Lecture Week 4
Assessing The Strategic
Position.
The Internal Position
Part 1
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Learning Outcomes
At the end of this weeks learning sessions you
are expected to be able to understand:
• What is meant by strategic capability and
how this contributes to the competitive
advantage of organisations
• The strategic importance of resources,
competences, core competences and
dynamic capabilities
• The characteristics of strategic capabilities
to provide sustainable competitive
advantage.
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Strategic Capability - Outline
• Resources, competences and dynamic
capabilities
• Continual improvement in cost efficiency
• Strategic capabilities and competitive
advantage
• Organisational knowledge and strategic
capability
• Diagnosing strategic capability: value chain,
value networks, activity maps, benchmarking
• Developing strategic capabilities
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
3
Fit and Stretch
• Chapter 2
– External environment
– Opportunities and threats
• Chapter 3
– Internal strategic capability
– Strengths and weaknesses
• Matching strategic capabilities to opportunities in
environment
– Strategic fit
or
• Leveraging strategic capabilities for competitive advantage
– Strategic stretch
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
4
Core Concepts in
Strategic Capability – key areas of readings
Foundations
section 3.2
Cost efficiency
Section 3.3
Sustainability (SCA)
Section 3.4
Organisational
Knowledge
Section 3.5
Analysis
Section 3.6
(e.g. value chain)
Development of strategic
capabilities
Section 3.7
Sections in chapter 3 of
Johnson et al (2008) –
essential readings!
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Resource-based View of Strategy
• Competitive advantage derives from the
distinctiveness of an organisation’s
capabilities
– Some businesses achieve extraordinary profits
compared with others in the same industry
– Their resources or competences permit
• production at lower cost
or
• generation of superior product or service at
standard cost
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Strategic Capability
Strategic capability is the adequacy and suitability
of the resources and competences of an
organisation for it to survive and prosper
• Resources
– Tangible resources – physical assets of an organisation
– Intangible resources – non-physical assets of an
organisation
• Competences
– The activities and processes through which an
organisation deploys its resources effectively
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Exhibit 3.1 Strategic Capabilities and
Competitive Advantage
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Resources
• Physical resources
– Machines, buildings, production capacity
• Financial resources
– Capital, cash, debtors/creditors, suppliers of
money (shareholders, bankers etc)
• Human resources
– Number and mix of people, skills and
knowledge
• Intellectual capital
– Patents, brands, business systems, customer
databases, “goodwill”
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Strategic Capability- the terminology
(following slides – and core text)
Exhibit 3.2
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Competences
• How an organisation employs and deploys
its resources
• Efficiency and effectiveness of physical,
financial, human and intellectual resources
– How they are managed
– Cooperation between people
– Adaptability
– Innovation
– Customer and supplier relationships
– Learning
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Threshold Capabilities (1)
• Threshold capabilities: those essential to
compete in a given market
– Required to be “in the game”
• Threshold levels change over time
– changes in CSFs
– new entrants
– competitor activity
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Threshold Capabilities (2)
• Tradeoffs to achieve threshold capability for
different customers
– high volumes of standard products versus high
value specialities
• Possible redundancy of capabilities
– Can be difficult to dispose of
• Complementary resources and competences
– Competences required to manage the resources
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Unique Resources and
Core Competences
• Unique resources
– Critically underpin competitive advantage and
cannot be imitated or obtained by others
• Core competences
– Activities and processes through which
resources are deployed such as to achieve
competitive advantages in ways which others
cannot imitate or obtain
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Core Competences Lead to Competitive
Advantage When…
• They relate to an activity that underpins the
value in the product features
• They lead to levels of performance that are
significantly better than competitors
• They are difficult for competitors to imitate
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Cost Efficiency
• Customers benefit from cost efficiency via
– Lower prices
– More product features for the same price
• Cost management can create competitive
advantage … but …
• Cost management may become a threshold
capability:
– Customers do not buy at any price – need appropriate
value at acceptable price
– Competitive rivalry requires continual cost reduction
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Sources of Cost Efficiency
Exhibit 3.3
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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The Experience Curve
Exhibit 3.4
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Implications of the Experience Curve (1)
• Growth not optional
– Longer experience means lower costs
– Threat of competitors gaining cost advantages
• Real unit costs should decline each year
• First mover advantage can be important
– Accumulated experience
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Implications of the Experience Curve (2)
But
• Sustained competitive advantage unlikely due to
unachievable market share
Therefore
• Cost reduction becomes a threshold competence
• Outsourcing may become appropriate
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Capabilities for
Sustainable Competitive Advantage (1)
•
•
•
•
•
Value
Rarity
Robustness
Non-substitutability
Dynamic capabilities
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Rarity of Strategic Capabilities
Ease of transferability
Sustainability
Core rigidities
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Strategic Capability for the
Royal Opera House
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Capabilities for
Sustainable Competitive Advantage (1)
• Value
– Ability to deliver what the customer values
• Rarity
– Unique resources, rare competences
• Who owns the competence and how easily
transferable is it?
• Preferred access to customers/suppliers
• Situation dependent/non-transferable
• Sunk costs
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Capabilities for
Sustainable Competitive Advantage (2)
• Rarity
– Danger of becoming core rigidities
•
•
Difficult to change
Can lead to strategic drift
• Robustness
– Complexity
– Culture and history
– Causal ambiguity
• Non-Substitutability
– Risk of substitution
• At product/service level by other products or services
• At competence level by a different approach
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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Strategic Capability – Key Points
• Competitive advantage derives from strategic
capabilities
• Strategic capability comprises tangible and
intangible resources deployed via competences
• Continual improvement of cost efficiency is vital
• For sustainable competitive advantage strategic
capabilities must be valuable, rare, robust or nonsubstitutable
• Further readings in chapter 3 of Johnson at al (2008),
Black Board site for BLB10089-3 and do not forget your
tutorial preparation and portfolio assessment work
» Thank you!
BLB10089-3 Tutor . (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011)
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