Business Strategy PDF

BUSINESS STRATEGY Sandra RAMOS 2024/2025 THE STRATEGIC POSITION Resources and Capabilities INTRODUCTION The structure of the environment alone does not explain a company's success or failure; the differences between the organisations involved must also be taken int...

BUSINESS STRATEGY Sandra RAMOS 2024/2025 THE STRATEGIC POSITION Resources and Capabilities INTRODUCTION The structure of the environment alone does not explain a company's success or failure; the differences between the organisations involved must also be taken into account. Car manufacturers compete within the same industry and within the same technological environment, but with markedly different success. - BMW has been relatively successful consistently; - PSA was rescued by the French government; - SAAB in Sweden, have gone out of business (even though the brand as such has been acquired by others). 3 INTRODUCTION 2 key issues: 1. Organisations are not identical; but have different resources and capabilities. 2. It can be difficult for an organisation to obtain or imitate the resources and capabilities of another. Manager must understand how their organisations are different from their rivals in ways that may be the basis of achieving competitive advantage. 4 INTRODUCTION Resource-based view (RBV) of strategy (sometimes labelled the ‘capabilities view’) pioneered by Jay Barney: the competitive advantage and superior performance of an organisation are explained by the distinctiveness of its resources and capabilities. 5 FOUNDATIONS OF RESOURCES AND CAPABILITIES RESOURCES AND CAPABILITIES Resources: Are the assets that organisations have or can call upon. What we have (nouns). Capabilities: Are the ways those assets are used or deployed. What we do well (verbs). 7 RESOURCES AND CAPABILITIES The efficiency and effectiveness of various resources depend not just on their existence, but on the systems and processes by which they are managed, the relationships and cooperation between people, their adaptability, their innovative capacity, the relationship with customers and suppliers, and the experience and learning about what works well and what does not. 8 RESOURCES AND CAPABILITIES Resources: What we have. Capabilities: What we do well. Machines, buildings, raw Physical Ways of achieving utilisation of materials, patents, databases, plant, efficiency, productivity, computer systems… flexibility, marketing… Balance sheet, cash flow, Financial Ability to raise funds and manage suppliers of funds… cash flows, debtors, creditors, etc… Managers, employees, partners, Human How people gain and use suppliers, customers… experience, skills, knowledge, build relationships, motivate others and innovate… 9 THRESHOLD AND DISTINCTIVE RESOURCES AND CAPABILITIES Threshold resources and capabilities: Those needed for an organisation to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market. In their absence: an organisation would be unable to survive in this market. E.g. Entrepreneurial structures -> they do not possess and do not have the means to acquire the resources and skills that would enable them to take on established competitors -> high risk of failure. 10 THRESHOLD AND DISTINCTIVE RESOURCES AND CAPABILITIES Threshold resources Threshold capabilities Required to meet minimum customers Required to deploy resources so as to requirements. meet customers requirements and support particular strategies. E.g. The increasing demands by modern multiple retailers of their suppliers mean E.g. Retailers do not simply expect that those suppliers have to possess a suppliers to have the required IT quite sophisticated IT infrastructure infrastructure, but to be able to use it simply to stand a chance of meeting effectively so as to guarantee the retailer requirements. required level of service. 11 THRESHOLD AND DISTINCTIVE RESOURCES AND CAPABILITIES Identifying and managing threshold resources and capabilities raises a significant challenge. Why? Because threshold levels will change as critical success factors change or through the activities of competitors and new entrants. E.g. Suppliers to major retailers did not require the same level of IT and logistics support a decade ago. But the retailers’ drive to reduce costs, improve efficiency and ensure availability of merchandise to their customers means that their expectations of their suppliers have increased markedly in that time and continue to do so. 12 DISTINCTIVE RESOURCES AND CAPABILITIES AS A BASIS OF COMPETITIVE ADVANTAGE DISTINCTIVE RESOURCES AND CAPABILITIES Threshold resources and capabilities do not of themselves create competitive advantage or the basis of superior performance = are ‘qualifiers’; Distinctive resources and capabilities are ‘winners’ required to triumph over competitors. Distinctive resources Distinctive capabilities E.g. Apple: mobile E.g. Apple: design, technology, powerful understand consumer brand. behaviour.. 14 DISTINCTIVE RESOURCES AND CAPABILITIES Distinctive capabilities or competencies typically remain unique because they comprise a bundle of constituent skills and technologies rather than a single, discrete skill or technology (Hamel and Prahalad). Core competencies 15 VRIO V Value: Do resources and capabilities exist that are valued by customers and enable the organisation to respond to environmental opportunities or threats? R Rarity: Do resources and capabilities exist that no (or few) competitors possess? I Inimitability: Are resources and capabilities difficult and costly for competitors to obtain and imitate? O Organisational support: Is the organisation appropriately organised to exploit the resources and capabilities? 16 V - VALUE Valuable resources and capabilities are those which create a product or a service that is of value to customers and enables the organisation to respond to environmental opportunities or threats. Three components to consider: 1. Taking advantage of opportunities and neutralising threats. 2. Value to costumers. 3. Cost. (next slide) 17 V - VALUE 1. Taking advantage of opportunities and neutralising threats. Resources and capabilities need to address opportunities and threats of the external environment. An opportunity is addressed when a resource or capability increases the value for customers either through lowering the price or by increasing the attractiveness of a product or service. E.g. IKEA valuable resources: Cost-conscious culture and size; Interlinked capabilities that lower its costs compared to competitors. 18 V - VALUE 2. Value to costumers: Managers may seek to build on resources and capabilities that they may see as valuable but which do not meet customers’ critical success factors 3. Costs: The product or service needs to be provided at a cost that still allows the organisation to make the returns expected of it. The danger is that the cost of developing or acquiring the resources and/or capabilities to deliver what customers especially value is such that products or services are not profitable. 19 R - RARITY Rare resources and capabilities are those possessed uniquely by one organisation or by a few others. Competitive is then longer-lasting. E.g. Companies have patented products or services. Some libraries have unique collections of books unavailable elsewhere. A company can have a powerful brand. Retail stores can have prime locations. 20 R - RARITY Resources and capabilities that are valuable, but common among competitors, are unlikely to be a source of competitive advantage. If competitors have similar resources and capabilities, they can respond quickly to the strategic initiative of a rival. E.g. Car manufacturers: One manufacturer adds more accessories and gadgets to cars >> as soon as it becomes evident that these are valued by customers, they will be introduced widely by competitors who typically have access to the same technology. 21 I - INIMITABILITY Inimitable resources and capabilities are those that competitors find difficult and costly to imitate or obtain or substitute. If an organisation has a competitive advantage because of its particular marketing and sales skills it can only sustain this if competitors cannot imitate, obtain or substitute for them or if the costs to do so would eliminate any gains made. Often the barriers to imitation lie deeply in the organisation in linkages between activities, skills and people. 22 I - INIMITABILITY It is unusual for competitive advantage to be explainable by differences in the tangible resources of organisations, since over time these can usually be acquired or imitated. Except for: key geographic locations, certain raw material resources, brands. Advantage is more likely to be determined by the way in which resources are deployed and managed in terms of an organisation’s activities = on the basis of capabilities. 23  Criteria for the inimitability of resources and capabilities I - INIMITABILITY 24 I - INIMITABILITY Complexity may be de to two main reasons: Internal linkages External interconnectedness There may be linked activities and Organisations can make it difficult for processes that, together, deliver customer others to imitate or obtain their bases of value. competitive advantage by developing Even if a competitor possesses an activity activities together with customers or system map (of the competitor), it is partners such that they become unlikely that it would be able to replicate dependent on them. its complexity -> numerous interactions between tightly knit activities and decisions. 25 I - INIMITABILITY Another reason why resources and capabilities might be difficult and costly to imitate is due to the inability to discern the casual links. This inability to identify the succession of causes and consequences that lead to success (distinguishing causes from consequences) is called casual ambiguity. 26 I - INIMITABILITY Casual ambiguity may exist in two forms: Characteristic ambiguity Linkage ambiguity The significance of the characteristic When competitors cannot discern which itself may be difficult to discern or activities and processes depend on each comprehend because it is based on tacit other to form links that create knowledge or rooted in the organisation’s distinctiveness. culture. 27 I - INIMITABILITY Culture and history: Capabilities can become embedded in an organisation’s culture. Coordination between activities occurs “naturally” because people know their part in the wider picture or it is simply “taken for granted that activities are done in particular ways. Linked to this cultural embeddedness is the likelihood that such capabilities have developed over time and in a particular way. The origins and history by which capabilities and resources have developed over time are referred to as path dependency. 28 O – ORGANISATIONAL SUPPORT The organisation must be suitably arranged to support the capabilities including appropriate organisational processes and systems. The organisation must have in place a structure and formal and informal management control systems that support and facilitate the exploitation of resources and capabilities. Complementary capabilities are supporting capabilities that by themselves are often not enough to provide for competitive advantage; however, they are useful in the exploitation of other capabilities that can provide for competitive advantage. 29 ORGANISATIONAL KNOWLEDGE Organisational knowledge is organisation-specific, collective intelligence, accumulated through formal systems and people’s shared experience. As organisations grow in size and complexity, sharing knowledge becomes crucial. Effective knowledge sharing can provide a competitive advantage over others. 30 ORGANISATIONAL KNOWLEDGE Information systems help codify valuable data (technological, financial, market), essential for competition, but are easily accessible. Competitive advantage is less likely from technology itself and more from how organisations manage and leverage knowledge. Success comes from utilising technology and developing the accumulated and dispersed experience-based knowledge in the organisation. 31 ORGANISATIONAL KNOWLEDGE Explicit or objective knowledge Tacit knowledge It is transmitted in formal systematic It is more personal, context-specific ways. and therefore hard to formalise and communicate. It can take the form of a codified information resource such as a E.g. the knowledge of a highly systems manual or files of market experienced sales force or R&D team. research and intelligence. It is difficult to imitate or obtain. 32 DIAGNOSING RESOURCES AND CAPABILITIES VRIO ANALYSIS Resources and capabilities provide sustainable basis for of competitive advantage the more they meet all four criteria. It can be done for different functions in an organisation (technology, manufacturing, purchasing, marketing and sales, etc.) or more fine- grained for individual resources and capabilities. For managers it is most important to distinguish between sustained or temporary competitive advantage vs competitive parity or competitive disadvantage 34  VRIO FRAMEWORK 35 SWOT SWOT provides a general summary of the: Strengths and Weaknesses explored in an analysis of the resources and capabilities. Opportunities and Threats explored in an analysis of the environment and industry. This analysis can also be useful as a basis for generating strategic options and assessing future courses of action. 36 SWOT There are two main dangers in a SWOT exercise: A. Listing A SWOT exercise can generate very long lists of issues >> managers must proceed to a priorisation of these. Three brief rules. 1. Focus on Unique Strengths & Weaknesses Highlight aspects where your organisation differs significantly from competitors. Avoid areas where you are on par with others. 37 SWOT 2. Targeted Opportunities & Threats Identify factors that are directly relevant to your organisation and industry. Omit general and broad factors that don’t specifically apply. 3. Summarise & Conclude Consolidate findings. Draw concrete conclusions that guide decision-making. 38 SWOT B. A summary, not a substitute. It is useful in summarising and consolidating other analysis. It is not, however, a substitute for that analysis. Two dangers if it used on its own: 1. In the absence of a more thorough analysis, managers rely on preconceived, often inherited biases views. 2. Lack of specificity. 39 TOWS SWOT can also help focus discussion on future choices and the extent to which an organisation is capable of supporting these strategies >> a useful way of doing this is to use a TOWS matrix. IT builds directly on the information in a SWOT exercise. Each box of the TOWS matrix can be used to identify options that address a different combination of the internal factors (strengths and weaknesses) and the external factors (opportunities and threats). 40  TOWS 41 HANDBOOK Johnson, G., Whittington, R., Scholes, K., Angwin, D., & Regner, P. (2017). Exploring Strategy - Text and Cases (11th ed.). Pearson Education. 42