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Transcript of Chapter 3
The Strategic Position3: Strategic Capability
Exploring Corporate Strategy 8e, © Pearson Education 2008 1-2
Last Week
Strategic Position
Analysing an organisation’s position in the external environment
Using the PESTEL framework for environmental analysis
Using Porter’s Five Forces framework to analyse an industry
Identification of strategic groups & critical success factors
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-3
Learning Outcomes (1)
Distinguish elements of strategic capability in organisations: resources, competences, core competences, and dynamic capabilities
Recognise the role of continual improvement in cost efficiency as a strategic capability
Analyse how strategic capabilities might provide sustainable competitive advantage on the basis of their value, rarity, inimitability, and nonsubstitutability
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-4
Learning Outcomes (2)
Diagnose strategic capability by means of value chain analysis, activity mapping, benchmarking, and SWOT analysis
Consider how managers can develop strategic capabilities of organisations
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-5
Core Concepts in Strategic Capability
Foundations Cost efficiency
SustainabilityOrganisational
knowledge
Analysis Development
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-6
What is Strategic Capability?
Strategic capability refers to the resources and competences
of an organisation needed for it to survive and prosper.
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-7
Exhibit 3.1 Strategic Capabilities and Competitive Advantage
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-8
What are Resources?
Tangible resources are physical assets of an organisation such as
plant, labour, and finance.
Intangible resources are non-physical assets such as information,
reputation, and knowledge.
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-9
Resource Categories
Physicalresources
Financialresources
Humanresources
Intellectualcapital
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-10
The Terminology of Strategic Capability
Threshold resources
Threshold competences
Unique resources
Core competences
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-11
What are Core Competences?
Core competences are the skills and abilities by which resources are deployed through an organisation’s activities and
processes such as to achieve competitive advantage in ways that others cannot
imitate or obtain.
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-12
Exhibit 3.3 Sources of Cost Efficiency
Costefficiency
Economiesof scale
Experience
Productdesign
Supply costs
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-13
The Experience Curve
Competences in activities develop over time based on experience, resulting in cost efficiencies
Growth may not be optional
Unit costs should decline year on year
First mover advantage is important
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-14
Exhibit 3.4 The Experience Curve
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-15
Capabilities for achieving and sustaining competitive advantage
Value
Rarity
Inimitable
Substitution
Dynamic
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-16
Rarity of Strategic Capabilities
Ease of transferability
Sustainability
Core rigidities
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-17
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
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-18
Strategic Capability for the Royal Opera House
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-19
Exhibit 3.5 Criteria for Inimitability
Robustness of strategic capability
Complexity Culture andhistory
Causal ambiguity
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-20
What are Dynamic Capabilities?
Dynamic capabilities are an organisation’s abilities to renew and recreate its strategic capabilities to
meet the needs of a changing environment.
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-21
Dynamic Capabilities at HMD Clinical
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-22
What is Organisational Knowledge?
Organisational knowledge is the collective experience accumulated
through systems, routines, and activities of sharing across the
organisation.
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-23
Diagnosing Strategic Capability
Activity maps
Benchmarking SWOT analysis
Value chain/Value network
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-24
What is a Value Chain?
A value chain describes the categories of activities within and
around an organisation, which together create a product or
service.
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-25
Exhibit 3.6 The Value Chain
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-26
What is a Value Network?
A value network is the set of interorganisational links and
relationships that are necessary to create a product or service.
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-27
Exhibit 3.7 The Value Network
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-28
Understanding the Capabilities in Relation to the Value Network
Which activities are central important to organisation’s strategic capability?
Where are the profit pools?
What should be outsourced?
Who might be the best partners in the parts of the value network?
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-29
Exhibit 3.8 An Activity System Map
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-30
Lessons Learned from Activity Maps
Consistency and reinforcement
Difficulties of imitation
Trade-offs
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-31
Approaches to Benchmarking
Historical benchmarking
Industry/sector benchmarking
Best-in-class benchmarking
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-32
SWOT Analysis
Strengths Weaknesses
Opportunities Threats
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-33
Limitations in Managing Strategic Capabilities
Competences valued but not understood
Competences are not valued
Competences are recognised, valued, and understood
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-34
Developing Strategic Capabilities
Add and change
Extend
Stretch
Exploit
Cease
Develop externally
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-35
Chapter Summary (1)
Strategic capability deals with adequacy and suitability of resources and competences required for success
Goal is to establish core competences that lead to competitive advantage
Cost efficiency is vital
In dynamic conditions, dynamic capabilities are important
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-36
Chapter Summary (2)
Methods of diagnosing organisational capabilities include
Value chain and value networks
Activity mapping
Benchmarking
SWOT analysis
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-37
Key Debate: The Resource-Based View of Competitive Advantage:
Is it Useful to Managers?
Criticisms of RBV
Risk of tautology
Lack of specificity
Defense of RBV
Emphasis on identification and development of critical capabilities in firm
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-38
Key Debate: Is RBV Useful to Managers? (2)
How specific would the identification of strategic capabilities need to be to permit them to be managed to achieve competitive advantage?
Do you agree that if it were possible to identify and manage such capabilities they would be imitated?
Is the RBV useful?
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-39
This week’s Tasks
Read Chapter 2- Strategic Capability
Prepare 2 questions (per person) on capabilities that the class will discuss and answer – these may be based on what you do not understand and want clarification on
Group 1: to give an overview of the case study: Making Ebay work as well as answer questions at the end of the case study
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-40
Next Week
Read Chapter 4- Strategic Purpose
Read the Case Study Product Red Gap and answer questions at the end. In your groups, you will lead a class discussion on your answers and rationale
Seminar
WorkshopGroup 2 to give a presentation on
Manchester United, answering questions at the end of the case study