Slide strategic management 6e by harrison chapter 3 the internal environment and strategic direction

Chapter Organizational Resources and Competitive Advantage Learning Objectives To understand: • the characteristics of resources and capabilities that create a foundation for sustainable competitive advantage • how human resources, physical resources, financial resources, knowledge and learning resources and general organizational resources can lead to competitive advantage • how resources are interconnected and the implications of resource interconnectedness for competitive advantage • the usefulness of the value chain in understanding sources of competitive advantage • traditional and stakeholder-based measures of firm performance Strategic Management Process External and Internal Analysis Strategic Direction Strategy Formulation (corporate and business level) Strategy Implementation and Control Strategic Restructuring Organizational Resources Leading to Sustainable Competitive Advantage Organizational Resources and Capabilities Financial Valuable? Physical Human Knowledge & Learning Organizational Unique? Potential for Competitive Advantage Appropriate systems in place? Managers taking advantage of potential? Realized Competitive Advantage Difficult or costly to imitate? No readily available substitute? Sustainable Competitive Advantage Organizational Resource Interconnectedness Human Resources Physical Resources Financial Resources Knowledge and Learning Resources General Organizational Resources Human Resources • Employees – recruitment, training programs, rewards system • Managers – CEO and top management team • Owners/board of directors – effective corporate governance Physical Resources • Tangible resources such as machinery, plants and products – easy to imitate, but the processes to create them are not • Locations – competitive clusters can provide advantages to companies and consumers Financial Resources • Strong cash flow, low levels of debt, strong credit rating, access to low interest capital and reputation for creditworthiness can increase strategic flexibility – more responsive to new opportunities Use of Financial Analysis in Strategic Management • Identify strengths and weaknesses • Diagnose problems • • • • Declining profitability Insufficient liquidity Leverage too high or too low Internal mismanagement • Essential comparisons • Firm to competitors • Firm to itself over time Some Commonly Used Ratios • Profitability • Gross Profit Margin • Net Profit Margin • ROA • ROE • Liquidity • Current • Quick • Leverage • Debt to Equity • Total Debt to Total Assets (Asset Ratio) • Activity • Asset Turnover Average Collection Period • Accounts Receivable Turnover Inventory Turnover 10 Knowledge and Learning Resources Organizational learning leads to strengths in other resource areas It involves: •Knowledge creation •Knowledge retention •Knowledge sharing •Knowledge utilization Two types of knowledge: •Codified – can be communicated with precision through written means Typically not a good source of sustainable competitive advantage •Tacit – difficult to describe with words Better source of sustainable competitive advantage 11 General Organizational Resources Some general organizational resources are hard to imitate and are therefore excellent sources of sustainable competitive advantage: •Organizational reputation •Corporate brands •Unique configurations of stakeholder relationships – joint venture, long-term contracts and other types of partnerships and alliances •Organizational structure and internal systems •Organizational culture 12 Value Chain Activities Basic Value Chain Activities Supply Chain Internal Distribution Marketing Management Management Operations and Location Management of Post- Management Management Transaction Contacts Activities that Support the Basic Value Chain Activities Product/service R&D Human resources/compensation systems Financial management/accounting Information technology (IT) Legal support Strategic planning processes Consumer research 13 Firm Performance • Traditionally performance measured as financial performance (ROA, ROE, shareholder returns) › Short-term mentality › Externalities • Activities of the firm provide value to a broad spectrum of stakeholders › Need a more balanced and complete set of measures › Reflect more of the value a firm creates for its stakeholders 14 Examples of Stakeholder-Based Performance Measures • Employees › Surveys of employee happiness › Turnover • Customers › Growth in sales › Surveys of customer satisfaction • Suppliers › Longevity of supplier relationships › Existence or absence of supplier-led legal actions • Shareholders › Shareholder returns › Risk associated with returns • Community › Inclusion on list of socially responsible firms › Percent of income donated to community or social causes 15 ... • the usefulness of the value chain in understanding sources of competitive advantage • traditional and stakeholder-based measures of firm performance Strategic Management Process External and. .. Internal Distribution Marketing Management Management Operations and Location Management of Post- Management Management Transaction Contacts Activities that Support the Basic Value Chain Activities... contracts and other types of partnerships and alliances •Organizational structure and internal systems •Organizational culture 12 Value Chain Activities Basic Value Chain Activities Supply Chain Internal