3 discussions strategic mgmt

Week 1 Addendum

The challenge of the internal analysis is not being honest in identifying what the firm’s core competencies are and selecting resources and capabilities that do not yield a competitive advantage.

Functional Areas	Capabilities	Examples of Firms
Distribution	Effective use of logistics management techniques	Wal-Mart
Human Resources	Motivating, empowering, and retaining employees	Microsoft Corp.
Management Information Systems	Effective and efficient control of inventories through point-of-purchase data collection methods	Wal-Mart
Marketing	Effective promotion of brand-name products	Gillette Co. Polo Ralph Lauren Corp. McKinsey & Co.
	Effective customer service	Nordstrom Inc. Solectron Corporation Norrell Corporation
	Innovative merchandising	Crate & Barrel
Management	Ability to envision the future of clothing	Gap Inc.
	Effective organizational structure	PepsiCo
Manufacturing	Design and production skills yielding reliable products	Komatsu
	Product and design quality	Gap Inc.
	Miniaturization of components and products	Sony
Research & Development	Innovative technology Development of sophisticated elevator	Caterpillar Otis Elevator Co.
	control solutions
	Digital technology	Thomson Consumer Electronics

The Four Criteria of Sustainable Competitive Advantage
Valuable Capabilities	· Helps a firm neutralize threats or exploit opportunities
Rare Capabilities	· Are not possessed by many others
Costly-to-Imitate Capabilities	· Historical: A unique and valuable organizational culture or brand name · Ambiguous cause: The causes and uses of a competence are unclear · Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers
Nonsubstitutable Capabilities	· No strategic equivalent

Core Competencies

Sources of Competitive Advantage

Outsource

Competitive Advantage

Gained through Core Competencies

Discovering Core Competencies

Discovering Core Competencies

Strategic Competitiveness

Above-Average Returns

* Valuable

* Rare

* Costly to Imitate

* Nonsubstitutable

Value Chain Analysis

Criteria of Sustainable Advantages

Resources

* Tangible

* Intangible

Capabilities

Teams of Resources

Conditions Affecting Managerial Decisions about Resources, Capabilities and Core Competencies

Condition

Uncertainty

regarding characteristics of the general and the industry environments, competitors’ actions, and customers’ preferences

Condition

Complexity

regarding the interrelated causes shaping a firm’s environments and perceptions of the environments

Condition

Intraorganizational Conflicts

among people making managerial decisions and those affected by them

Resources, Capabilities, and Core Competencies

Discovering Core Competencies

Core Competencies

Capabilities

Resources

Tangible

Intangible

Resources

Are the source of a firm’s capabilities

Are broad in scope

Cover a spectrum of individual, social and organizational phenomena

Alone, do not yield a competitive advantage

Resources, Capabilities, and Core Competencies

Discovering Core Competencies

Core Competencies

Capabilities

Resources

Tangible

Intangible

Resources

Are a firm’s assets, including people and the value of its brand name

Represent inputs into a firm’s production process, such as:

Capital

Equipment

Skills of employees

Brand names

Financial resources

Talented managers

Resources, Capabilities, and Core Competencies

Discovering Core Competencies

Core Competencies

Capabilities

Resources

Tangible

Intangible

Resources

Tangible resources

Financial resources

Physical resources

Technological resources

Organizational resources

Intangible resources

Human resources

Innovation resources

Reputation resources

Tangible Resources

Financial Resources ( The firm’s borrowing capacity

( The firm’s ability to generate internal funds

Organizational Resources ( The firm’s formal reporting structure and its formal planning, controlling, and coordinating systems

Physical Resources ( Sophistication and location of a firm’s plant and equipment

Technological Resources ( Stock of technology, such as patents, trade-marks, copyrights, and trade secrets

Intangible Resources

Human Resources ( Knowledge

( Trust

( Managerial capabilities

( Organizational routines

Innovation Resources ( Ideas

( Scientific capabilities

( Capacity to innovate

Reputational Resources ( Reputation with customers

( Brand name

( Perceptions of product quality, durability, and reliability

( Reputation with suppliers

( For efficient, effective, supportive, and mutually beneficial interactions and relationships

Resources, Capabilities, and Core Competencies

Discovering Core Competencies

Core Competencies

Capabilities

Resources

Tangible

Intangible

Capabilities

Are the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state

Emerge over time through complex interactions among tangible and intangible resources

Often are based on developing, carrying and exchanging information, and knowledge through the firm’s human capital

Resources, Capabilities, and Core Competencies

Discovering Core Competencies

Core Competencies

Capabilities

Resources

Tangible

Intangible

Capabilities

The foundation of many capabilities lies in:

The unique skills and knowledge of a firm’s employees

The functional expertise of those employees

Capabilities are often developed in specific functional areas or as part of a functional area

Resources, Capabilities, and Core Competencies

Discovering Core Competencies

Core Competencies

Capabilities

Resources

Tangible

Intangible

Core Competencies

Resources and capabilities that serve as a source of a firm’s competitive advantage

Distinguish a company competitively and reflect its personality

Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities

“…are the essence of what makes an organization unique in its ability to provide value to customers.”

Leonard-Barton, Bowen, Clark, Holloway & Wheelwright

McKinsey & Co. recommends identifying three to four competencies to use in framing strategic actions.

Core Competencies:

Resources, Capabilities, and Core Competencies

Discovering Core Competencies

Core Competencies

Capabilities

Resources

Tangible

Intangible

Core Competencies

Activities that a firm performs especially well compared to competitors

Activities through which the firm adds unique value to its goods or services over a long period of time

Resources, Capabilities, and Core Competencies

Discovering Core Competencies

Valuable

Rare

Costly to Imitate

Nonsubstitutable

Valuable capabilities

Help a firm neutralize threats or exploit opportunities

Rare capabilities

Are not possessed by many others

Four Criteria of Sustainable Advantages

Resources

Inputs to a firm’s production process

Core Competence

A strategic capability

Capability

Integration of a team of resources

Capability

A nonstrategic team of resources

The source of

Does the resource or capability satisfy the criteria of sustainable competitive advantage

YES

NO

Core Competencies

Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage

Above Average Returns

Sustainable Competitive Advantage

YES

YES

YES

YES

Aver./Above Average Returns

Temporary Competitive Advantage

YES/NO

NO

YES

YES

Average Returns

Competitive Parity

YES/NO

NO

NO

YES

Below Average Returns

Competitive Disadvantage

NO

NO

NO

NO

Performance Implications

Competitive Consequences

Nonsub-stitutable

Costly to Imitate

Rare

Valuable