exploring business strategy
WEN.XU
lecture_4_strategic_capabilities.pptSlide 3.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Exploring Business Strategy
(247SAM)
Lecture 4: Strategic capabilities
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Where we are now?
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Intended learning outcomes for this week
- Identify strategic capabilities in terms of organisational resources and competences and how these relate to the strategies of organisations.
- Analyse how strategic capabilities might provide sustainable competitive advantage on the basis of their value, rarity, inimitability and organised support (VRIO).
- Diagnose strategic capability by means of VRIO analysis, benchmarking, value chain analysis, activity mapping and SWOT analysis.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Strategic capabilities: the key issues
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Resource-based view (1)
The resource-based view (RBV) of strategy asserts that the competitive advantage and superior performance of an organisation is explained by the distinctiveness of its capabilities.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Resource-based view (2)
A collective contributions by:
Penrose (1959), The Theory of the Growth of the Firm.
Rumelt (1984), Wernerfelt (1984),
Barney (1991),
Teece et al. (1997),
etc. etc.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Components of strategic capabilities
Table 3.1 Components of strategic capabilities
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Components of strategic capabilities
- Resources are the assets that organisations have or can call upon (e.g. from partners or suppliers),that is, ‘what we have’ .
- Competences are the ways those assets are used or deployed effectively, that is, ‘what we do well’.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Dynamic capabilities
Dynamic capability is the ability of an organisation to renew and recreate its strategic capabilities to meet the needs of changing environments.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Threshold and distinctive capabilities
- Threshold capabilities are those needed for an organisation to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market – ‘qualifiers’.
- Distinctive capabilities are those that critically underpin competitive advantage and that others cannot imitate or obtain – ‘winners’.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Resources and Competences
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
VRIO strategic capabilities
| V | Value: Do capabilities exist that are valued by customers and enable the organisation to respond to environmental opportunities or threats? |
| R | Rarity: Do capabilities exist that no (or few) competitors possess? |
| I | Imitability: Are capabilities difficult and costly for competitors to obtain and imitate? |
| O | Organisational support: Is the organisation appropriately organised to exploit the capabilities? |
Slide 3.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Imitability of strategic capabilities
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
The VRIO framework:
VRIO Strategic capabilities → sustained competitive advantage
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
An example of VRIO capabilities: Organisational knowledge
Organisational knowledge is organisation-specific, collective intelligence, accumulated through formal systems and people shared experience in that organisation.
Some of this knowledge is ‘Tacit’ knowledge that is, more personal, context-specific and hard to formalise and communicate – so it is difficult to imitate, for example, the knowledge and relationships in a top R&D team.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Diagnosing strategic capabilities
- Benchmarking
- The value chain and value system
- Activity systems (self-guided study)
- SWOT
- Benchmarking as a means of understanding the relative performance of organisations.
- Analysing an organisation’s value chain and value system as a basis for understanding how value to a customer is created and can be developed.
- Activity mapping as a means of identifying more detailed activities which underpin strategic capabilities.
- SWOT analysis as a way of drawing together an understanding of strengths, weaknesses, opportunities and threats an organisation faces.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Benchmarking
Benchmarking is a means of understanding how an organisation compares with others – typically competitors.
Industry/sector benchmarking - comparing performance against other organisations in the same industry/sector against a set of performance indicators.
Best-in-class benchmarking - comparing an organisation’s performance or capabilities against ‘best-in-class’ performance – wherever that is found even in a very different industry.
- Industry/sector benchmarking - comparing performance against other organisations in the same industry/sector against a set of performance indicators.
- Best-in-class benchmarking - comparing an organisation’s performance or capabilities against ‘best-in-class’ performance – wherever that is found even in a very different industry. (E.g. BA benchmarked its refuelling operations against Formula 1).
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
The value chain
- The value chain describes the categories of activities within an organisation which, together, create a product or service.
- The value chain invites the strategist to think of an organisation in terms of sets of activities – sources of competitive advantage can be analysed in any or all of these activities.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
The value chain
Figure 3.4 The value chain within an organisation
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
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Uses of the value chain
- A generic description of activities – understanding the discrete activities and how they both contribute to consumer benefit and how they add to cost.
- Identifying activities where the organisation has particular strengths or weaknesses
- Analysing the competitive position of the organisation using the VRIN criteria – thus identifying sources of sustainable advantage.
- Looking for ways to enhance value or decrease cost in value activities (e.g. outsourcing)
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
The value system
- The value system comprises the set of inter-organisational links and relationships that are necessary to create a product or service.
- Competitive advantage can be derived from linkages within the value network.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
The value system
Figure 3.5 The value network
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
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Uses of the value system
- Understanding cost/price structures across the value network – analysing the best area of focus and the best business model.
- Identifying ‘profit pools’ within the value network and seek to exploit these.
- The ‘make or buy’ decision: deciding which activities to do ‘in-house’ and which to outsource.
- Partnering and relationships – deciding who to work with and the nature of these relationships.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
SWOT analysis
SWOT summarises the strengths, weaknesses, opportunities and threats likely to impact on strategy development.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Uses of SWOT analysis
- SWOT can be used to examine strengths, weaknesses, opportunities and threats in relation to competitors.
- Key environmental impacts are identified using the analytical tools explained in Chapter 2.
- Major strengths and weaknesses are identified using the analytic tools explained in Chapter 3.
- Scoring (e.g. + 5 to - 5) can be used to assess the interrelationship between environmental impacts and the strengths and weaknesses.
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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Dangers in a SWOT analysis
- Long lists with no attempt at prioritisation.
- Over generalisation – sweeping statements often based on biased and unsupported opinions.
- SWOT is used as a substitute for analysis – it should result from detailed analysis using the frameworks in Chapters 2 and 3.
- SWOT is not used to guide strategy – it is seen as an end in itself.
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Slide 3.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
- Chapter 3 of Core Text
- Barney J.B. (1991) ‘Firm Resources and Sustained Competitive Advantage’. Journal of Management, 17 (1): 99-120.
- Rumelt R.P. (1984) ‘Toward a Strategic Theory of the Firm’, In R. Lamb (ed.) Competitive Strategic Management. Prentice Hall, Englewood Cliffs, NJ: 556-570.
- Teece D. J., Pisano G. and Shuen A. (1997) ‘Dynamic Capabilities and Strategic Management’. Strategic Management Journal, 18(7): 509-533.
- Wernerfelt B. (1984) ‘A Resource-based View of the Firm’. Strategic Management Journal, vol.5 No.2, 171-180.
