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Analyzing Resources & Capabilities
Analyzing Resources & Capabilities
Shifting the Focus of Strategy Analysis: From the External to the
Shifting the Focus of Strategy Analysis: From the External to the
Rationale for the Resource-based Approach to Strategy
Rationale for the Resource-based Approach to Strategy
The Evolution of Honda Motor Company
The Evolution of Honda Motor Company
Canon: Products and Core Technical Capabilities
Canon: Products and Core Technical Capabilities
Links between Products & Capabilities: Capability-Based Strategy at 3M
Links between Products & Capabilities: Capability-Based Strategy at 3M
Evolution of Capabilities and Products: 3M
Evolution of Capabilities and Products: 3M
Eastman Kodaks Dilemma
Eastman Kodaks Dilemma
The Links between Resources, Capabilities and Competitive Advantage
The Links between Resources, Capabilities and Competitive Advantage
Appraising Resources
Appraising Resources
Firms with the Highest Ratios of Market Value to Book Value
Firms with the Highest Ratios of Market Value to Book Value
The Worlds Most Valuable Brands, 2003
The Worlds Most Valuable Brands, 2003
Identifying Organizational Capabilities: A Functional Classification
Identifying Organizational Capabilities: A Functional Classification
The Value Chain: The McKinsey Business System
The Value Chain: The McKinsey Business System
The Porter Value Chain
The Porter Value Chain
Superior Resources do not necessarily mean Superior Capabilities:
Superior Resources do not necessarily mean Superior Capabilities:
The Architecture of Organizational Capability
The Architecture of Organizational Capability
A Hierarchy of Capabilities: A Telecom Manufacturer
A Hierarchy of Capabilities: A Telecom Manufacturer
The Rent-Earning Potential of Resources and Capabilities
The Rent-Earning Potential of Resources and Capabilities
Assessing a Companies Resources and Capabilities: The Case of VW
Assessing a Companies Resources and Capabilities: The Case of VW
Appraising VWs Resources and Capabilities
Appraising VWs Resources and Capabilities
Appraising the Capabilities of a Business School
Appraising the Capabilities of a Business School
Amocos Appraisal of Organizational Capabilities
Amocos Appraisal of Organizational Capabilities
Distinctive Capabilities as a Consequence of Childhood Experiences
Distinctive Capabilities as a Consequence of Childhood Experiences
Approaches to Capability Development
Approaches to Capability Development
Product Sequencing to Build Capabilities: Hyundai
Product Sequencing to Build Capabilities: Hyundai
Summary: A Framework for Analyzing Resources and Capabilities
Summary: A Framework for Analyzing Resources and Capabilities
Knowledge Management and the Knowledge-based View of the Firm
Knowledge Management and the Knowledge-based View of the Firm
Knowledge Processes within the Organization
Knowledge Processes within the Organization
Nonakas Knowledge Conversion Matrix
Nonakas Knowledge Conversion Matrix
I T
I T
Knowledge Types and Knowledge Conversion
Knowledge Types and Knowledge Conversion
Knowledge Transfer Mechanisms
Knowledge Transfer Mechanisms
Designing a Knowledge Management System
Designing a Knowledge Management System

: Analyzing Resources Capabilities. : . : Analyzing Resources Capabilities.ppt. zip-: 254 .

Analyzing Resources Capabilities

Analyzing Resources Capabilities.ppt
1 Analyzing Resources & Capabilities

Analyzing Resources & Capabilities

OUTLINE

The role of resources and capabilities in strategy formulation. The resources of the firm Organizational capabilities Appraising the profit potential of resources and capabilities Creating new capabilities.

2 Shifting the Focus of Strategy Analysis: From the External to the

Shifting the Focus of Strategy Analysis: From the External to the

Internal Environment

STRATEGY

The Firm-Strategy Interface

The Environment-Strategy Interface

THE FIRM Goals and Values Resources and Capabilities Structure and Systems

THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers

STRATEGY

3 Rationale for the Resource-based Approach to Strategy

Rationale for the Resource-based Approach to Strategy

When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus. Resources and capabilities are the primary sources of profitability

4 The Evolution of Honda Motor Company

The Evolution of Honda Motor Company

1946 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Honda Technical Research Institute founded

4-cylinder 750cc motorcycle

1st gasoline-powered car to meet US Low Emission Vehicle Standard

Competes in Isle of Man TT motorcycle races

Civic Hybrid (dual gasoline/ electric)

Portable generator

Power products: ground tillers, marine engines, generators, pumps, chainsaws snowblowers

Civic GS (natural gas powered)

1st motorcycle: 98cc, 2-cycle Dream D

405cc motor cycle

Acura Car division

N360 mini car

Home co- generation system

4 cycle engine

The 50cc Supercub

1000cc Goldwing touring motor cycle

Honda Civic

Enters Indy car racing

Enters Formula 1 Gran Prix racing

First product: Model A clip-on engine for bicycles

Honda FCX fuel cell car

5 Canon: Products and Core Technical Capabilities

Canon: Products and Core Technical Capabilities

Precision Mechanics

Fine Optics

Micro- Electronics

Plain-paper copier Color copier Color laser copier Laser copier

35mm SLR camera Compact fashion camera EOS autofocus camera Digital camera Video still camera

Basic fax Laser fax

Inkjet printer Laser printer Color video printer

Mask aligners Excimer laser aligners Stepper aligners

Calculator Notebook computer

6 Links between Products & Capabilities: Capability-Based Strategy at 3M

Links between Products & Capabilities: Capability-Based Strategy at 3M

Road signs & markings

Videotape

Sandpaper

Carborundum mining

Floppy disks & data storage products

Scotchtape

Audio tape

Acetate film

Post-it notes

Housewares/kit- chen products

PRODUCTS

Surgical tapes & dressings

Pharmaceuticals

CAPABILITIES

New-product development & introduction

Thin-film technologies

Abrasives

Adhesives

Materials sciences

Flexible circuitry

Health sciences

Microreplication

7 Evolution of Capabilities and Products: 3M

Evolution of Capabilities and Products: 3M

Road signs & markings

Videotape

Sandpaper

Carborundum mining

Floppy disks & data storage products

Scotchtape

Audio tape

Acetate film

Post-it notes

Housewares/kit- chen products

PRODUCTS

Surgical tapes & dressings

Pharmaceuticals

CAPABILITIES

New-product development & introduction

Thin-film technologies

Abrasives

Adhesives

Materials sciences

Flexible circuitry

Health sciences

Microreplication

8 Eastman Kodaks Dilemma

Eastman Kodaks Dilemma

Resources & Capabilities

Businesses

DIVESTS: Eastman Chemical, Sterling Winthrop, Diagnostics

Chemical Imaging Organic Chemistry Polymer technology Optomechtronics Thin-film coatings Brands Global Distribution

Film Cameras

1980s

Fine Chemicals Pharmaceuticals Diagnostics

1990s

Need to build digital imaging capability

Digital Imaging Products (e.g. Photo CD System; Advantix cameras & film

9 The Links between Resources, Capabilities and Competitive Advantage

The Links between Resources, Capabilities and Competitive Advantage

INDUSTRY KEY SUCCESS FACTORS

COMPETITIVE ADVANTAGE

STRATEGY

ORGANIZATIONAL CAPABILITIES

RESOURCES TANGIBLE INTANGIBLE HUMAN Financial Physical

Skills/know-how Capacity for communication & collaboration Motivation

Technology Reputation Culture

10 Appraising Resources

Appraising Resources

RESOURCE CHARACTERISTICS INDICATORS Financial Borrowing capacity Debt/ Equity ratio Internal funds generation Credit rating Tangible Net cash flow Resources Physical Plant and equipment: Market value of size, location, technology fixed assets. flexibility. Scale of plants Land and buildings. Alternative uses for Raw materials. fixed assets Technology Patents, copyrights, know how No. of patents owned R&D facilities. Royalty income Intangible Technical and scientific R&D expenditure Resources employees R&D staff Reputation Brands. Customer loyalty. Company Brand equity reputation (with suppliers, customers, Customer retention government) Supplier loyalty Human Training, experience, adaptability, Employee qualifications, Resources commitment and loyalty of employees pay rates, turnover.

11 Firms with the Highest Ratios of Market Value to Book Value

Firms with the Highest Ratios of Market Value to Book Value

Accenture 27.6 Consulting Gillette 17.9 Personal care Anheuser Busch 16.8 Brewing Gap 17.0 Retailing Kellogg 16.0 Food Dell Computer 15.9 Computers Oracle 12.2 Software GlaxoSmithKline 11.0 Drugs Hennes & Mauritz 10.5 Retailing SAP 10.1 Software SCM 10.0 Computers Pfizer 9.9 Drugs Unilever 9.6 Consumer goods Coca-cola 9.3 Soft drinks Sysco 9.1 Food services Forest Labs 8.5 Drugs EBay 8.2 E-business Pepsico 8.0 Soft drinks Medtronic 7.9 Medical equipment 3M 7.8 Diversified Procter & Gamble 7.8 Consumer goods France Telecom 7.6 Telecom Smith & Nephew 6.7 Drugs Johnson & Johnson 6.7 Drugs

Source: Business Week, July 2003

12 The Worlds Most Valuable Brands, 2003

The Worlds Most Valuable Brands, 2003

Rank Company Brand Rank Company Brand value value ($bn.) ($bn.) 1 Coca-Cola 70.45 11 Toyota 20.78 2 Microsoft 65.17 12 Hewlett-Packard 19.86 3 IBM 51.76 13 Citibank 18.57 4 GE 42.34 14 Ford 17.07 5 Intel 31.11 15 American Express 16.29 6 Nokia 29.44 16 Gillette 15.98 7 Disney 28.03 17 Cisco 15.57 8 McDonalds 24.69 18 Honda 15.63 9 Marlboro 22.18 19 BMW 15.11 10 Mercedes 21.31 20 Sony 13.15

Source: Interbrand

13 Identifying Organizational Capabilities: A Functional Classification

Identifying Organizational Capabilities: A Functional Classification

FUNCTION CAPABILITY EXEMPLARS Corporate Financial management ExxonMobil, GE Management Strategic control IBM, Samsung Coordinating business units BP, P&G Managing acquisitions Citigroup, Cisco MIS Speed and responsiveness through Wal-Mart, Dell rapid information transfer Capital One R&D Research capability Merck, IBM Development of innovative new products Sony, 3M Manufacturing Efficient volume manufacturing Briggs & Stratton Continuous Improvement Nucor, Harley-D Flexibility Zara, Southwest Air Design Design Capability Apple, Nokia Marketing Brand Management P&G, LVMH, PepsiCo Quality reputation Johnson & Johnson Responsiveness to market trends MTV, LOreal Sales, Distribution Sales Responsiveness PepsiCo, Pfizer & Service Efficiency and speed of distribution Amazon, Dell Customer Service Singapore Airlines Caterpillar

14 The Value Chain: The McKinsey Business System

The Value Chain: The McKinsey Business System

TECHNOLOGY

PRODUCT DESIGN

MANUFACTURING

MARKETING

DISTRIBUTION

SERVICE

15 The Porter Value Chain

The Porter Value Chain

FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND OPERATIONS OUTBOUND MARKETING SERVICE LOGISTICS LOGISTICS & SALES

SUPPORT ACTIVITIES

PRIMARY ACTIVITIES

16 Superior Resources do not necessarily mean Superior Capabilities:

Superior Resources do not necessarily mean Superior Capabilities:

Transfer Fees and Team Performance in European Soccer

HIGHEST EXPENDITURES ON NEW PLAYERS (Top 3 in Spain, Italy & England) Barcelona Chelsea Lazio Manchester United Inter Milan Juventus AC Milan Arsenal Real Betis

Note: Spain, Italy & England only).

17 The Architecture of Organizational Capability

The Architecture of Organizational Capability

SKILLS & KNOWLEDGE

Organization Structure

Management Systems

VALUES & NORMS

TECHNICAL SYSTEMS

MANAGERIAL SYSTEMS

Dorothy Leonard Core Capabilities & Core Rigidities

A modified view

ORGANIZATIONAL CAPABILITY

RESOURCES Human skills & know-how Technology Culture (values, norms)

18 A Hierarchy of Capabilities: A Telecom Manufacturer

A Hierarchy of Capabilities: A Telecom Manufacturer

INDIVIDUALS SPECIALIZED KNOWLEDGE

CROSS FUNCTIONAL CAPABILITIES BROAD FUNCTIONAL CAPABILITIES ACTIVITY RELATED CAPABILITIES (Operations related only) SPECIALIZED CAPABILITIES (Manufacturing related only) SINGLE-TASK CAPABILITIES (Only those related to PCB assembly)

19 The Rent-Earning Potential of Resources and Capabilities

The Rent-Earning Potential of Resources and Capabilities

Scarcity

THE EXTENT OF THE COMPETITIVE ADVANTAGE ESTABLISHED

Relevance

Durability

THE PROFIT EARNING POTENTIAL OF A RESOURCE OR CAPABILITY

SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE

Transferability

Replicability

Property rights

Relative bargaining power

APPROPRIABILITY

Embeddedness

20 Assessing a Companies Resources and Capabilities: The Case of VW

Assessing a Companies Resources and Capabilities: The Case of VW

CAPABILITIES

RESOURCES

21 Appraising VWs Resources and Capabilities

Appraising VWs Resources and Capabilities

Relative Strength

Strategic Importance

(Hypothetical only)

10

Key Strengths

Superfluous Strengths

5

Zone of Irrelevance

Key Weaknesses

1

1

5

10

C3

R3

C8

C4

C2

R2

R5

R1

C1

R4

C6

C7

C5

22 Appraising the Capabilities of a Business School

Appraising the Capabilities of a Business School

Relative Strength

Importance

(illustrative only)

Superfluous strengths

Key strengths

Superior

Parity

Inconsequential weaknesses

12

11

Key weaknesses

Deficient

Not important

Critically important

C1 Alumni relations C2 Student placement C3 Teaching C4.Administration C5 Course devlpmnt C6 Student recruitment C7 Research C8 Corporate relations C9 Marketing C10 IT C11 PR C12 HRM

23 Amocos Appraisal of Organizational Capabilities

Amocos Appraisal of Organizational Capabilities

Relative Strength

Importance

(illustrative only)

Superior

Parity

Deficient

Not important

Needed to play

Needed to win

1. Effective deal making 2. Rapid new product development 3. Relentless cost forms 4. Product quality 5. JV management 6. Superior EH&S management 7. Managing culturally diverse workforce 8. Fast decision making 9. Customer segmentation 10.Capture synergies across divisions 11. Effective procurement

Superfluous strengths

Key strengths

Inconsequential weaknesses

7

Key weaknesses

24 Distinctive Capabilities as a Consequence of Childhood Experiences

Distinctive Capabilities as a Consequence of Childhood Experiences

Company Capability Past History Exxon Financial Exxons predecessor, Standard Oil (NJ) management was the holding co. for Rockefellers Standard Oil Trust RD/ Coordinating Shell a j-v formed from Shell T&T founded to Shell decentralized sell Russian oil in China, and Royal Dutch global empire founded to exploit Indonesian reserves BP Elephant Discovered huge Persian reserves, went on to hunting find Forties Field and Prudhoe Bay ENI Deal making in The Enrico Mattei legacy; the challenge of politicized managing government relations in post-war environments Italy Mobil Lubricants Vacuum Oil Co. founded in 1866 to supply patented petroleum lubricants

2

25 Approaches to Capability Development

Approaches to Capability Development

Linking strategy to Human Resource Managementmodeling & developing individual competencies Greenfield development in separate organizational unit (IBM & the PC, Xerox & PARC, GM & Saturn) Change management to transform values and behaviors (GE, BP) Product sequencing (Intel , Sony, Hyundai) Knowledge Management (e.g. lessons learned, best practices transfer, etc.)

26 Product Sequencing to Build Capabilities: Hyundai

Product Sequencing to Build Capabilities: Hyundai

Alpha engine

Accent Avante Sonanta

Pony

Excel

Hydrodynamics Thermodynamics Fuel engineering Emission control Lubrication Kinetics& vibration Ceramics Electronic control systems

Auto styling &design Casting & forging Chassis design Tooling Body production Export mktg.

Capabilities

FWD engineering CAD/CAM Assembly control systems Advanced component handling

Assembly Production engineering Local marketing

Large-scale design integration Global logistics Lifecycle engineering

SKD CKD Ford Cortina

Products

1968

1970

1985

1974

1994-95

27 Summary: A Framework for Analyzing Resources and Capabilities

Summary: A Framework for Analyzing Resources and Capabilities

4. Develop strategy implications: (a) In relation to strengths--How can these be exploited more effectively and fully? (b) In relation to weaknesses --Identify opportunities to outsourcing activities that can be better performed by other organizations. --How can weaknesses be corrected through acquiring and developing resources and capabilities?

STRATEGY

POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE

3. Appraise the firms resources and capabilities in terms of: (a) strategic importance (b) relative strength

2. Explore the linkages between resources and capabilities

CAPABILITIES

1. Identify the firms resources and capabilities

RESOURCES

28 Knowledge Management and the Knowledge-based View of the Firm

Knowledge Management and the Knowledge-based View of the Firm

OUTLINE

Why the surge of interest in knowledge management (KM)? --kn. as the key resource of the firm --giving us a better understanding of management 2) What is KM? 3) What progress have we made, what are the key gaps, which areas are likely to add most value? 4) Developing strategy: Exploiting strengths, protecting and eliminating weaknesses 5) Building the capability base: Can it be done? How? 6) What can be learn from Knowledge Management? 7) Implications for organizational structure.

29 Knowledge Processes within the Organization

Knowledge Processes within the Organization

Knowledge Generation (Exploration)

Knowledge Application (Exploitation)

Knowledge Creation

Research

Training Recruitment Intellectual property licensing Benchmarking

Knowledge Acquisition

New product development Operations

Knowledge Integration

Knowledge Sharing

Strategic planning Communities of practice

Knowledge Replication

Best practices transfer On-the-job training

Databases Standard operating practices

Knowledge Measurement

Knowledge Identification

Knowledge Storage & Organization

Intellectual capital accounting Competency modeling

Project reviews Competency modeling

30 Nonakas Knowledge Conversion Matrix

Nonakas Knowledge Conversion Matrix

TO

FROM

Tacit Knowledge

Explicit Knowledge

Tacit Knowledge

Explicit Knowledge

EXTERNALIZATION The articulation and systematization of tacit into explicit knowledge. Use of metaphor to communicate tacit concepts

SOCIALIZATION Sharing of tacit knowledge among individuals and from the organization to the individual

COMBINATION A key role of information systems is to combine different units of information and other forms of explicit knowledge

INTERNALIZATION Instructions and principles are converted into intuition and routines

31 I T

I T

What is Knowledge Management?

Definition: The systematic leveraging of information and expertise to improve organizational innovation, responsiveness, productivity and competency. (Lotus division of IBM)

Intellectual Capital Accounting

On-the-job Training

Courses & Seminars

Data mining

Benchmarking

Intellectual Property Protection

New Product Development

Customer & Market Analysis

Best Practice Transfer

Communications

Scenario Analysis

Strategic Alliances

T Q M

Lessons learned

E R P

Research

CRM

32 Knowledge Types and Knowledge Conversion

Knowledge Types and Knowledge Conversion

Levels of knowledge

Organization

Individual

Information Facts Scientific kn.

Databases Systems & procedures Intellectual property

Explicit

Types of Knowledge

Tacit

Organizational capabilities

Skills

INDUSTRIAL ENTERPRISES

CRAFT ENTERPRISES

33 Knowledge Transfer Mechanisms

Knowledge Transfer Mechanisms

D I S S E M I N A T I O N B R E A D T H

ABILITY TO CODIFY

Shared data bases

E-mail

M a n y

Rules, procedures & directives

Manuals & reports

Modular integration

Communities -of-interest

Group -ware

Communities -of-practice

Internal consultants

Data exchange

Training seminars & courses

Video conferencing

Personnel transfer

Meetings

On-the job training

Informal visits

F e w

Fax

Telephone

Low (know-how & contextual kn..)

High (explicit kn.. & information

34 Designing a Knowledge Management System

Designing a Knowledge Management System

What kn. processes which are critical to creating value & competitive advantage? --Dow: creating and exploiting patents --McKinsey & Co.: sharing kn. & retaining experienced consultants --Accenture: systematization.) What are the characteristics of the relevant kn.? What mechanisms are needed for the generation and application of the relevant kn.? What organizational conditions need to be in place in order for knowledge management mechanisms to work? ---Organizational structures ---Incentives to contributors and users ---Behavioral norms and values

Analyzing Resources Capabilities
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