Competing on resources& capabilities

Rationale of the Resource-based Approach to StrategyWhen the external environment is subject to rapid change, internal resources & capability offer a more secure basis for strategy then market focus.

Resources & Capabilities are the primary sources of profitability.

RBVResource based view of the firm (RBV)Combination of internal analysis of phenomena within companies with external analysis of industry and the competitive environmentResourcesAssets [Tangible & Intangible]Skills

Intangible Resources

Organizational attributes [ Knowledge, Style, System & reputation]Those that confer Legal/Regulatory protectionContractsPatentsLicensesIndustry regulation

Intangible Resources

InformationalData base on technology, suppliers, customers, competitors, regulators, historical dataPersonal and inter-organization relationshipPersonal contactsOrg, membership in trade associations

Skill, Capability & CompetenceSkillAbility of individuals CapabilityAbility residing in a bundle of resources & skillCompetence Ability residing in the organizationValue Chain, Organizing, Strategic Capability

Defining resourcesResources

Appraising Resources

ResourceCharacteristicsIndicatorsFinancial resourcesBorrowing capacity.Internal funds/ generationDebt/equityCredit ratingNet cash flowPhysicalResourcesPlant & equipment:Size,location, technology,flexibility.Land & buildings.Raw materialsMarket value of fixed assets.Scale of plants.Alternatives for fixed assetsHumanResourcesTraining,experience, adaptability,commitment and loyalty of employeesEmployee qualifications,pay rates,turnover.

Appraising Resources

ResourceCharacteristicsIndicatorsTechnological resourcesPatents,copyrights, know how, R&D facilities.Technical and scientific employeesNo. of patents owned. Royalty income. R&D expenditure.R&D staffReputationBrands. Stability of customer base. Reputation with suppliers.Brand equity. Product price premium recognition

Identifying Organizational Capabilities: Functional Approach

FunctionCapabilityCorporate ManagementFinancial controlStrategic controlMotivating and coordinating business unitsMISSpeed and responsiveness thro rapid information transfer.Research capability.Development of innovative new productsR&DResearch capabilityDevelopment of innovative new products

Identifying Organizational Capabilities: Functional Approach

FunctionCapabilityManufacturingEfficient volume manufacturing.Continous improvement.FlexibilityDesignDesign capabilityMarketingBrand managementSales & DistributionPromoting reputationResponsiveness to market trendsSales PromotionEfficiency and speed of distributionCustomer service

Successes built on resourcesWalt Disney; leveraging the Disney brand name they have now expanded successfully to a wide array of businesses Nike; now a global brand name for anything to do with sportsCoke; from cola to a beverage company IBM; acquisition of PwC

Resources for effective strategyInimitabilityPhysicalPath dependencyCasual ambiguityDurabilityAppropriabilitySubstitutabilityCompetitive superiority

Inimitability- physical Resource:Physical asset

Inimitability- path dependencyResource:Technology

Inimitability- causal ambiguity Resource:?????

DurabilityResource:Relationship

Appropriatibility

Resource:Capability

Substitutability Resource:Compatibility

Competitive superiority

Resource:Raw Material and distribution

Resources: VRIO Framework1. Valuable2. Rareness3. Imitability4. Organization

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Continuum of Resources SustainabilityHighHard to imitate

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Typical Value Chain for a Manufactured Product

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Corporate Value Chain

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Strategic Business UnitIndependent product-market unit with:1. Unique mission2. Identifiable competitors3. External market focus4. Control of its business functions

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Marketing Mix VariablesProductPlacePromotionPriceQualityChannelsAdvertisingList priceFeaturesCoveragePersonal sellingDiscountsOptionsLocationsSales promotionAllowancesStyleInventoryPublicityPayment periodsBrand nameTransportCredit termsPackagingSizesServicesWarrantiesReturnsSource:Philip Kotler, Marketing Management: Analysis, Planning, and Control, 4th ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 89. Copyright 1980. Reprinted by permission of Prentice-Hall, Inc.

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The Product Life Cycle

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R&D MixBasic R&D Product R&DProcess (Engineering) R&D

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Technological DiscontinuityProduct Performance

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Business UnitsCore ProductsEnd ProductsCore Competence providing stability

So what are core competencies?They are collective learning in the organization, especially how to co ordinate diverse production skills & integrate multiple streams of technologies.Eg. Sonys capacity to miniaturize or Philips s Optical- media expertise.It is about harmonizing streams of technology, it is also about the organization of work and the delivery of value. by bringing about a shared understanding of customer needs & tech. Possibilities.

So what are core competencies?Core competence is communication, involvement, and a deep commitment to working across organizational boundaries.Core competence does not diminish with use. Unlike physical assets, which do deteriorate over time, competencies are enhanced as they are applied & shared. But competencies still need to be nurtured and protected.Competencies are the glue that binds existing businesses.

They are also the engine for new business development. Patterns of diversification & market entry may be guided by them, not just the attractiveness of the markets.Eg. 3M-competency with sticky tapes. With businesses as diverse as Post-it notes, magnetic tape, photographic films etc. the company has widely shared competencies in substance, coating & adhesives & has devised various ways to combine them.

It seems to be an extremely diversified portfolio of businesses but below it lie a few shared core competencies.So what are core competencies?

Let us be clear!!!Companies like Canon, NEC and Honda may seem very diverse but if we study the core competencies underlying them, disparate businesses become coherent.Canons core competencies in optics, imaging and microprocessor control have enabled it to enter, even dominate, markets as seemingly diverse as copiers, laser printers, cameras, image scanners etc.Cultivating core competencies does not mean outspending rivals on research & development.

Let us be clear!!!Nor does core competencies mean shared costs, as when 2 SBUs use a common facility.This would be a post ad hoc effort to rationalize production across existing businesses, not a premeditated effort to build the competencies out of which the businesses themselves grow.

Look at it this wayBuilding core competencies is more ambitious & different than integrating vertically. When managers decide to integrate they do not look into the inventory of skills and look forward to applying them in non traditional ways. Of course, decisions about competencies do provide a logic for veticial integration.Eg. Canon Copiers

So what is core competence after all.It an underlying idea that provides an organization the capacity to leverage its resources to the maximum.It is a simple idea, that harmonizes multiple technologies and skills.Cc is not just technology.It includes collective learning (tacit & implicit knowledge)Is not just capabilitiesIt is not an asset.It uniquely differentiates you from your competitors across multiple businesses, markets & countries.

So what is core competence after all.It is made of core & Competence.It provides unique differentiation.Is difficult to imitate.Companies today need a logic beyond financial logicCore competencies provide an opportunity for a business to sustain itself over a large period of time in this ever changing marketing dynamics.

3 tests to identify core competencies in a companyCore competence provides potential access to a wide variety of markets.Core competence should make a significant contribution to the perceived customer benefits of the end product.Core competence should be difficult for competitors to imitate. It will more be difficult if it is a complex harmonization of individual technologies and production skills.

MistakesToo many companies have surrendered core competencies when they cut investment in what they mistakenly thought were just cost centers .Outsourcing can provide a shortcut to a more competitive product, but it typically contributes little to building the people-embodied skills that are needed to sustain product leadership.

Lessons to learnFirst, the costs of losing a core competence can be only partly calculated in advance.Secondly, since core competencies are built thru a process of continuous improvement & enhancement that may span a decade or longer, a company that has failed to invest in cc building will find it hard to enter an emerging market.

Form Core Competencies to Core ProductsThe tangible link between identified core competencies and end products is what we call the core products-the physical embodiment of one or more core competencies.eg. Honda engines.Core product reduces fragmentation(pulls together)Unifies underlying skills(builds a critical mass)Allows selling to competitors.Thus increase your volume of core products & reduce incentives of competitors.

How to identify Core CompetenciesPrepare Current & potential Product/Market Profile

-Product/Service-Key success factors

Source of competitive advantage

-cost/differentiationDescribe all organizational capabilities to have competitive advantage

-resources/skills/capabilities

Put under tests of

-wide access-difficult to copy-customers benefits

A new view of the corporationPortfolio of businessPortfolio of core competenciesPortfolio of core competencies(physical incorporation of core competencies)

Strategic IntentResource alone is a poor predictor of success.How effective can you be to get the maximum impact?Strategic intent, maximizes the impact of resources.

What is strategic intent?Firm AModest aspirationsSlack

Resources High

High risk-Low creativity

Stretch lies at the heart of SIFirm BHigh AspirationsStretchModest Resources

Low Risk- High creativity.

What is SI?SI is not a mission statement.It is an obsession with winning that can be cultivated & kept over a 10-15 years to win global competitive war.It is Obsession & focusMotivation & direction.

Eg.CNN Global news network, Canon beat Xerox.

What is SI?SI must have an emotional content.Must be personalized.Must be translated in terms that can effect every single worker in his/her job.SI is not centralizationIt doesn't have to be totally unique.It is a commitment to goal.Is not enforced from top to bottom but from bottom to us.

What is SI?it is a journey, a view of the future in which the world is continuously changing.It gives a framework to which we would need to continue taking the idea & test it to what is happening in the real world.

What is SI?SI = Stretch(aspirations that unleash the creativity)SI =Direction(foundation for consistency)SI = Emotionally Compelling(unleashing the intelligence & enthusiasm from all levels)

So what does SI do?It captures the essence of winningIs stable over timeSets a target that deserves personal effort and commitment

To Conclude.To actually reap the benefits of Core Competence and Strategic Intent, companies and their Top Management have to move away from reaping benefits on a small scale. They need to think about scenarios 10-20 years ahead. It follows that dedication is required as far as commitment, expenditure and focus on the long term goals goes.

Strategic Fit vs Strategic StretchStrategic Intent:Captures essence of winningStable over timeOutpace competition with new ruleBalance portfolio of competitive advantage

What it consist of:Participants do things differentlyCreates sense of urgencyCompetition focus at each stageOne challenge at a timeShared gain/painCompetitive innovation

The framework to analyze resources and capabilitiesResources: Identify the firms resources, appraise strength and weaknessCapability: Identify capabilitiesPotential for SCA: Appraise the rent-earning potential of resources/capabilityStrategy: Select a strategy

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