The Organisation’s Capabilities
Chapter 4
On completion of this chapter, you should be able
to:
• Analyse the role of resources in your organisation
• Identify your organisation’s core competences
• Evaluate your organisation on a resource based
view
• Perform a value chain analysis
• Recognise the importance of customers
• Understand the concept of market segmentation
• Strategically evaluate your organisation’s product
portfolio
• Perform and critically evaluate a SWOT analysis.
Introduction
Three ingredients are critical to the success of a
strategy.
1st – strategy must be consistent with conditions
in the competitive environment.
2nd – strategy must place realistic requirements
on the firm’s resources.
3rd – strategy must be carefully executed.
Identifying KSF in the Industry
• Key factors concern not only on the competitive
environment in which the organisation operates
but also the resources of organisations in the
industry.
• 3 principal areas that need to be analysed
(Ohmae’s 3Cs):
– Customers – what they want? What market
segments? Etc
– Competition – how can the organisation survive or
beat competition? Etc.
– Corporation – what special resources does a company
have in comparison to other competitors? Etc.
Identifying Core Competences
• Defined as a group of production skills and technologies
that enable an organisation to provide a particular benefit
to customers.
• They underlie the leadership that companies have built or
wish to acquire over their competitors and cover an
integration of skills, knowledge and technology.
• Major core competencies include:
– Customer value – competencies must make a real impact on
how the customer perceives the organisation and its products.
– Competitor differentiation – this must be completely unique.
– Extendable - core skills need to be capable of providing the
basis of products that go beyond those currently available.
Resurce-Based View of the Firm
• RBV needs to proceed along two parallel and
interconnected routes:
– Value added – explores how the organisation
takes goods from its supplier and turns them into
finished goods.
– Sustainable competitive advantage – examines the
special resources that enable the organisation to
compete.
• RBV’s underlying premise is that firms differ in
fundamental ways because each firm
possesses a unique “bundle” of resources –
tangible and intangible assets and
organisational capabilities to make use of
those assets.
• Each firm develops competencies from these
resources and when developed especially
well, these become the source of the firm’s
competitive advantages.
Three Basic Resources: Tangible Assets,
Intangible Assets and Organisational Capabilities
Defined by Johnson and Scholes, 2005
• Tangible assets – easiest to identify and are often
found on the firm’s balance sheet.
• Intangible assets – things like brand names,
company reputation, organisational morale,
technical knowledge, etc.
• Organisational capabilities – not specific “inputs”
like tangible or intangible assets: rather, they are
skills – the ability and ways of combining assets,
people and processes – that a company uses to
transform inputs into outputs.
7 elements of Resources Based Sustainable Competitive Advantage
Once managers begin to identify their firm’s resources, they face the challenge of
determining which of those resources represent strengths and weaknesses –
which resources generate core competencies that are sources of sustained
competitive advantage.
RBV has addressed this by setting seven key elements that help determine what
constitutes a valuable asset, capability or competence i.e. what makes a
resource valuable:
1. Prior or acquired resources – value creation is more likely to be successful of it
builds on the strengths that are already available to the organisation, rather
than by starting from scratch in a totally new area.
2. Innovative capability
3. Being truly competitive – it is essential that any resource delivers a true
advantage over the competition.
4. Sustainability – resources are more likely to be competitive if they cannot be
substituted.
5. Appropriability – resources must deliver the results of their advantage to the
individual company and not be forced to distribute at least part of it to others.
6. Durability – longevity
7. Imitability – must not be easy to imitate if they are to have a competitive
advantage.
Limitations of RBV
• It is just a checklist. There is no guiding logic
between the elements.
• Beyond the concept of innovation, there is little
guidance on how resources develop and change
over time.
• There is a complete lack of consideration of the
human element in resource development.
• There is little or no emphasis on emergent
approaches to resource development and almost
no recognition of the process aspects of strategy
develoment.
Value Chain Analysis
• Describes a way of looking at a business as a chain of activities
that transform inputs into outputs that customer value.
• VCA attempts to understand how a business creates customer
value by examining the contributions of different activities
within the business to that value.
• Customer value derives from:
– Activities that differentiate product
– Activities that lower its cost
– Activities that meet the customer’s need quickly.
• VCA takes a process point of view where it divides the
business into sets of activities that occur within the business,
starting with the inputs a firm receives and finishing with the
firm’s products and after sales service to customers.
• VCA attempts to look at its costs across the series of
activities the business performs to determine where lowcost advantages or cost disadvantages exist.
• Proponents of the VCA believe VCA allows managers to
better identify the firm’s strengths and weaknesses by
looking at the business as a process – a chain of
activities.
• Refer to diagram on page 128.
• VCA consists of 5 primary activities i.e. inbound logistics,
operations, outboung logistics, marketing and sales,
service.
• These are linked to 4 support activities i.e. procurement,
technology development, HRM and firm’s infrastructure.
• All activities would incur cost. The difference
between the total cost and the selling price in
the margin.
• The idea behind the analysis is to assess the
value each of the activities adds to the
product or service offered by the organisation.
Customer Analysis
• Customers are a vital part of corporate
strategy development.
• They are the ones who provide either the
revenue to generate wealth of the
organisation of the reason for the existence.
• If customers are not correctly identified, it is
quite possible that companies who are
competing for the same customers will be left
out of the competitor analysis.
• Three guidelines to analysing customers:
– Customer segmentation – number of segments to
be served by the strategy
– Customer needs
– technology
• Main elements of customer driven strategy:
– Understanding the customer
– Responsiveness by the organisation to customer
needs
– Provision of real value for money by the
organisations.
Why customer-driven strategy important?
This is concerned with meeting the needs of the organisation’s
actual and potential customers and delivering the objectives
of the organisation such as profit or service.
Only by attracting and retaining customers will long term profits,
growth and stability be obtained as
• Loyal customers are more profitable as they are less
sensitive to changes to price
• Attracting new customers costs more than retaining loyal
customers
• Retaining existing customers can dramatically increase
profits.
Customer driven strategy can therefore be expected to enhance
company profitability and increase customer satisfaction and
hence loyalty.
Customer Profiling
• Provides us with a deeper understanding of
the needs of customers
• Explain why customers buy products/services
of the organisation rather than those of its
competitors
• Also help identify the sustainable competitive
advantages that the organisation possesses.
• Main features of different categories (refer to
page 133)
Market Segmentation
• Basic approach to market segmentation employs a
prescriptive approach as a first step in order to explore the
elements.
• 3 prescriptive stages:
i. Identify market segments – identification of special needs of
segments will lead to customer profiles of those in the
segments.
ii. Evaluate segments – some segments are likely to be more
attractive than others.
iii. Position within the market – within segments, companies
will need to develop a differential advantage over
competitors.
• Market segmentation may be defined as the
identification of specific groups or customers
who respond differently from other grops to
competitive strategies.
• Advantages to identifying markets:
– Strength in a group
– Closer matching of customer needs and the
organisation’s resources enhancing sustainable
competitive advantage.
– Concentration of effort on a smaller area so
resources can be more effectively employed.
• Key advantage of market segmentation is the
ability to dominate a sector of a market and
then target benefits that will sustain this
position.
• 4 important characteristics of any segment if it
is to be useful in strategic customer analysis:
– Distinguishable
– Relevant to purchasing
– Sufficiently large segment to justify resources
required.
– Reachable.
Portfolio Analysis
• Majority of companies produce more than
one product/service thus targetting more than
one consumer. This is done to diversify risks
and uncertainties. Thus company’s portfolio of
products/services are likely to be at different
stages of development at any time.
• Products/service earning a steady earning can
be used to fund those requiring development.
The key is to produce a balanced portfolio.
BCG Matrix
• Refer to diagram on page 139
• Two basic factors define an organisation’s
portfolio:
- relative market share
- market growth
• Four product categories:
– Stars (top left)
• High market growth rate, high relative market share
• High growth - Implies heavy investment
• High market share – assumed achieved EoS
• Cash Cows(bottom left)
– Low market growth rate. High relative market share
– Business is mature and assumes lower growth rates –
lower investments required.
– Profits can be used to fund Stars.
– Danger – cash cows could be under-supported and lose
their market share.
• Problem Child (Top right)
– High market growth rate. Low relative market share.
– Market growth signifies considerable investment required.
– Low market share – products will have difficulty generating
substantial cash.
• Dogs (bottom right)
– Low market growth rate. Low relative market
share.
– Assumption – low investment and unlikely to be
high profit earners.
– They absorb cash
– Unattractive for long-term and recommended for
disposal.
Difficulties with the BCG Matrix
1. Strategy is defined purely in terms of two
simple factors and other issues are ignored.
2. The definition of market growth: what is high
and what is low growth. No set rules.
3. The definition of market: what is the market
definition? Do we look at the entire region or
focus on a segment or country?
4. The definition of relative market share: what
constitutes high relative market share? No
set definition.
Product Life Cycle
• PLC can be used to:
– Identify where your product/services are in the life
cycle.
– Help you balance your product portfolio
– Identify opportunities to revamp your
products/services or extend the life cycle.
• Stages
– Introduction
– Growth
– Maturity
– Decline
SWOT Analysis
• Enables to draw together strengths, weaknesses –
related to internal capabilities; opportunities and threats
– related to the external.
• Refer to page 147 for list of examples.
• SWOT analysis can be very subjective
• Simple rules for successful SWOT analysis:
– Be realistic about strengths and weaknesses
– Should distinguish between where your organisation is
today and where it could be in future.
– Avoid grey areas – be specific.
– Always apply SWOT in relation to your competition
– Keep it short and simple
THE END