Slide of strategic management w5

Bma799 Strategic management Lecture Five: Resources and Capabilities Learning Objectives • • • • • Explain the nature of ‘competitive advantage’ Discuss the concept of the value chain and its links to competitive advantage Describe the role of an organisation's resources and capabilities as a basis of competitive advantage Identify the resources and capabilities of an organisation Evaluate the potential for an organisation's resources and capabilities to sustain competitive advantage The Nature of Competitive Advantage • Competitive advantage is a characteristic, feature or opportunity that an organisation • possesses that will make it more attractive than its competitors For any company, the creation and sustainability of competitive advantage is a main consideration when they formulate their strategy • Competitive advantage is displayed by superior performance and value created for the organisation’s customers The Nature of Competitive Advantage • The notion of value is central to competitive advantage of any organisation • Value creation is defined in many different ways • Value refers to a product’s performance characteristics and attributes for which customers are willing to pay The Nature of Competitive Advantage • The ability of organisations to develop a competitive advantage depends on their • ability to position their business system in the business environment Business system comprises resources (inputs), activities (throughputs) and product/service offerings (outputs) intended to create value for customers Product/Service Offerings • To achieve an attractive fit with customers’ needs an organisation must know its • • • target segment of the market The decision regarding the target customer is an important one Organisations divide customers into groups according to the differences in customers’ needs This is referred to as market segmentation Product/Service Offerings • Market segments can be defined on the basis of buying criteria employed and/or • • buyer behaviour exhibited Market segmentation should allow an organisation’s strategists to gather a better insight into customers and lead to new opportunities for developing product/service offerings that are tailored to the needs of target customers Competitive advantage can be achieved only if a company is able to satisfy its chosen market segment Product/Service Offerings • Positioning is achieved by alignment of the three elements of the business system: • • product/service offering, value chain and the resources base Positioning is concerned with the decisions ‘where to compete’ and ‘how to compete.’ The choice of certain product/market combinations in which a company wants to participate is referred to as the choice of competitive scope Value Chain Analysis • Value chain analysis enables organisations to understand which activities create value and which not • The value chain is a template used by an organisation to identify its cost position, and the means that might be used to facilitate implementation of a chosen business level strategy • A competitive advantage can be created if the company’s value chain creates additional value without incurring significant extra costs Resource-Based View The resource-based model assumes that: • Each organisation is a collection of unique resources and capabilities that provides the basis for its strategy and is the primary source of returns • Differences in firms’ performance are due primarily to their unique resources and capabilities rather than structural characteristics of the industry • The central question of the RBV is ‘why some companies in the same industry outperform others?’ The Resources of the Company • Resources and capabilities of an organisation are two different and distinct categories • Resources are the productive assets owned by an organisation • The three principle types of resources: ―tangible ―intangible ―human Organisational Capabilities • Resources are not productive on their own • To perform a task, a team of resources must work together • Organisational capability refers to an organisation’s capacity to deploy resources for a desired result Classifying capabilities • Two approaches for classifying capabilities are: • A functional analysis identifies organisational capabilities in relation to each of the principal functional areas of the company • A value chain analysis separates the activities of the company into a sequential chain Value Chain Analysis Fig 5.1 Primary Activities • Primary activities are actions directly associated with production, delivery, sales and service The key activities include: • Inbound logistics, • Operations, • Outbound logistics, • Marketing and sales, and • Service Support Activities • Support activities are actions that enable primary activities to take place, including: • Human resource management, • Procurement, • Technology development and • Organisational infrastructure Competencies and Capabilities • Competence is the product of learning and experience that represents real proficiency in • • performing an internal activity Organisations deliberately develop their competencies over time by making efforts to something Competencies represent the combination of skills, resources and technologies, as opposed to a single specific skill or resource Competencies and Capabilities • In general, every organisation has a collection of capabilities, some of them stronger and more competitive than the others • Competitive capability is a competence that is appreciated by customers and distinguishes the organisation from its rivals Competencies and Capabilities • Core competencies are activities that an organisation performs better than its other internal • activities and that are the most critical to competitiveness and profitability Core competencies may reside, for example, in the company’s people, technology, ability to build networks and systems which enable electronic commerce, or skills in manufacturing innovative products Competencies and Capabilities • Distinctive competence refers to an activity an organisation does well relative to its rivals • Generally, a core competence becomes a basis for competitive advantage only when it is a distinctive competence The VRIO Framework • According to Barney, a firm resource must have four attributes including: • it must be valuable • it must be rare among a firm’s current and potential competition, • it must be imperfectly imitable, • it must be able to be exploited by a firm’s organisational processes The VRIO Framework Table 5.3 Evaluating Resources and Capabilities Fig 5.6 Establishing a Competitive Advantage • For a resource or capability to establish a competitive advantage, two conditions • • must be present: Scarcity If a resource or capability is widely available within the industry, then it may be essential to compete but it will not be a sufficient basis for competitive advantage Relevance A resource or capability must be relevant to the KSFs in the market Sustaining a Competitive Advantage • It is important to assess the ability to establish competitive advantage but also for how • long that advantage can be sustained This depends upon whether they have the following characteristics: • durability • transferability • replicability ... nature of ‘competitive advantage’ Discuss the concept of the value chain and its links to competitive advantage Describe the role of an organisation's resources and capabilities as a basis of competitive... value created for the organisation’s customers The Nature of Competitive Advantage • The notion of value is central to competitive advantage of any organisation • Value creation is defined in many... product/service offerings (outputs) intended to create value for customers Product/Service Offerings • To achieve an attractive fit with customers’ needs an organisation must know its • • • target segment of