Strategic Analysis Report
Sam1994
AnalysingStrategicCapability.pptxCorporate Strategy.
Week 6: Lecture
Analyzing Strategic
Capability.
Resource-Based View:
introduce what the Resource-Based View is
Foundations of Strategic Capability:
understand resources & capabilities
Value Chains:
- explain where value is created within a value chain
Learning Outcomes.
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Just as the external business environment is important (opportunities and threats), managers need to understand the the internal firm environment: the unique strengths and weaknesses of their firm relative to their competitors.
Internal Business Environment.
doing things
When Google entered the search engine market in 1998, there were many established rivals, e.g. AltaVista, HotBot, Lycos, Yahoo! etc.
But Google did not care much about competition. From the start, Google was happy to be different, i.e. different strategies & products.
From 2003, Google diversified into various industries such as Android phones, self-driving car project, Google glass etc.
Watch this video on Google history:
https://www.youtube.com/watch?v=n9eo8b3hEns
differently
Strategic fit is about developing strategy by identifying opportunities in the business environment and adapting resources and competences so as to take advantage of these.
Strategic stretch is about identifying and leveraging the resources and competencies of the organization to yield new opportunities or to provide competitive advantage.
The contrast between strategic fit and strategic stretch exemplifies different views on how firms should compete in global markets.
Strategic Fit versus Strategic Stretch.
Resource-Based View of Strategy.
The RBV says that advantage and superior performance stem from the distinctiveness of what firms can do.
Positioning View: the business opportunity should be the starting point for developing successful strategies.
Resource-Based View: unique firm resources should be the starting point for developing successful strategies.
The RBV suggests that firms differ in their bundles of resources and what they can do – their capabilities.
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Firms have resources and capabilities.
Resources are all assets, capabilities, organizational processes, firm attributes, information, knowledge, patents, real estate etc. controlled by a firm.
The Components of Capability - Resources
| Resource | Characteristics | Key indicators |
| Tangible Resources | ||
| Financial Resources | Firm’s borrowing capacity and internal funds generation | Debt/equity ratio Operating cash flow Credit rating |
| Physical Resources | Land, buildings, location of company premises, equipment, other physical resources, raw materials etc. | Market values of fixed assets Scale of plants Flexibility of fixed assets |
| Intangible Resources | ||
| Technological Resources | patents, trademarks and other intellectual property, research labs and other facilities etc. | Number of patents Revenue from patents Number/locations of labs |
| Reputation | Reputation with customers (e.g. brand ownership, reputation for quality); Reputation with suppliers and others | Brand equity Repeat purchases Objective performance measures |
| Human Resources | Employees: skills, education, training, experience, adaptability, loyalty | Employee qualifications Employee turnover rate Absentee rates |
Source: Grant, Contemporary Strategy Analysis
Capabilities are complex bundles of skills and collective learning, exercised through organizational processes, to ensure superior coordination of functional activities.
Examples: ability effectively to anticipate customer needs; the ability to monitor new technology; effective customer service delivery; skilful human resource management; or effective strategy development.
E.g. Wal-Mart’s capabilities include effective use of logistics management techniques, the ability to provide lower prices; and the ability to work closely with suppliers through collaborative relationships.
The Components of Capability - Capabilities
Resources versus Capabilities.
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Threshold & Distinctive Capabilities.
Threshold Capabilities are those needed to meet necessary requirements to compete in a given market & achieve parity with competitors – ‘qualifiers’.
Distinctive (Unique) Capabilities are those that critically underpin competitive advantage & that others cannot imitate or obtain – ‘winners’.
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Threshold & Distinctive Capabilities.
(Note this for our seminar analysing the James DYSON case!)
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Core Competences.
Core competences (Hamel & Prahalad, 1990) are the linked set of skills, activities & resources that, together:
deliver customer value
differentiate from competitors
potentially, can be extended & developed as opportunities arise.
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Competence as Tree Metaphor.
Many companies outsource various functions that were once considered core to their industries.
For instance, car manufacturers hire contractors to do much of their car manufacturing, while oil companies hire contractors to drill for oil.
Therefore, a key question is which resources and capabilities the organization should retain inside the company.
One simple economic rule is that:
a firm should obtain resources from outside when the costs of obtaining an activity from the market are lower than the costs of doing it yourself
What resources to keep inhouse?
Managers must understand the economic value of the different activities that a firm performs.
Value added is the difference between the cost of inputs and the market value of outputs; it is the value that a firm adds to its bought-in materials and services through its own production and marketing efforts within the firm.
The Concept of Value Added.
Example: Product value of South African grapes
Source: Frynas, J. G. and Mellahi, K. Global Strategic Management 3e (Oxford University Press, 2014)
Value Chain Analysis.
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance
by Michael E. Porter. Copyright © 1985, 1998 by Michael E. Porter. All rights reserved
Value chain analysis depicts the main activities inside the firm and aims to reveal the relative value added amongst the different parts of the firm’s operations.
Undertaking a value chain analysis helps the firm to understand its cost position and to identify its competitive strengths.
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Simplifed value chain for South African fresh fruit and vegetables
Simplifed value chain activities in four different industries
Example: Business model of the clothing retailer Zara
Source: Frynas, J. G. and Mellahi, K. Global Strategic Management 3e (Oxford University Press, 2014)
Zara’s success in achieving extremely fast product cycles was supported by in-house textile manufacturing subsidiary and close relationships with sewing workshops in Spain and Portugal
