Foundations of Strategy
Chapter 3: Resources and Capabilities
Team 5
Micah Decuire, Kendra Kimberlin, Dylan Blase,
Skylar Bogle and Daniel Uribe
SPORTS AUTHORITY FILES FOR BANKRUPTCY
• A well know brand and past industry leader has filed for bankruptcy after 10 years of being
taken over by the hedge fund Leonard Green & Partners.
• This failure is a direct issue that came from the misuse of allocated resources after such an
extended period. Showing that they were not capable of retaining their abilities and remain a
top competitor.
• This bankruptcy will help other companies like Academy, Dick
http://money.cnn.com/2016/03/02/news/companies/sports-authority-bankruptcy/
Hyundai Motor Company
• Notorious for low quality cars
• Redesigned its brand
• Redesigned its product
• Strategic manufacturing and locations
• Was able to overcome the bad stigma by the market
The role of resources and capabilities in strategy formulation
• Resources and capabilities of a firm demonstrate how strategy interacts with the internal
environment.
• Resources and capabilities are more secure bases for formulating a strategy
• Firms realizing their core competencies
• Firms make mistakes when they focus on resources/capabilities that are about to be obsolete.
Identifying the organization’s resources
• Resources can be identified as tangible, intangible, human resource
• Tangible
• Are the easiest to identify, physical assets
• Intangible
• Usually the most valuable, but often invisible.
• Human resources
• Employees of a firm are important because they provide stability
Wells Fargo’s Resources and Linkage
Competitive
Advantage
Strategy
Organizational Capabilities
Resources
Tangible
●
Financial (Cost, securities, borrowing capacity)
●
Physical
Intangible
●
Technology (patents, copyrights, trade secrets)
●
Reputation
●
Culture
Human
●
Skill/know-how
●
Capacity for communication and collaboration
Industry
Success Factors
Hyundai Motor Company
Resource Category
Illustrative example
Strategic relevance
Tangible resources
Domestic and overseas
production
Ease into the market
Intangible resources
Built a reliable brand
Consumers highly regarded
brands
Human resources
Valuable talent and low
labor/production costs.
Strategic locations of
manufacturing.
Recruit talent and keep low
labor costs. Must maintain
lower costs and high quality to
compete in industry.
Identifying and Appraising Resources and
Capabilities
Core competences
• The fundamental capabilities in a firm’s strategies and performance.
• Make considerable value for the ultimate customer or contribute to the efficiency of obtaining that
value.
• Give an organization the basis for competing in a market.
Distinct Competence
• Distinct competence is what a firm does exceptionally well relative to the its competitors. It gives the
firm competitive advantage.
Kodak’s Capabilities
• After failing in Betamax, developed into video technology and produced camcorders, digital
cameras, and Playstation.
Classifying and Disaggregating Capabilities
Functional Analysis: Analyzes the functions of the
organization as a whole. Identifies principal functions
and then the capabilities within each function.
Support Activities
Value Chain Analysis: Separates the activities of the firm
into a sequential chain. Consists of primary and
support activities.
FIRMS INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
Primary Activities
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
ACTIVITIES
MARKETING
AND SALES
SERVICE
Hyundai Functional Analysis
Function
Illustrative Capability
Corporate functions
Offshore manufacturing. Financing market
growth
Management information
Threshold capability
Research and development
Upgrading projects and process
improvements
Operations
Ability to schedule production activities
Product design
Adapts products for local design
Marketing
Spent more than competitors in this area.
Hyundai Value Chain Analysis
Type of activity
Value chain label
Primary activities
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Service
Support activities
Infrastructure
Human resource management
Technology development
Procurement
Process and Routine Capabilities
Organizational processes are the sequence of
activities through which a specific task is
performed.
Routinization are regular and predictable
patterns comprising repetitive patterns of
activity.
Example: a software company having a method
for fixing a bug.
Example: McDonald’s methods for making a
hamburger and maintaining the milkshake
machine.
Appraising Resources and Capabilities
A firm’s ability to obtain
profit depends on their
ability to establish, sustain,
and appropriate returns to
their competitive advantage
Establishing Competitive Advantage
Scarcity: capabilities are not widely available
within an industry.
Relevance: the capabilities directly influence
success in the market.
Example: Technology or knowledge only
one company has.
Example: Wal Mart's relationship with
suppliers.
Sustaining Competitive Advantage
Durability: a capability must be able to last a
long period of time.
Transferability: the ability to buy a resource
or capability.
Example: Food products
Example: If a company were to be acquired
by another, how would the company’s
value change.
Wells Fargo Capabilities
• Does not take many risks
• Focus on highly involved customers
• Cross-selling
• Keeps funding low
• Keeps interest paid on deposits low
Putting Resource and Capability Analysis to Work
Putting Resource and Capability Analysis to Work
How do we put these analysis into practice in the business world?
This can be broken down into 3-step approach
1. Identify the key resources and capabilities
2. Appraising resources and capabilities
3. Developing strategy implications
Step 1 : Identify Key Resources and Capabilities
• Create a list of the firm’s resources and capabilities
• Key success factors
• What factors determine why some firms in an industry are more successful than others and on
what resources and capabilities are these success factors based?
Wells Fargo believes that three factors contribute to their success:
the people, process and philosophy.
Step 2: Appraising Resources and Capabilities
Resources and Capabilities now need to be appraised against two key criteria:
• Importance
• Ultimate objective is not to attract customers but to establish sustainable competitive
advantage
• Relative Strength
• Internal discussion to share insights and evidence
• building consensus regarding organizations resources and capabilities
• benchmarking: powerful tool for quantitative assessment of performance relative to that
of competitors
WF ensures you maintain a great relationship with them by seeing the same person regularly and them
being aware of your needs and future plans
Appraising Hyundai’s resources and capabilities
Importance
Hyundai’s relative strength
Marketing and Sales
9
7
Product development
8
9
Manufacturing
8
8
Distribution/dealership
network
8
7
Plant and Equipment
8
9
Step 3: Developing Strategy Implications
•
Exploiting Key Strengths
• formulate our strategy to ensure resources are used to the greatest extent
• use strengths to differentiate from competitors
•
Managing Key Weaknesses
• convert weaknesses into strengths
• outsource
Developing Resources and Capabilities
• The most difficult problem in developing capabilities is that we know
little about the linkage between resources and capabilities.
• In business: the firms that demonstrate the most outstanding
capabilities are not necessarily those with the greatest resource
endowments.
• GM has 4 times the output of Honda and 4 times the R&D expenditure,
yet over the past three decades, it is Honda, not GM that has been the
world leader in powertrain technology.
• The most successful animated movies recently have been by
newcomers Pixar and Aardman Animations rather than industry giants
Walt Disney.
• In telecom equipment, it was the upstart Cisco, rather than the
established Alcatel-Lucent, Ericsson and Siemens that established
leadership in new era of package switching
• Managers with requisite knowledge for capability building is a critical
resource
Path dependency and the role of early experience.
• Organisational capability is path dependent- a company’s capabilities
today are the result of its history.
• Wells Fargo developed a reputation for trust, dependability, safety and
security after offering banking and express services in Gold Rush Port
in San Francisco.
Structure of organisational capability
• Capabilities: involve coordination between organisational members
with them integrating their skills with each other and a variety of other
resources.
• Organisational routines emphasizes informal dimensions since it
involves ‘repetitive patterns of activity’, that are ‘ordinarily
accomplished without conscious awareness’
Two factors that contribute to efficiency and effectiveness
• Organisational learning
• The more complex the task is, the greater the gains from learning-by-doing.
• Culture, an intangible resources that plays a pivotal role.
• The capacity for organisational members to work together successful with minimal
management involvement depends upon shared common values, behavioral norms and
perceptions.
• WF employees work together with common values of wanting to provide customers with the best
customer service they can give and deepen their relationship with customers and get their trust.
Are organisational capabilities rigid or dynamic?
People have challenged the notion that core capabilities inhibit firm’s abilities to access and develop new
capabilities.
• Flexibility in organisational routines: Studies have proven that even in the most basic daily operation
show that even in the most basic day to day operations that there are variation and they have the
capacity to adapt.
• Dynamic Capability: The capacity to change can be regarded as an organisational capability.
• Dynamic capabilities: a ‘firm’s ability to integrate, build and reconfigure internal and external
competences to address rapidly changing environments.’
• Capabilities that allow an organisation to reconfigure its resources in order to adapt and
change.
• ‘Higher level process through which the firm modifies its operating routines.’
• It is agreed that dynamic capabilities are not common at all.
• Highly developed capabilities in existing products and technologies create barriers for developing
capabilities for new products and technologies for companies.
Exploiting completely new business opportunities can be either a disadvantage or advantage to a
company depending upon if the change or innovation is competence enhancing or destroying.
• TV manufactures, most successful were those who were previously producers of radio. they were
successful because the technology was compatible with their capabilities.
• Typically, the most successful firms in new industries are start up companies rather than established
firms.
APPROACHES TO CAPABILITY DEVELOPMENT
• Acquiring capabilities: mergers, acquisitions and
alliances
• Internal development: focus and sequencing
• Harley-Davidson Case Study
ACQUIRING CAPABILITIES
Mergers, Acquisitions, Alliances
•
These methods are typically used for areas that
the current company is struggling with or needs
in order to meet market demands .
•
In acquiring capabilities in this manner comes
with a few issues such as integration and a
premium that must be paid to gain another entity.
•
Alliances relieve the costly aspect of the first two
options, but require trust and similar paths into
the future to maintain the relational capability.
Wells Fargo
•
Since Wells Fargo’s origin in 1852 the company
has become very familiar with the concept of
acquiring and merging with other banking
enterprises to continue their own growth.
•
Mergers (Northwest)
•
Acquisitions (Wachovia)
•
Alliances (Museums)
•
What was the capability that Wells Fargo
needed? Was it successful?
INTERNAL DEVELOPMENT
This concept of internal development requires serious goals and constant management of the
progress as they develop a new focus. This requires all hands on deck from every level to achieve
making the vision harder to obtain consistently over time.
Sequencing then must be taken into account as well with the idea of resource leveraging meaning
using the same resources to gain a new perspective for the future expansion.
Wells Fargo
With the constant growth that Wells Fargo has
achieved and continues to go after, the focus of
internal development is considerably smaller than its
mergers and acquisitions with the focus on control of
the growth and culture instead of its banking practices.
Hyundai’s Focuses
•
Assembly & Manufacturing
•
Global Logistics
•
In order to achieve these Hyundai used
recruitment in new employees that had other car
industry experience as well as creating
professional groups to help achieve these
capabilities.
CASE STUDY: HARLEY-DAVIDSON
•
1903 founded by William Harley and three Davidson brothers: William, Arthur and Walter with the classic v-twin
engine.
•
A struggle began from 1953-1981 with the main competition coming from overseas for motorbikes they were soon
acquired by AMF to expand production, however this came at with degraded quality.
•
Not satisfied with the quality senior management decided to take back the strength of just in time production. A
new beginning for the company came with the strategic buyout of AMF at the cost of debt.
•
Customers recognized the changes and created surging demand; which in turn developed loyalty and brand
strength. Harley-Davidson became know for the American image of freedom and individuality.
•
With the demand Harley-Davidson became focused on the needs and wants of the consumers and decided to
equate that to the products that were being developed. In addition they refocused the stores to full service with
parts, repairs and classes to add to the overall brand loyalty.
OVERALL TAKEAWAYS
•
Firms need to hone in on their core competencies before expanding.
•
Having a balance of tangible, intangible and human resource is crucial.
•
Analyze the progress of new resources and capabilities to ensure they are really working out
for the health of the company.
•
Use external sources to direct the entity for new and better things in the future.