3rd Lecture
MSc Agricultural
Economics and
Management

Environment
Sociocultural
Industry
Environment
By studying the external environment, firms identify what they might choose to do
Opportunities and threats
Competitor
Environment
Technological
General

By studying the internal environment, firms identify what they can do
Unique resources, capabilities, and core competencies
(sustainable competitive advantage)

 How do we effectively manage current core competencies while simultaneously developing new ones?
 How do we assemble bundles of resources, capabilities and core competencies to create value for customers?
 How do we learn to change rapidly?

Conditions Affecting Managerial Decisions
About Resources, Capabilities, and Core
Competencies

regarding characteristics of the general and the industry environments, competitors’ actions, and customers’ preferences

regarding the interrelated causes shaping a firm’s environments and perceptions of the environments

among people making managerial decisions and those affected by them

 Start with simple techniques
 Consider all tools and identify those likely to be useful
 Define the competitive capabilities the enterprise needs
 Identify the subsystems which support these capabilities
 Identify core competence relative to competitive capabilities
 Determine changes to enhance/improve core competence
 Take a systemic view
 Adjust the methods of analysis in the light of what is found

Single Businesses
Resource Audit
Analysis of cost and profit
Benchmarking
Value Chain Analysis
Supply Chain Analysis
Multiple Businesses
Portfolio Analysis
Both Single and Multiple Businesses
Core Competencies
Shareholder Value Analysis

 Resources
 Physical
 Human
 Financial
 Other
 Quality and Quantity
 Unique resources
 A good initial analysis

Parallels process of external audit
 Management
 Marketing
 Finance/accounting
 Production/operations
 Research & Development
 Management information Systems

Marketing Functions
 Customer analysis
 Selling products/services
 Product & service planning
 Pricing
 Distribution
 Marketing research
 Opportunity analysis

Finance/Accounting Functions
 Investment decision (Capital budgeting)
 Financing decision
 Dividend decision

Production/Operations Functions
 Process
 Capacity
 Inventory
 Workforce
 Quality

Research & Development Functions
 Development of new products before competitors
 Improving product quality
 Improving manufacturing processes to reduce costs





Information Systems
Security
User-friendly
E-commerce

 Current sources of profits and trends
 Recast standard reporting to give new insights
 Pragmatic approach to get value from time and effort spent
 A good initial analysis
Single Businesses
Resource Audit
Analysis of cost and profit
Benchmarking
Value Chain Analysis
Supply Chain Analysis

 Objective comparison with best in class
 Simple in theory - Hard in practice
 Observed differences in performance may be due to differences in parameters
 Qualitative observations may be more valuable than quantitative

Benchmarking - at three levels
Level of benchmarking
Resources
Competences in separate activities
Through
Resource audit
Analysing activities
Competences through managing linkages
Analysing overall performance
Examples of measures
Quantity of resources, e.g.
· revenue/employee
· capital intensity
Quality of resources, e.g.
· qualifications of employees
·
· age of machinery uniqueness (e.g.
patents)
Sales calls/sales person
Output/ employee
Materials wastage
Market share
Profitability
Productivity

 Basic Value chain
 Elegant in theory
 Time-consuming in practice
 Revised value chain to reflect power of people and knowledge

Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Primary Activities

To capitalize on the usefulness of the
Value Chain concept...
it is important to recognize that...

Value Chains are part of a Total Value System
Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain

Value Chains are part of a Total Value System
Firm Value Chain Channel Value Chain Buyer Value Chain
Supplier Value Chain
Upstream Value
Perform valuable activities that complement the firm’s activities

Value Chains are part of a Total Value System
Supplier Value Chain Firm Value Chain Buyer Value Chain
Upstream
Value
Perform valuable activities that complement the firm’s activities
Channel Value Chain
Each firm must eventually find a way to become a part of some buyer’s value chain

Value Chains are part of a Total Value System
Supplier Value Chain Firm Value Chain Channel Value Chain
Upstream Value
Perform valuable activities that complement the firm’s activities
Each firm must eventually find a way to become a part of some buyer’s value chain
Buyer Value Chain
Ultimate basis for differentiation is the ability to play a role in a buyer’s value chain
This creates VALUE!!

Value Chains are part of a Total Value System
Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain
Upstream
Value
Perform valuable activities
that complement the firm’s activities
Each firm must eventually find a way to become a part of some buyer’s value chain
Ultimate basis for differentiation is the ability to play a role in a buyer’s value chain
This creates VALUE!!
Value chains vary for firms in an industry, reflecting each firm’s unique qualities:
• History
• Strategy
• Success at Implementation

Outsourcing is the purchase of some or all of a valuecreating activity from an external supplier
Usually this is because the specialty supplier can provide these functions more efficiently
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Primary Activities

 Improve Business Focus
 lets company focus on broader business issues by having outside experts handle various operational details
 Provide Access to World-Class Capabilities
 the specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications

 Accelerate Business Re-Engineering Benefits
 achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process
 Share Risks
 reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities

 Free Resources for Other Purposes
 permits firm to redirect efforts from non-core activities toward those that serve customers more effectively

 Greatest Value
 outsource only to firms possessing a core competence in terms of performing the primary or support activity being outsourced
 Evaluating Resources and Capabilities
 don’t outsource activities in which the firm itself can create and capture value
 Environmental Threats and Ongoing Tasks
 do not outsource primary and support activities that are used to neutralize environmental threats or complete necessary ongoing organizational tasks

 Nonstrategic Team of Resources
 do not outsource capabilities that are critical to their success, even though the capabilities are not actual sources of competitive advantage
 Firm’s Knowledge Base
 do not outsource activities that stimulate the development of new capabilities and competencies

SUPPORT
ACTIVITIES
Firm’s infrastructure
Technology trapping and commercialisation
Strategic Management
PRIMARY
ACTIVITIES
INFORMATION SYSTEMS & KNOWLEDGE MANAGEMENT basic skills, know-how, technologies strategic assets core competence technical, management, marketing, sales, production price, place, promotion product service customer satisfaction, loyalty
HUMAN RESOURCE MANAGEMENT
PROCUREMENT AND SUPPLIER MANAGEMENT revenue, profit, market share,

RELATIVE MARKET SHARE
High Low
MARKET
GROWTH
High
Low
Stars
Cash cows
Question marks
Dogs
High
INDUSTRY
ATTRACTIVENESS
Med
Low
COMPETITIVE POSITION
Strong Average Weak
(a) The original Boston Consulting
Group Matrix (BCG)
(b) Attractiveness matrix*

Development
STAGE OF
PRODUCT/
COMPETITIVE POSITION
Strong Average Weak
Growth
MARKET
EVOLUTION Shake-out
Maturity
High
PUBLIC NEED
AND
Publicsector star
SUPPORT +
FUNDING
ATTRACTIVENESS
Golden fleece
Low
High
Decline
Political hot box
Back drawer issue
Low
ABILITY TO SERVE
EFFECTIVELY
(c) Product/market evolution matrix (d) Public sector portfolio matrix

Over-coming some pitfalls:
 Defining `high’ and `low’ (growth or share) can be difficult
 `Plot’ SBU’s not products
 Apply to market segments not whole markets
 Assess the `role’ of each SBU
 Consider wider resource implications - not just cash
 Dogs may have a positive role

Discovering Core
Competencies
Core
Competencies
Capabilities
Resources
 Tangible
 Intangible
Four Criteria of Sustainable
Advantages
• Valuable
• Rare
• Costly to Imitate
• Nonsubstitutable
Value Creation
Competitive
Advantage
Value
Chain
Analysis
• Outsource


Capabilities



Are the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state
Emerge over time through complex interactions among tangible and intangible resources
Often are based on developing, carrying and exchanging information and knowledge through the firm’s human capital


Capabilities

The foundation of many capabilities lies in:



The unique skills and knowledge of a firm’s employees
The functional expertise of those employees
Capabilities are often developed in specific functional areas or as part of a functional area


Core Competencies

Resources and capabilities that serve as a source of a firm’s competitive advantage:


Distinguish a company competitively and reflect its personality
Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities


Core Competencies

Activities that a firm performs especially well compared to competitors

Activities through which the firm adds unique value to its goods or services over a long period of time


Four Criteria of
Sustainable Competitive
Advantage

Valuable



Rare
Costly to imitate
Nonsubstituable

Building Sustainable Competitive
Advantage


Valuable capabilities

Help a firm neutralize threats or exploit opportunities
Rare capabilities

Are not possessed by many others

Building Sustainable Competitive
Advantage

Costly-to-Imitate
Capabilities

Historical



A unique and a valuable organizational culture or brand name
Ambiguous cause

The causes and uses of a competence are unclear
Social complexity

Interpersonal relationships, trust, and friendship among managers, suppliers, and customers

Building Sustainable Competitive
Advantage

Nonsubstitutable Capabilities

No strategic equivalent

Resources
 Inputs to a firm’s production process
Core Competence
 A strategic capability
The source of
Capability
 An integration of a team of resources
Does it satisfy the criteria of sustainable competitive advantage?
Yes
No
Capability
 A nonstrategic team or resource

 Sustainability of competitive advantage is a function of:
 the rate of core-competence obsolescence due to environmental changes
 the availability of substitutes for the core competence
 the imitability of the core competence

No No No No
Yes No No
Yes/
No
Yes Yes No
Yes/
No
Yes Yes Yes Yes
Competitive
Consequences
Competitive
Disadvantage
Competitive
Parity
Performance
Implications
Below Average
Returns
Average Returns
Temporary Competitive Advantage
Above Average to
Average Returns
Sustainable Competitive Advantage
Above Average
Returns


Never take for granted that core competencies will continue to provide a source of competitive advantage

All core competencies have the potential to become core rigidities

Core rigidities are former core competencies that now generate inertia and stifle innovation

The SWOT diagram may summarise the results of analyses
Strengths Weaknesses
Internal
Analyses
Threats Opportunities
External
Analyses

 What business are we really in?
 What real customer needs do we satisfy?
 What problem do we solve for our customers?