analyzing firm capabilities

7/27/2019 Analyzing Firm Capabilities

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2


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If everyone can do it, its difficult to

create and capture value from it.

or, alternatively

3

,

firm realizes economic profits (rents).

Monopoly RentsIndustrial Or anization View

Ricardian RentsResource Based View

Schumpeterian Rents(Dynamic Capabilities View)

P

Q

S

D

SP

Q

S

D

SP

q1

AC 2

MC 1

q2

AC 1

MC 2

P

q1

AC 2

MC 1

q2

AC 1

MC 2

-Barriers to entry-Industry structure matters

-Barriers to imitation-Firm structure matters

-Markets are dynamic-Innovation matters


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Premise that firm capabilitiesmatter most

Economic rents due tobarriers to imitation (i.e.Ricardian rents

P

AC 2

MC 1MC 2

P

AC 2

MC 1MC 2

Some firms are more

profitable than others q1 q2q1 q2

P

AC2

MC1

AC1

MC2 ACMC

P1

P2

q1 q2

Cost Advantage

q1 q2Demand Advantage


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CAPABILIITIES 1. _______ 2. _______ 3. _______ 4. _______

Processes

People

Alignment

Sustainability

Supplier Manufacture Distribution Buyer

Technological DevelopmentTechnological Development

Human Resource ManagementHuman Resource Management

Firm InfrastructureFirm Infrastructure

ProcurementProcurement

Technological DevelopmentTechnological Development

Human Resource ManagementHuman Resource Management

Firm InfrastructureFirm Infrastructure

ProcurementProcurement

Secondary

Activities

8

Inbound

Inbound

Logistics

Logistics

Operations

Operations

Outbound

Outbound

Logistics

Logistics

Marketing

Marketing

&Sales

&Sales

Service

Service

Primary Activities

Inbound

Inbound

Logistics

Logistics

Operations

Operations

Outbound

Outbound

Logistics

Logistics

Marketing

Marketing

&Sales

&Sales

Service

Service


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CAPABILIITIES 1. _______ 2. _______ 3. _______ 4. _______

Processes

People

Alignment

Sustainability

Tan ible Intan ible

People/

Assets

Cash

Physical Plant

Patents

Talent

BrandsReputation

Technical Expertise

Loyalty

Processes ontracts ancesIT Systems Positive CultureTalent Acquisition


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CAPABILIITIES 1. _______ 2. _______ 3. _______ 4. _______

Processes

People

Alignment

Sustainability

Internal Ali nment

Are our processes, people, and systems aligned with

each other?

Do they reinforce each other to build capability?

External Alignment

Are capabilities aligned with the value proposition? The value in a VRIN analysis

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Human Resource Mgmt Performance incentives at all levels Non-unionized

Value Proposition:Low Cost Per Ton

F at ierarc y, imite status Participatory decision makingOperating Efficiency

Capital Efficiency

High Utilization

Rapid Expansion Little R&D, rely on suppliers Steady investment / upgrading

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nance w re a ne earn ngs Kept debt to


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CAPABILIITIES 1. _______ 2. _______ 3. _______ 4. _______

Processes

People

Alignment

Sustainability

The degree to which a competitive

a van age s cap ure an sus a ne

Imitability

Can others do what we do?

Rarity and inimitability conditions of a VRIN analysis

Durability Can we maintain our capabilities over time?

Will they degrade or become obsolete?


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Legal barriers present

Control scarce supply

Developed over unique historical path

Capabilities are socially complex

Value derives from tight combinations

Can they be used to keep others from exploiting

expanding opportunities? (scalable) Are they limited to this purpose? (specificity)

The degree to which a competitive

a van age s cap ure an sus a ne

Imitability

Can others do what we do?

Rarity and inimitability conditions of a VRIN analysis

Durability Can we maintain our capabilities over time?

Will they degrade or become obsolete?


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Human and physical assets tend to degrade overme

Core capabilities may become core rigidities success breeds complacency, risk aversion, myopia

Valuable capabilities today may be obsoletetomorrow

Some assets ma be more valuable to others andthus are worth selling!

CAPABILIITIES 1. _______ 2. _______ 3. _______ 4. _______

Processes

People

Alignment

Sustainability


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Alternative 1: Ac uired from others Resource markets (e.g. labor, technology, patents)

Mergers & acquisitions

Alliances, associations, corporate venture capital

Limitations: Only viable if these factor markets (markets for things

that firms buy) are imperfect!

Firm must have either superior information or pre-existing complementary capabilities (or luck)

Valueleader

laggard

Performance


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Valueleader

laggard

Performance

Valueleader

laggard

Performance


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New product development and internal R&D

Knowledge management, training

Superior leadership

Limitations: Firmstillmust have either Su erior information know-wh

Pre-existing complementary capabilities (know-how)

Luck!

Capability analysis helps identify a firms value- . ., .

Capabilities arise through the interaction of people,processes, and systems.

To provide a sustainable competitive advantage,capabilities must by well aligned internally andexternally, durable, and hard to imitate.

Superior capabilities are either acquired or built andrequired superior know-why or know-how (or luck!).

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analyzing firm capabilities

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