Strategic Management in Global Environments

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Capabilities & competitive advantage

The internal environment of the organization

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Today’s class focuses on understanding how the internal environment affects competitive advantage

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Inputs Resources Capabilities Competencies

Outcomes Accounting, Shareholder, Stakeholder returns, etc.

Internal processes Strategy formulation & implementation

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What is competitive advantage?

• It’s fickle (transitory): hard to gain and harder to sustain • Above average returns, based on performance: • Accounting profitability • Shareholder value creation • Economic value creation • Balanced scorecard • Triple bottom line

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What is the R&D spending paradox

• Apple vs Microsoft • Which company spends more on R&D? • What was Jobs’s R&D spending philosophy?

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Apple R&D spending philosophy

• “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about the money. It’s about the people you have, how you’re led, and how much you get it.” —S. Jobs

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What are KPIs?

• measurable value that reports progress against a result • Inspired action (progress towards objective)

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The resource- based view

The resource-based view suggests that a firm’s unique resources and capabilities provide the basis for a strategy.

Capabilities evolve and must be managed dynamically in pursuit of above-average returns.

Firms acquire different resources and develop unique capabilities. These resources may not be mobile across firms and that the differences in resources are the basis of competitive advantage.

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Value Value is measured by a product’s performance characteristics and its attributes for which clients are willing to pay.

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Sony’s next big hit in the 1990s was a flop

Introducing the minidisc

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I would love to love this product…

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Glossary of terms Managerial actions

1. Resource: input into a firm’s production process

2. Capability: capacity for integrated set of resources to performs a task/activity

3. Competitive advantage: ability to outperform rivals based on above ave. returns

4. Attractive industry: presents opportunities that can be exploited with firm’s capabilities

1. Identify firm resources. Study strengths & weaknesses relative to rivals

2. Determine what capabilities allow you to outperform rivals

3. Determine how resources & capabilities may create competitive adv.

4. Locate an attractive industry 5. Select strategy that best exploits

capabilities relative to opportunities in environment

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Source: Porter, 1985

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Building capabilities for performance main results from a recent McKinsey survey of CEOs

• Capability building is a high strategic priority for executives • Half of responders say that capability building is at least a top-three

priority for their companies • Defined as: learning, skill development • Sustain capabilities through alignment and measurement

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The Core Competence of the Corporation An old, but important paper by Hamel & Prahalad

• Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies. • …harmonizing streams of technology, the organization of work and delivery

of value • …communication, involvement, deep commitment to working across

organizational boundaries • …the skills that together constitute core competence must coalesce around

individuals {…} blending their functional expertise […] in new and interesting ways. • …unlike physical assets which deteriorate over time, competencies are

enhanced as they are applied and shared.

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21 Source: Barney, 1995

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