Ellen Drost, 2014 Internal Analysis: Analyzing Resources and Capabilities Dr. Ellen A. Drost

Ellen Drost, 2014Ellen Drost, 2014

Internal Analysis:Internal Analysis:Analyzing Resources and CapabilitiesAnalyzing Resources and Capabilities

Dr. Ellen A. DrostDr. Ellen A. Drost


OutlineUnderstanding resources and capabilities and core competency

Functional perspective and the value chain

How to assess a capability

How to sustain/develop a capability


Resources and Capabilitiesof the Firm

How do companies use their resources, capabilities, and core competencies to create value for customers?

Will changes in the environment make companies core competencies obsolete?

Are substitutes available for their core competencies?

Are core competencies easily imitated?


Competing on ResourcesCase:

– Consider the competitive conditions in which whole-sale or warehouse type businesses compete.

– The industry-based view suggests that all firms “stuck” in this industry are likely to suffer.

Question:– How can Wal-Mart and Target consistently do

well in such an unattractive industry even during periods of recession?


Competing on Resources (cont’d)

Answer:

– There must be resources and capabilities specific to successful firms like Wal-Mart and Target that are not shared by their unsuccessful competitors in the same industry.

This insight has been developed into a resource-based view, which has emerged as one of the two leading perspectives on strategy.


Competing on Resources (cont’d)

Focus of the industry-based view:

– How “average” firms within an industry compete.

Focus of the resource-based view:

– How individual firms differ from each other within an industry and can outperform the industry average consistently and significantly.


Resources and Capabilities

The Resource-based View

– A firm consists of a bundle of productive resources and capabilities.

Resources

– The tangible and intangible assets a firm uses to choose and implement its strategies.

Capabilities

– The skills a firm can use to bring its resources to bear. “a firm’s capacity to deploy resources for a desired end result” (page 122, Grant & Jordan, 2012)


Resources of the FirmTangible

– Resources and capabilities that are observable and easily quantified

– Broadly organized in four categories: Financial Physical Organizational

Intangible– Resources and

capabilities not easily observed or difficult (or impossible) to quantify

– Examples include: Human Technological

– innovation Reputation


RESOURCE CHARACTERISTICS INDICATORS

Financial Borrowing capacity Debt/ Equity ratioInternal funds generation Credit rating

Tangible Net cash flow

Resources Physical Plant and equipment: Market value of size, location, technology fixed assets.flexibility. Scale of plantsLand and buildings. Alternative uses forRaw materials. fixed assets

Technology Patents, copyrights, know how No. of patents ownedR&D facilities. Royalty income

Intangible Technical and scientific R&D expenditureResources employees R&D staff

Reputation Brands. Customer loyalty. Company Brand equityreputation (with suppliers, customers, Customer retentiongovernment) Supplier loyalty

Human Training, experience, adaptability, Employee qualifications,

Resources commitment and loyalty of employees pay rates, turnover.

Identifying Resources


Identifying Capabilities

What is a capability? A firm’s capacity to undertake a particular productive

activity An activity that creates competitive advantage Distinctive competence or core competence

Capability as a routine

Classify capabilities Functional analysis Value chain analysis


FUNCTION CAPABILITY EXEMPLARSCorporate Financial management ExxonMobil, GEManagement Strategic control IBM, Samsung

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

MIS Speed and responsiveness through Wal-Mart, Dell rapid information transfer Capital One

R&D Research capability Merck, IBMDevelopment of innovative new products Sony, 3M

Manufacturing Efficient volume manufacturing Briggs & StrattonContinuous Improvement Nucor, Harley-DFlexibility Zara, Southwest Air

Design Design Capability Apple, Nokia

Marketing Brand Management P&G, LVMH, PepsiCoQuality reputation Johnson & JohnsonResponsiveness to market trends MTV, L’Oreal

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

Customer Service Singapore AirlinesCaterpillar

Identifying Capabilities – Functional Analysisis


Value Chain AnalysisValue Chain Analysis Value Chain AnalysisValue Chain Analysis

FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

LOGISTICS LOGISTICS & SALES

PRIMARY ACTIVITIES

SUPPORT ACTIVITIES


Value Chain AnalysisShows how a bundle of resources and capabilities come together to add value.

– Forces strategists to think about firm resources and capabilities at a micro-activity-based level.

– The key is to examine whether the firm has the resources and capabilities to perform a particular activity in a manner superior to competitors.

Requires that strategists ascertain a firm’s strengths and weaknesses on an activity-by-activity basis, relative to rivals, in a SWOT analysis.


Value Chains are Part ofa Total Value System

Supplier Value Chain

Firm Value Chain

Channel Value Chain

Buyer Value Chain

• Upstream Value

• Perform valuable activities that complement the firm’s activities

• Each firm must at some point in time find a way to become a part of a buyer’s value chain

• A critical basis for differentiation is the ability to play a role in a buyer’s value chain


The Nature of CapabilityCapabilities are the outcomes of processes or routines

–Organizational processes

–Routinization

Hierarchy of capabilities

–Specialization

–Cross-functional


Appraising Resources and Capabilities

Establishing competitive advantage

–Scarcity

–Relevance

Sustaining competitive advantage

–Durability

–Transferability

–Replicability


Analyzing Resources and Capabilities

Identify AppraiseAssessing importanceAssessing relative strength


Developing Resources and Capabilities

Company’s capabilities today are the result of its history (path dependency)

Linkage between resources and capabilitiesDynamic capabilities

–Ability to integrate, integrate and reconfigure

internal and external competences to address rapidly changing environments

Ellen Drost, Summer 2007Ellen Drost, Summer 2007

Dynamic Capabilities in Slow- and Fast-Moving Industries

Table 3.3

Approaches to Capability Development

Acquisition

Internal development

–Focus and sequencing

Incremental development

Internal Development of Capability Integrating resources into capabilities, requires organizational processes which are facilitates by organization culture and strategic intent.

These processes, which are a combination of human and non-human resources, perform a capability which becomes a core capability through routinization, management systems supported by appropriate strategic intent (adapted from Grant & Jordan, 2012, page 152)

Documents

Ellen Drost, 2014 Internal Analysis: Analyzing Resources and Capabilities Dr. Ellen A. Drost