a) In relation to strengths--How canthesebe exploited more effectively and fully?

(b) In relation to weaknesses--Identify opportunities to outsourceactivities that can be betterperformed by other organizations.

--How can weaknesses be correctedthrough acquiring and developing

resources and capabilities?

3. Appraise the firms resources and

capabilities in terms of:(a) strategic importance(b) relative strength

2. Explore the linkages between resourcesand capabilities

1. Identify the firms resources andcapabilities

STRATEGY

CAPABILITIES

RESOURCES

POTENTIAL FORSUSTAINABLECOMPETITIVEADVANTAGE

Summary: A Framework for Analyzing Resources and Capabilities

Cap Guide 1

Documents

Transcript of Cap Guide 1