Strategic Management/
Business Policy
Joe Mahoney
Resources and Capabilities
Strategy from a resource-based
perspective
How do resources create
competitive advantage?
Value-chain analysis
The linkage between organizational
learning and capabilities
Resources and Capabilities
How much is core competencies on the
mind’s of modern executives?
101 CEOs survey and 45 academics on
major editorial boards
CEO Priorities (academic rankings in parentheses):
1. Managing operations and building core competencies
(not ranked by academics)
2. Managing in a regulatory environment/managing the
regulatory process (4)
Resources and Capabilities
CEO Priorities (academic rankings in
parentheses):
3.
4.
5.
6.
7.
Global competition
Managing suppliers
Technology/innovation
Competitive strategy
and industry analysis
Leadership
15. Restructuring
(1)
(not ranked)
(3)
(not ranked)
(8)
(2)
The Role of Strategy In Business - The Linkage
Between Strategy, Resources, & Organization
Strategy
Resources
& Capabilities
Organization
Different Types Of Resources
Physical Assets
Plant, Equipment, and Real Estate
Financial Assets
Cash and Leverage
Human Assets
Individual Skills and Capabilities
Intangible Assets
Brand Names, Technology, Reputation
Organizational Assets
Organizational Routines & Team-Embodied
Skills
How Do We Use These Different Resources To Create
Competitive Advantage?
Efficiency
Ricardian Economics
Quality
Qualitative Differences in Resources
Innovation and Growth
Penrose’s Theory of Firm Growth
How Do Resources Lead to Competitive Advantage?
Valuable
Does it create “value” for the customer?
Rare
Do other firms have similar resources?
Difficult to Imitate/Substitute
Unique Historical Conditions
Causal Ambiguity
Organization
Are you organized to take advantage of your resources?
Identifying A Firm’s Resources &
Capabilities Through Value Chain Analysis
What Sequence of Activities Are
Involved In Creating Value?
Firm Infrastructure
Human Resource Management
Purchasing
& Inbound
Logistics
Production
Distribution
Marketing
& Sales
Service
MARGIN
Technology & Product Development
Hostess’s Cost Components
80
Profit
70
Marketing: Promotions
Cents per unit
60
Marketing: Advertising
50
Outbound logistics
40
Operations: Manufacturing
30
Operations: Packaging
20
Operations: Ingredients
10
0
© 1999 Pankaj Ghemawat
Relative Cost Analysis
90
80
Profit
70
Marketing: Promotions
Cents per unit
60
Marketing: Advertising
50
Outbound logistics
40
Operations: Manufacturing
30
20
Operations: Packaging
10
Operations: Ingredients
0
Hostess
© 1999 Pankaj Ghemawat
Little Debbie Ontario Baking Savory Pastries
Using Value Chain Analysis To Determine The Sources of
Competitive Advantage
Beyond simply using a value chain
analysis to “map out” the
sequence of activities, we need to
ask the following:
What is the cost structure of each of
these activities?
How do we compare with other
competitors in each of these areas?
What are our strengths and
weaknesses?
Value Chain Analysis
Outsourcing is the purchase of a value
creating activity from an external supplier.
Nissan Motor Co. has signed a $1 billion contract
with IBM. Covering a 9-year period, the
arrangement calls for IBM to manage Nissan’s
North American computer systems.
• IBM will handle software and hardware for various
functions, including payroll, human resources, and car
distribution. Nissan expects its outsourcing decision to
reduce its costs.
Boeing Suppliers (777)
Firm
Country
Parts
Alenia
AeroSpace
Technologies
CASA
Fuji
Italy
Australia
Wing flaps
Rudder
Spain
Japan
Ailerons
Landing gear
doors, wing section
GEC Avionics
United Kingdom
Korean Air
Korea
MenascoAerospace Canada
Flight computers
Flap supports
Landing gears
Short Brothers
Ireland
Landing gear doors
Singapore
Aerospace
Singapore
Landing gear doors
3-7
Value Chain Analysis:
Outsourcing activities in which it lacks
capabilities, the firm can concentrate fully on
those areas in which it can create value.
For example, Dell Computer Corporation
outsources most of its manufacturing and
customer service activities, so it can
concentrate on creating value through its
distribution channels.
Value Chain Analysis:
Outsourcing activities can have the
unintended consequence of damaging the
firm’s potential to evaluate continuously its
key assumptions, learn, and create new
capabilities and core competencies.
Therefore, managers should verify that the
firm does not outsource activities that
stimulate the development of new capabilities
and competencies.
Organization and Resources
Incentive and Reward Systems
Creation of “Knowledge”
“Gain-Sharing”
Organization Structure
Where “Knowledge” Is Located
Cross-functional Teams
Recruiting and Training Policies
Specificity of Knowledge
Organization Process
The Dynamics of Knowledge Creation
Competitive Advantage and Internal
Organization at Nucor
Operating
Efficiencies
Human
Resource
Management
High
Utilization
Low
Cost
Investment
Efficiencies
Rapid
Expansion
Capital
Resource
Management
© 1999 Pankaj Ghemawat
Firm Resources and Organizational Learning
Double-Loop Learning
Engineering
Process
Production
Process
Inertia & Inflexibility The Downside of the Resource-based Approach
The Problem of Inertia
Prior Strategic Commitments
Overcoming These Obstacles
Experimentation and Renewal
Profit-Earning Potential of Resources and Capabilities
Magnitude
of Advantage
Uniqueness
Relevance
Profit-Earning
Potential
Transferability
Sustainability
Of Advantage
Imitability
Appropriability
Factors Affecting Sustainability Barriers To Transferability
Co-specialization
Organizational Routines
Team-Embodied Skills
Intangibility
Know-how
Information Asymmetry
Private Information
Experience
Factors Affecting Sustainability Barriers To Imitation
Non-Transparent
Is The Skill Or Capability Easily
Observed?
Replicability
Is The Resource Easily Copied?
Is it complex?
– static vs. dynamic
Factors Affecting Sustainability - Barriers To Appropriability
Legal Rights
Brand Names
Patents
Copyrights
Relative Bargaining Power (e.g.,
baseball industry)
“Embeddedness” Of Resources
Information Asymmetry
Uncertain Imitability
The Challenges of Resource-Based Strategy
What resources do we have?
Are they fully utilized?
How else could we utilize our
resources?
What resources and capabilities are we
going to need in the future?
How do we build those resources and
capabilities?
Competitive Advantage Through Resources and Capabilities
Cost Advantage
Technology
Manufacturing
Organization and Culture
Differentiation Advantage
Marketing, Sales and Service
Brand Name Capital
Product Development Organization