Organizational Resource & Competitive Advantage
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Transcript of Organizational Resource & Competitive Advantage
Organizational Resource & Competitive Advantage
Tutorial 04
Internal resources and capabilities as falling into five general categories:
Financial
Physical
Human
Knowledge-based
General organizational
Internal Resources and Capabilities
Chamara Bandara FCA,ACMA,MBA (USQ - AUS)
Examples of Firm Resources & Capabilities
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Sustainable Competitive Advantage exists
when a firm enjoys a long – lasting business
advantage compared to rival firms
The ability of a resource or capability to
lead to a sustainable competitive advantage
depends on the answers to six questions
Sustainable Competitive Advantage
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1) Does the resource or capability have value in the market? These types of resources allow a firm to exploit opportunities
and/or neutralize threats. Example:
Sustainable Competitive Advantage (Contd.)
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Sony has developed the capability to design, manufacture, and sell miniaturized electronics.This capability has value to customers. Sony has applied this capability to numerous market opportunities such as stereos, tape players, disc players, televisions, and video cameras.
If an organization is the only one with a particular resource or capability, then it may be a source of competitive advantage. Example:
LG were pioneers in producing Frost Free Refrigerators for the convenience of their customers. Keeping food fresh is very important for the health and well-being of your family. LG understands the importance for their customers to get the best value from their food and the best value for their money, and have developed cutting-edge technology to make their refrigerators help to achieve these goals.
Note that uniqueness does not mean that only one organization possesses a capability or resource only that few firms do.
If numerous organizations possess a particular resource or capability, then the situation is described as “competitive parity”-no company has the advantage.
Sustainable Competitive Advantage (Contd.)
2) Is the resource or capability unique?
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3) Is there a readily available substitute for the resource or capability? Sometimes competing organizations may not have the exact resource or
capability, but they have easy access to another resource or capability that
will help them to accomplish the same results.
Example
Sustainable Competitive Advantage (Contd.)
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A company may have resources which are
extremely limited in the country. However,
competitors have been able to acquire this
needed raw material at almost the same
cost by importing through foreign vendors.
4) Do organizational systems exist that allow realization of potential? For potential to be realized, the firm must also be organized to
take advantage of it.
Example:
Companies such as Wal-Mart and Disney are masters at exploiting
their sources of competitive advantage.
Sustainable Competitive Advantage (Contd.)
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5) Is the organization aware of and realizing the advantages? One of the great differentiators between successful and unsuccessful companies is the
ability of managers to recognize and tap into resource advantages. An organization may have employees that have great potential in an area, but the
organization does not know it. The company may have the ability to produce a product that is highly unique and
valuable to a particular market segment, but the firm does not realize it. In fact, an organization may even have systems in place that would allow
realization of potential.
Nevertheless, managers have to be able to identify sources of competitive advantage
and take positive actions for potential to be realized.
At this point, an organization is using its systems and knowledge to take advantage of a
unique and valuable resource or capability.
Sustainable Competitive Advantage (Contd.)
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6) Is the resource or capability difficult or costly
to imitate? Competing firms face a cost disadvantage in imitating a resource
or capability.
The more difficult or costly a resource or capability is, the more
valuable it is in producing a sustainable competitive advantage.
Sustainable Competitive Advantage (Contd.)
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Resource or capability has potential lead to
competitive advantage or core competency
• Does the resource or capability have value in the market?• Is the resource or capability unique?• Is there a readily available substitute for the resource or
capability ?
Actual Source of Competitive Advantage
• Do organizational systems exist that allow realization of potential?
• Is the organization aware of and realizing the advantages?
The Competitive Advantage or Core
Competency is sustainable
• Is the resource or capability difficult or costly to imitate?
How to determine the Competitive Value of Resources & Capabilities?
Firm Resources & Capabilities• Financial• Physical• Human
•Knowledge & Learning• General
Organizational
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Tangible Resources Tangible Resources are organizational assets that can be seen , touched ,
and/or quantified
Examples
Plants
Money
Products
These resources tend to be easy to imitate.
Although some products can be patented, a patent provides a measure of
protection only until it runs out
Firm Resources & Capabilities
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Intangible Resources Intangible Resources are organizational assets that are hard to quantify
Examples
Knowledge
Skills
Abilities
Stakeholder Relationship
Reputations
Intangible resources and capabilities are the hardest to imitate.
Therefore intangible resources and capabilities are often the ones most likely
to lead to competitive advantage.
Firm Resources & Capabilities (Contd.)
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The resources and capabilities that lead to competitive
advantage are different in each industry, and can also change
over time.
Some times resource advantages within nations can lead to
significant competitive advantages for the firms that compete
there. Example:
India is second only to the United States in the number of scientists and Engineers its schools produce.
Firm Resources & Capabilities (Contd.)
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Global Insight India's emerging competitive Advantage in services
India has not yet caught the fancy of foreign investors-even though its population exceeds 1 billion, and its gross domestic product (GDP) of $500 billion ranks it as the eleventh-largest economy in the world. Political turmoil obviously explains why many global companies are hesitant to invest in India. Nevertheless, India has a potential source of competitive advantage that could fuel significant economic growth and foreign investment in the future.
India's competitive potential does not lie in the same fields as other low income developing countries. Rather than enjoying competitiveness in natural-resource industries or low-skill , labor-intensive manufacturing, India is revealing surprising strength in skill-intensive tradable services, including soft ware development, information-technology (IT)-enabled services, product/project engineering and design, biotechnology, pharmaceuticals, media, entertainment, and health care. New clusters are emerging in these activities in cities such as Bangalore and Hyderabad, where vibrant Indian firms are being joined by well-known multinationals. One interesting example is General Electric, which is investing $100 million in Bangalore to build its 1argest R& O lab in the world, employing twenty-six hundred scientists, including more than three hundred with Ph.D. degrees. It was while inaugurating this lab that GE's past CEO, Jack Welch, said: "The real treasure of India is its intellectual capital. The real opportunity of India is its incredibly skilled work force. Raw talent here is like nowhere else in the world."
India has received much attention recently on the prowess of its software industry, prompting Bill Gates to proclaim that "India is likely to be the next software superpower." For the better part of a decade, India's software Industry has been growing at 50 percent annually. By 2000, the software sector's output had grown to $8 billion, and exports had risen to $6.2 billion. More than eight hundred firms provided a range of software services, targeted mostly at foreign customers. The United States accounted for nearly 60 per cent of Indian software exports; followed by Europe, with 23.5 percent; and Japan, with just 3.5 percent.
Firm Resources & Capabilities (Contd.)
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Human Resource Human resources need to be managed
effectively so that learning and
innovation are the result.
If human resource development is
neglected or misguided, learning and
innovation will cease, and the
organization will eventually wear down,
thus breaking out of the loop.
Firm Resources & Capabilities (Contd.)
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Knowledge and Learning Knowledge creation and innovative activities should be channeled
so as to produce better processes and more-innovative products
and services.
If this does not happen, the value of a company's brand will be
eroded, and its reputation may suffer.
Firm Resources & Capabilities (Contd.)
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General Organizational Finally, brand names, organizational reputation, and stakeholder
relationships should be carefully guarded and developed in order
to produce strong financial results.
The point here is that all of the resource areas are
interdependent, and an organization can't afford to neglect any of
them.
Firm Resources & Capabilities (Contd.)
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Financial Resources Financial resources can be a source of advantage, although they rarely qualify as
“unique" or “difficult to imitate."
Nevertheless, strong cash flow, how levels of debt, a strong credit rating, access to low-
interest capital, and a reputation for creditworthiness are powerful strengths that can
serve as a source of strategic flexibility.
Firms that are in a strong financial position can be more responsive to new
opportunities and new threats, and are under less pressure from stakeholders than are
their competitors who suffer financial constraints.
Firm Resources & Capabilities (Contd.)
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This is a useful tool in identifying potential sources of
competitive advantage.
Value Chain By Michael Porter
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A representation of organizational processes , divided into primary & support activities that create value for customers
Value-adding activities are a source of strength or competitive advantage if they meet the requirements such as
Value, Uniqueness, Non Substitutability, and Inimitability
Value Chain (Contd.)
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Inbound Logistics
Primary activities of the value chain including those associated with acquiring inputs used in the product Operations
Primary activities of the value chain that refer to transforming inputs into the final product Outbound Logistics
Primary activities of the value chain related to storing and physically distributing a final product to
customers Marketing & Sales
Primary activities of the value chain associated with customers purchasing the product & processes
through which they are induced to do so Service
Primary activities of the value chain associated with providing service to enhance or maintain product
value such as repairing parts
Value Chain - Primary Activities
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Resource Procurement Support activities of the vale chain related to the purchase of inputs for the primary
processes and support activities of the firm Technology Development
Support activities of the vale chain associated with learning processes that result in
improvements in organizational function performance Human Resource Management
Support activities of the vale chain associated with human based activities such as
recruiting & training Administration
Support activities of the vale chain consisting of general management activities such as
planning & accounting
Value Chain - Supportive Activities
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The dotted lines connecting most of the support activities with the primary activities
demonstrate that the support activities can be associated with each of the primary
activities as well as support the complete chain.
Margin/ Profit This is found at the right side of the chain, an indication that firms can achieve higher profit
margins through the development of competencies and superior resources based on their value-
chain activities.
Value Chain (Contd.)
Administration is the only exception, since it applies
to the complete chain instead of to any one unit.
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An organization can develop a competitive advantage in any of the primary or support activities, or
in the way they are combined, or
in the way internal activities are linked to the external environment.
An organization can develop a competitive advantage in any of the primary or support
activities.
For each area, the relevant question is, "How much value is produced by this area vs.
our cost of producing that value?"
This analysis of value and costs is then compared with competing firms.
Value Chain Vs Competitive Advantage
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The humans that make up an
organization are its lifeblood - its
unique and most valuable asset.
Most of the other factors of
production such as properties,
machinery, and
even special knowledge
may be duplicated over the long term,
but every human being is totally
unique.
Human-Based Resources
Our true "core competency" today is not manufacturing or services,
but the global recruiting and nurturing of the world's best
people and the cultivation in them of an insatiable desire to learn, to
stretch and to do things better every day.
General Electronic
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Common title for the highest ranking
manager in a firm is called as “CEO”.
Most of the research evidence indicates
that CEOs have a significant impact on
the strategies and performance of their
organizations.
In fact, in some cases a CEO can be a
source of sustainable competitive
advantage.
Chief Executive Officer - CEO
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A CEO such as Michael Eisner at Disney,
the retired Jack Welch at GE, or
Bill Gates at Microsoft
can leave little doubt that much of the success or failure of an organization is dependent
on the person at the top.
Just as excellent leadership can have an enormous positive influence; poor leadership can
have a powerful negative influence.
Example Coca-Cola enjoyed many years of double-digit growth under the leadership of Roberto Goizueta.
However, since his death in 1997, the company has "fizzled."
CEO Vs Business Success or Failure (Contd.)
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Generally refers to Leadership behaviors associated with Creating organizational vision ,
Establishing core values,
Developing strategies and a management structure fostering
organizational learning and
Serving as a steward for the firm
Strategic Leadership
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Visionary leadership can be divided
into
three stages: I. Envisioning what the organization should be like in the future
II. Communicating this vision to followers, and
III. Empowering these followers to enact the vision.
Strategic Leadership (Contd.)1) Creating Organizational Vision
Visionary Leadership pertains to envisioning what the
organization should be like in the future , communicating the
vision , and empowering followers to enact it
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2) Establishing Core Values
The underlying philosophies that guide decisions and behavior in a firm called as organizational values
leaders influence the social system in their organizations is through the core values they bring to the organization
Strategic Leadership (Contd.)
A strong value system can be a source of competitive advantage.
However, putting too much emphasis on a particular factor can also be dangerous.
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3) Developing Strategies and structure
Strategic Leadership (Contd.)
Strategic leaders are directly responsible for
overseeing the development of strategies
the organization should follow.
Effective strategy development implies a
strong awareness of the resource and
capabilities that an organization• has or • can develop or• acquire
that will lead to a sustainable competitive
advantage. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)
4) Fostering Organizational Learning True role of a leader is to harness the creative energy of the individual,
so that the organization as a whole learns over time. A learning environment is created by helping organizational members
question their assumptions about the business and its environment: what customers want,
what competitors are likely to do,
which technology choices work best, and
how to solve a problem.
Strategic Leadership (Contd.)
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5) Serving As a Steward Finally, effective leaders are stewards for their firms: they care
about the company and the society in which it operates; both
voluntary and involuntary stakeholders.
Leaders must feel and convey a passion for the organization,
its contribution to society, and its purpose.
Strategic Leadership (Contd.)
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Commander-style leadership. The CEO formulates strategy and
then directs top managers to implement it.
Change-style leadership
The CEO formulates strategy, and then plans the changes in structure, personnel, information systems, and administration required to implement it.
Leadership Approaches and Organizational Fit
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Collaborative-style leadership. The CEO initiates a planning session with executive and division managers. After each participant presents ideas, the group discusses and agrees to a
strategy. Participants are then responsible for implementing strategy in their areas.
Cultural-style leadership.
After formulating a vision and strategy for the company, the CEO and other top-level managers mold the organization's culture so that all organizational members make decisions that are consistent with the vision.
In this approach, the culture inculcates organizational members into unity of purpose and action.
Leadership Approaches and Organizational Fit (Contd.)
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Crescive-style leadership. Under this leadership model, lower-level
managers are encouraged to formulate and implement their own strategic plans.
The CEO's role is to encourage innovation while still filtering out inappropriate programs.
Unlike the other models, the Crescive model of leadership makes use of the creative energies of all members of the organization, which is consistent with the philosophy of Total Quality Management (TQM).
Leadership Approaches and Organizational Fit (Contd.)
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Managers are capable of adapting to changing environments and strategies, it is not likely that they are equally effective in all situations
Examples low-cost strategies are focus on firms efficiency and engineering. differentiation strategies focus on creating unique product through
innovation Growth strategies may be best implemented by managers with
greater sales and marketing experience, willingness to take risks, and tolerance for ambiguity.
Radical Restructuring is focus on creating major changes to a firm’s direction, strategies, structures & plans
Types of Strategies
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Leaders, managers, directors, and employees can all be
sources of competitive advantage. However, the way they are
organized can also lead to competitiveness.
Organizational Structure reports relationships and the division of people into groups,
teams, forces, and departments
within an organization.
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Organizational Structure
Organizational Structure has a lot to do with how successful
a firm will be.
Example: In a world where innovations are widely understood by competitors
within a year, a flexible structure is a key to success in many companies.
Big companies are trying to increase speed and flexibility by
altering their organization structures and management
systems.
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Organizational Structure (Contd.)
By attempting to become worldwide
"modular corporations.“- A modular
corporation nurtures a few core activities
that it does best, and then lets outside
specialists do the rest.Example:
Dell Computers
By decentralizing responsibility and
rewarding employees for innovations and
flexibility. Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)
How to Increase Flexibility?
Organizational Culture is a system of shared values of
an organization’s members
Chamara Bandara FCA,ACMA,MBA (USQ - AUS)
Organizational Culture
Organization culture often
reflects the values and
leadership styles of executives
and managers, and is, to a great
degree, a result of the past
human resource management
practices, such as recruitment,
training, and rewards.
Many companies are realizing the benefits of a shared set of values as a
potential source of competitive advantage.
There is an intangible quality that stakeholders look for when making
decisions about the products and services that they purchase or in selecting
alliance partners. They want to be able to rely on the company. They want
promises and commitments to be fulfilled.
There are many pragmatic benefits to a high-profile organizational culture
that can help an organization in its recruiting, employee development, and
relationships with customers.
Chamara Bandara FCA,ACMA,MBA (USQ - AUS)
Organizational Culture (Contd.)
An organization's culture can be its greatest strength or its
greatest weakness.
Some firms have succeeded in creating cultures that are
completely consistent with what the company is trying to
accomplish. These are called high-performance cultures.
Example: At Johnson & Johnson, the company's commitment to customers as
its primary stakeholder is reflected in policy statements and is adopted by
employees.
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Organizational Culture (Contd.)
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Defining an Organizational Culture
For each of these factors, an organization should ask:
Which characteristics support the vision and strategies of the organization
and should be sustained in the future?
Which characteristics do not support the vision and strategies and should be
modified?
What efforts will be necessary to make the required changes happen?
A strong culture can be a two-edged sword.
Sometimes very successful corporations so firmly attach themselves to their
successful business practices that they exaggerate the features of the successful
culture and strategy, and fail to adapt them to changing industry conditions.Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)
Defining an Organizational Culture (Contd.)
Craftsmen type culture. Quality is the primary driver of the corporate culture.
However a culture that is focused on quality and detail can evolve
to an extreme where craftsmen become tinkerers.
Builder-type culture. Growth is the primary goal in the organization.
Managers are rewarded for taking risks that result in growth, new
acquisitions, and new market niches.
Chamara Bandara FCA,ACMA,MBA (USQ - AUS)
Different Types of Cultures
Pioneer-type culture. It emphasis on new product & new technology development.
The strengths of these organizations lie in their design teams and flexible
structures, which promote idea sharing.
Salesman-type culture. These firms are excellent marketers who create successful brand names and
distribution channels, and pursue aggressive advertising and innovative
packaging.
They become so confident in their marketing abilities that they ignore
product capability and quality, and began to market imitative, low quality
products that customers do not value.Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)
Different Types of Cultures (Contd.)
General organizational resources are a varied collection of
organizational possessions that can have a tremendous
impact on financial success and survival. Patents
Brand names & trademarks
Organizational reputation and
Superior relationships with external stakeholders
have been found to be very powerful sources of competitive
advantage
Chamara Bandara FCA,ACMA,MBA (USQ - AUS)
General Organizational Resources
Patents Patents are the tangible result of knowledge creation.
It is the legal protection that prevents other companies from making use
of a firm’s innovation
Brands &Trademarks Brands and their associated trademarks offer a higher level of protection.
Trademark is a legal protection that prevents other companies from
making use of a firm’s symbol or brand name .
In a recent ranking, Coca-Cola was ranked first, Microsoft second, IBM
third, GE fourth, and Nokia fifth with regard to value.
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General Organizational Resources (Contd.)
Organizational Reputation An economic asset that signals observers about the attractiveness of a
company's offerings, based on past performance.
A good reputation may be associated with excellent quality or highly innovative
products or services, excellent human-resource management, or other factors.
Some of the potential benefits of a good reputation include the
ability to attract talented workers,
charge premium prices,
keep loyal customers,
raise capital with less difficulty by attracting investors,
avoid constant scrutiny by regulators and activists, or
enter international markets with less difficulty. Chamara Bandara
FCA,ACMA,MBA (USQ - AUS)
General Organizational Resources (Contd.)
Superior Relationships with Stakeholders
Relationships with external stakeholders can also be described as an organizational resource.
The fact is that all five areas of resources and capabilities are closely linked to external
stakeholders.
Example
Financial resources are based, in part, on relationships with financial intermediaries.
The strength of human resources may depend on linkages with unions, trainers, human
resources associations, communities, or educational institutions from which an organization
recruits.
Valuable knowledge comes from inter organizational relationships with competitors,
customers, suppliers, or other stakeholders.
Raw materials and other inputs necessary to develop physical resources are provided by
suppliers.
Finally, contracts with many types of stakeholders are a general organizational resourceChamara Bandara
FCA,ACMA,MBA (USQ - AUS)
General Organizational Resources (Contd.)
SMP
Reference
Jefferey S.Harrison,
Strategic Management of Resources and
Relationships, United States of America
53Chamara Bandara
FCA, ACMA,MBA (USQ - AUS)