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RESOURCES, CAPABILITIES, AND CORE COMPETENCES

Alternative Models ofStrategic Superior Returns Strategic

Fit Stretch

Industrial Organization Model

The External Environment

Resource-Based Model
Resources

An Attractive Industry
Strategy Formulation Assets and Skills Strategy Implementation Superior Returns

Capability
Competitive Advantage An Attractive Industry Strategy Implementation Superior Returns

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Rationale for the Resource-based Approach to Strategy

When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus. Resources and capabilities are the primary sources of profitability.

The Links between Resources, Capabilities and Competitive Advantage

COMPETITIVE ADVANTAGE INDUSTRY KEY SUCCESS FACTORS

STRATEGY ORGANIZATIONAL CAPABILITIES RESOURCES

TANGIBLE Financial Physical INTANGIBLE Technology Reputation Culture

HUMAN Skills/knowhow Capacity for communication & collaboration Motivation

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Defining Organizational Capabilities

Organizational Capabilities = firms capacity for undertaking a particular activity. (Grant) Distinctive Competence = things that an organization does particularly well relative to competitors. (Selznick) Core Competence = capabilities that are fundamental to a firms strategy and performance. (Hamel and Prahalad)

Canon: Products and Core Technical Capabilities Precision Mechanics

35mm SLR camera Compact fashion camera EOS autofocus camera Digital camera Video still camera

Fine Optics
Plain-paper copier Color copier Color laser copier Laser copier

Basic fax Laser fax

Mask aligners Inkjet printer Excimer laser aligners Laser printer Color video printer Stepper aligners Calculator Notebook computer

MicroElectronics

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Eastman Kodaks Dilemma

Resources & Capabilities 1980s Chemical Imaging

Organic Chemistry Polymer technology Optomechtronics Thin-film coatings

Businesses Film Cameras Fine Chemicals Pharmaceuticals Diagnostics

Brands Global Distribution 1990s

DIVESTS: Eastman Chemical, Sterling Winthrop, Diagnostics Need to build digital imaging capability Digital Imaging Products (e.g. Photo CD System; Advantix cameras & film

Appraising Resources
RESOURCE Financial Tangible Resources CHARACTERISTICS Borrowing capacity Internal funds generation Plant and equipment: size, location, technology flexibility. Land and buildings. Raw materials. Patents, copyrights, know how R&D facilities. Technical and scientific employees Brands. Customer loyalty. Company reputation (with suppliers, customers, government) Training, experience, adaptability, commitment and loyalty of employees INDICATORS Debt/ Equity ratio Credit rating Net cash flow Market value of fixed assets. Scale of plants Alternative uses for fixed assets No. of patents owned Royalty income R&D expenditure R&D staff Brand equity Customer retention Supplier loyalty Employee qualifications, pay rates, turnover.

Physical

Technology Intangible Resources Reputation

Human Resources

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The Worlds Most Valuable Brands, 2006

Rank Company Brand value ($bn.) Rank Company Brand value ($bn.)

1 2 3 4 5 6 7 8 9 10

Coca-Cola Microsoft IBM GE Intel Nokia Disney McDonalds Toyota Marlboro

67.5 59.9 53.4 47.0 35.6 26.5 26.4 26.0 24.8 21.2

11 12 13 14 15 16 17 18 19 20

Mercedes Benz 20.0 Citi 20.0 Hewlett-Packard 18.9 American Express 18.6 Gillette 17.5 BMW 17.1 Cisco 16.6 Louis Vuitton 16.1 Honda 15.8 Samsung 15.0 Source: Interbrand

http://www.interbrand.com/best_brands_2007.asp

Identifying Organizational Capabilities: A Functional Classification

FUNCTION Corporate Management CAPABILITY EXEMPLARS Financial management ExxonMobil, GE Strategic control IBM, Samsung Coordinating business units BP, P&G Managing acquisitions Citigroup, Cisco Speed and responsiveness through rapid information transfer Wal-Mart, Dell Capital One Merck, IBM Apple, 3M Briggs & Stratton Nucor, Harley-D Zara, Four Seasons Apple, Nokia P&G, LVMH Johnson & Johnson MTV, LOreal

MIS R&D Manufacturing

Research capability Development of innovative new products Efficient volume manufacturing Continuous Improvement Flexibility Design Capability Brand Management Quality reputation Responsiveness to market trends

Design Marketing

Sales, Distribution & Service

Sales Responsiveness PepsiCo, Pfizer Efficiency and speed of distribution LL Bean, Dell Customer Service Singapore Airlines Caterpillar

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Core Competencies
Resources Inputs to a firms production process Core Competence A strategic capability
Does the capability satisfy the criteria of sustainable competitive advantage? The source of

Capability
Integration of a team of resources

YES

NO

Capability A non-strategic team of resources

From Resources to Core Competencies

Discovering Core Competencies Core Competencies
Criteria of Sustainable Advantages * * * *

Sustained Competitive Advantage

Competitive Advantage

Capabilities
Synergy of Resources

Value Chain Analysis

Voice of Customers Voice of Engineering Voice of Competencies

Resources
* Tangible * Intangible

Valuable Rare Costly to Imitate Organized to be exploited

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A core competency is a capability that is: Valuable Rare

Costly to Imitate Allows a firm to neutralize threats or exploit opportunities in its external environment. Possessed by few, if any, current and potential competitors.

When other firms either cannot obtain them or must obtain them at a much higher cost.

Organized
to be Exploited
Core Competencies Capabilities
Teams of Resources

The firm must be organized appropriately to obtain full benefits of the resources in order to realize a competitive advantage.

The VRIO Framework

Valuable Rare Valuable Costly to Imitate Org. to be Exploited Competitive Consequences Competitive Disadvantage Competitive Parity Temporary Competitive Advantage Sustainable Competitive Advantage Performance Implications Below Average Returns Average Returns Temp Above Average Returns Above Average Returns

NO YES YES

NO NO YES

NO NO NO

NO YES YES

YES

YES

YES

YES

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Opportunity rarely knocks on your door. Knock rather on opportunity's door if you ardently wish to enter.
B. C. Forbes, 1880-1954, Scottish-born Financial Journalist and
Author
Ardently (full-heartedly, passionately)

Firm Infrastructure
Support Activities

Human Resources Management Technology Development Procurement

Services Inbound Logistics Operations Outbound Logistics Marketing & Sales

Margin

Margin

Primary Activities

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Assessing a Companies Resources and Capabilities: The Case of VW

RESOURCES
R1. Finance R2. Technology R3. Plant and equipment
Importance

VWs Relative Strength 4 5 8

CAPABILITIES
C1. Product development C2. Purchasing C3. Engineering C4. Manufacturing

Importance

VWs Relative Strength 4 5 9 7 3 4 4

6 7 8

9 7 7 8 6 6 9

R4. Location R5. Distribution

7 8

4 5
C5. Financial management C6. R&D C7. Marketing & sales C8. Government relations

Core Competencies Management adalah mensinergikan R+C di kuadran Key Strengths, atau melakukan strategi Turnaround membangunAppraising VWs beberapa R+C di kuadran Key Weakness, yang relevan dengan kebutuhan konsumen dan keperluan persaingan ke depan, agar bisa berpindah ke kuadran Key Strengths.

Resources and Capabilities

(Hypothetical only)

10

Superfluous Strengths

Key Strengths

C3 C8 Relative Strength C2 R2 R1 C6 R4 C5
Zone of Irrelevance 1 5 Key Weaknesses 10

R3 C4 R5 C1 C7

Strategic Importance

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Case Study: easyJet

Image: easyJet airline company limited.

Value Chain
The tendency to analyse organisations by reference to a narrow and visible aspect of its products resulted in analysts such as Porter (1985) developing the idea of the value chain. The product of a scheduled airline for example is not just a seat on an aeroplane, rather it is a complex set of connected activities that go to make up the total passenger experience - i.e. a value chain exists. For this part of resource analysis the purpose of examining the links in the value chain is to identify where cost savings may be made.

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Competitive Advantage: The Smile Curve

1-73

Example: Key Value Chain Activities

PULP & PAPER INDUSTRY

Printing & publishing Papermaking

Timber farming Logging

Pulp mills

1-74

11

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Example: Key Value Chain Activities

SOFT DRINK INDUSTRY

Processing of basic ingredients

Syrup manufacture

Retailing

Bottling and can filling Wholesale distribution

1-75

12

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Approaches to Capability Development

1)

Acquire and develop the underlying resources. Especially human resources --Externally (hiring) --Internally through developing individual skills Acquire/access capabilities externally through acquisition or alliance Greenfield development of capabilities in separate organizational unit (IBM & the PC, Xerox & PARC, GM & Saturn) Build team-based capabilities through training and team development (i.e. develop organizational routines) Align structure & systems with required capabilities Change management to transform values and behaviors (GE, BP) Product sequencing (Intel , Sony, Hyundai) Knowledge Management (systematic approaches to acquiring, storing, replicating, and accessing knowledge)

2) 3) 4) 5) 6) 7) 8)

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