Resources and Capabilities (discussion ) This week, our discussion thread is centered on the resources and capabilities of the firm. Which should be t

Resources and Capabilities (discussion ) This week, our discussion thread is centered on the resources and capabilities of the firm.

Which should be t

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 This week, our discussion thread is centered on the resources and capabilities of the firm. 

  1. Which should be the primary basis for formulating strategy: The external market or the internal resources and capabilities?  
  2. Provide an example of a company in KSA whose strategy has been based upon developing a set of capabilities and then applying them to different product markets. 
    1. Identify two key resources and two capabilities of the company.
    2. Explain the advantages and disadvantages of this approach.

In your response to student posts, clearly express the distinction between resources and capabilities.Embed course material concepts, principles, and theories (which require supporting citations) in your initial response along with at least one scholarly, peer-reviewed journal article. Keep in mind that these scholarly references can be found in the Saudi Digital Library by conducting an advanced search specific to scholarly references. Use  APA style guidelines.You are required to reply to at least two peer discussion question post answers to this weekly discussion question and/or your instructor’s response to your posting. These post replies need to be substantial and constructive in nature. They should add to the content of the post and evaluate/analyze that post’s answer. Normal course dialogue doesn’t fulfill these two peer replies but is expected throughout the course. Answering all course questions is also required. 

 Required:

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CONTEMPORARY STRATEGY ANALYSIS

tenth edition

Robert M. Grant

John Wiley & Sons Ltd., 2019

Chapter 5

Analyzing Resources

and Capabilities

  • The role of resources and capabilities in strategy formulation
  • Identifying resources and capabilities
  • Appraising resources and capabilities
  • Developing strategy implications

Analyzing Resources & Capabilities

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Copyright © 2019 John Wiley & Sons, Inc.

OUTLINE

THE FIRM

• Goals &

Values

• Resources &

Capabilities

• Structure &

Systems

THE

INDUSTRY

ENVIRONMENT

  • Competitors
  • Customers
  • Suppliers

The

Firm-Strategy

Interface

The

Environment-Strategy

Interface

Shifting the Focus from the External

to the Internal Environment

Copyright © 2019 John Wiley & Sons, Inc.

STRATEGY

THE ROLE OF RESOURCES AND CAPABILITIES IN STRATEGY FORMULATION

5

  • When the industry environment is volatile, internal resources and capabilities offer a more stable basis for strategy than an external market focus
  • Resources and capabilities are the primary sources of competitive advantage—and, therefore, profitability

Rationale for the Resource-based Approach to Strategy

Copyright © 2019 John Wiley & Sons, Inc.

THE ROLE OF RESOURCES AND CAPABILITIES IN STRATEGY FORMULATION

1946 1950 1960 1970 1980 1990 2000 2010 2018

Honda

Technical

Research

Institute

founded

405cc

motor

cycle

Marine engines, generators, pumps, chainsaws, snow-blowers, ground tillers,

Model A

clip-on bicycle

engine

N360

minicar

1000cc

Goldwing

motorcycle

Acura Car

division

Enters

motorcycle

racing

4-cylinder

750cc

motorcycle

Portable

generator

Enters

Formula 1

racing

Honda

Civic

Enters Indy

car racing

Civic Hybrid

Home co-

generation

system

Product-ion of diesel engines

Honda business jet

GE-Honda turbofan engine

Variable Cylinder Management

98cc, 2-stroke

Dream motorcycle

50cc

Super-cub

Fuel cell car

Product Evolution at Honda Motor Company

THE ROLE OF RESOURCES AND CAPABILITIES IN STRATEGY FORMULATION

Copyright © 2019 John Wiley & Sons, Inc.

2

2

Fine

Optics

Micro-

Electronics

Canon: Products and Technical Capabilities

1980-2000

Copyright © 2019 John Wiley & Sons, Inc.

Precision

Mechanics

35mm SLR camera

Compact fashion camera

EOS autofocus camera

Digital camera

Video still camera

Video security systems

Camcorders

Plain-paper copier

Color copier

Color laser copier

Laser copier

Basic fax

Laser fax

Scanners

Mask aligners

Excimer laser aligners

Stepper aligners

Inkjet printer

Laser printer

Color video printer

Digital commercial

printer

Calculator

Notebook computer

Binoculars

THE ROLE OF RESOURCES AND CAPABILITIES IN STRATEGY FORMULATION

4

4

Carborundum

mining

Sandpaper

Scotch-tape

Road signs & markings

Post-it notes

Audio tape

Surgical tapes & dressings

Videotape

Acetate film

Floppy disks & data storage

products

Pharmaceuticals

Homecare & kitchen products

Abrasives

Adhesive

chemistry

Coatings & thin-film technologies

PRODUCTS

TECHNICAL CAPABILITIES

Materials sciences

Health sciences

Micro-replication

Flexible electronics

LED lighting

Drug delivery systems

Nanotechnology

Sensors

Surface modification

Insulation products

Display screens

Anticorrosion coatings

1902

2018

Polymers

Evolution of Capabilities and Products: 3M

Copyright © 2019 John Wiley & Sons, Inc.

THE ROLE OF RESOURCES AND CAPABILITIES IN STRATEGY FORMULATION

STRATEGY

COMPETITIVE

ADVANTAGE

ORGANIZATIONAL

CAPABILITIES

RESOURCES

INTANGIBLE

  • Technology
  • Reputation
  • Culture

HUMAN

  • Skills/know-how
  • Capacity for communication & collaboration
  • Motivation

The Links between Resources, Capabilities,

and Competitive Advantage

Copyright © 2019 John Wiley & Sons, Inc.

TANGIBLE

  • Financial
  • Physical

IDENTIFYING RESOURCES AND CAPABILITIES

Appraising Resources

Copyright © 2019 John Wiley & Sons, Inc.

IDENTIFYING RESOURCES AND CAPABILITIES

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

Large Companies with the Highest Valuation Ratios (Sept. 2017)

IDENTIFYING RESOURCES AND CAPABILITIES

Company Nationality Market cap.
($ bn.)
Market-to-book ratio
Lockheed Martin Corp. USA 88 40.8
Home Depot, Inc. USA 189 27.8
Netflix, Inc. USA 80 26.0
Amazon.com USA 472 22.8
MasterCard, Inc. USA 152 22.8
AbbVie, Inc. USA 140 22.0
Glaxo Smith Kline UK 96 14.9
NVIDIA Corp. USA 102 14.5
PepsiCo, Inc. USA 164 13.4
Novo Nordisk A/S Denmark 95 13.1
Celgene Corp. USA 111 12.8
Naspers Ltd. S. Africa 100 12.4
Starbucks Inc. USA 77 12.2
Tencent Holdings China 408 12.0
Accenture plc UK 88 10.5
3M Company USA 125 10.5
Alibaba China 449 10.4
Roche Switzerland 175 9.1
Coca-Cola Co. USA 199 8.9
Altria Inc. USA 120 8.8

The World’s Most Valuable Brands, 2017

*

Copyright © 2019 John Wiley & Sons, Inc.

IDENTIFYING RESOURCES AND CAPABILITIES

Rank Brand Value, 2017 ($ bn.) Change from 2016 (%)
1 Google 246 +7.1
2 Apple 235 +2.7
3 Microsoft 143 +17.6
4 Amazon 139 +40.7
5 Facebook 130 +26.6
6 AT&T 115 +7.2
7 Visa 111 +10.1
8 Tencent 108 +27.5
9 IBM 102 +18.4
10 McDonald’s 98 +10.2
11 Verizon 89 -4.2
12 Marlboro 88 +4
13 Coca-Cola 78 -2.7
14 Alibaba 59 +19.9
15 Wells Fargo 58 -0.2
16 UPS 58 +17.0
17 China Mobile 57 +1.1
18 Disney 52 +5.7
19 General Electric 50 -7.2
20 Mastercard 50 +8.2

Key Success Factors

  • How do customers choose?
  • What do we need to survive

competition?

What resources & capabilities

do we need to deliver these

KSFs?

Starting from the outside

Two Approaches to Identifying an

Organization’s Resources and Capabilities

*

Copyright © 2019 John Wiley & Sons, Inc.

Starting from the inside

IDENTIFYING RESOURCES AND CAPABILITIES

FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

LOGISTICS LOGISTICS & SALES

PRIMARY

ACTIVITIES

SUPPORT

ACTIVITIES

IDENTIFYING RESOURCES AND CAPABILITIES

Copyright © 2019 John Wiley & Sons, Inc.

Porter’s Value Chain

6

6

Exploration Capability

Negotiating Capability

Geological Capability

Seismic Capability

Drilling Capability

Well Construction Capability

Partnering Capability

Procurement Capability

Directional Drilling Capability

Well Logging Capability

Hydraulic Fracturing Capability

Deepwater Drilling Capability

Well Casing Capability

A Hierarchy of Capabilities:

An Oil and Gas Company

IDENTIFYING RESOURCES AND CAPABILITIES

Copyright © 2019 John Wiley & Sons, Inc.

Scarcity

Relevance

Durability

Transferability

Replicability

Property rights

Relative

bargaining power

Embeddedness

THE EXTENT OF THE

COMPETITIVE ADVANTAGE

ESTABLISHED

SUSTAINABILITY OF THE

COMPETITIVE ADVANTAGE

APPROPRIABILITY

THE PROFIT

EARNING POTENTIAL

OF A RESOURCE OR

CAPABILITY

Appraising the Strategic Importance of Resources and Capabilities

*

Copyright © 2019 John Wiley & Sons, Inc.

APPRAISING RESOURCES AND CAPABILITIES

8

8

Who Appropriates the Returns from Organizational Capabilities?

Employees vs. Shareholders at Goldman Sachs

APPRAISING RESOURCES AND CAPABILITIES

Copyright © 2019 John Wiley & Sons, Inc.

Data for 2016
Net income  $7.1 bn.
Dividends to shareholders $1.1 bn.
Total employee compensation $11.7 bn.
Average compensation per employee  $338,576

Resource and Capability Appraisal:

Grant vs. Barney

APPRAISING RESOURCES AND CAPABILITIES

Copyright © 2019 John Wiley & Sons, Inc.

GRANT: Strategic Importance Criteria BARNEY:
VRIO Criteria
Comparison
Establishing competitive advantage    
Relevance Valuable Similar: both about creating customer value
Scarcity Rare Identical: scarcity = rareness
Sustaining competitive advantage    
Durability   No equivalent criterion in VRIO
Transferability Imitable Similar: imitation requires either buying (i.e. transfer) or replicating a resource/capability
Replicability
Appropriating competitive advantage Organization Similar: appropriating value requires being organized for value capture

Strategic Importance

Relative Strength

Low

Low

High

High

Superfluous Strengths

Key Strengths

Key Weaknesses

Zone of Irrelevance

The Framework for Appraising

Resources and Capabilities

APPRAISING RESOURCES AND CAPABILITIES

Copyright © 2019 John Wiley & Sons, Inc.

Strategic Importance

Relative Strength

Low

Low

High

High

  • 0

Superfluous

Strengths

Key Strengths

Key Weaknesses

Inconsequential Weaknesses

Deriving Strategy Recommendations from Resource/Capability Analysis: Icelandair Group

Fleet

Brand

Location

Route network

Landing slots

General management

Human resources

Cabin services

Flight operations

Marketing

Financial resources

Maintenance

DEVELOPING STRATEGY IMPLICATIONS

STRATEGY:

  • Iceland location means small domestic market and limited appeal as international hub.
  • Hence, airline must utilize its operational, service, and HR strengths to offset these disadvantages.
  • Core strategy:
  • Collaborate to develop Iceland as a year-round tourist destination
  • Develop vacation destinations for domestic customers
  • Use to low fares and superior customer experience to compete on North Atlantic routes
  • Use general management strengths for flexible responses to emerging opportunities, e.g. new routes

Copyright © 2019 John Wiley & Sons, Inc.

Exploiting Key Strengths:

  • Target market/customer segments where core strengths have biggest impact, e.g. Virgin America focuses on long-haul routes where its differentiated offering has greatest customer
  • Replicate in new locations, e.g. Disney theme parks in Tokyo, Paris, Hong Kong, Shanghai
  • Exploit key strengths by diversifying into new markets, e.g. Fuji Film entered cosmetics to exploit capabilities in coatings, collagen, and nanotechnology

Key Weaknesses

  • Invest in weaknesses—but (a) may require investment over a long period; (b) not effective when weaknesses are based on deep-seated cultural factors
  • Outsource to firms with strengths in these activities, e.g. Apple outsources manufacturing to Foxconn
  • Partner with firms with complementary resources and capabilities
  • Target market/customer segments where core weaknesses have smallest impact, e.g. Harley-Davidson’s technological weakness has encouraged its focus on retro-styled, heavyweight cruiser bikes

Superfluous Strengths

  • Seek innovative ways to exploit seemingly unimportant strengths.

DEVELOPING STRATEGY IMPLICATIONS

Deriving Strategy Recommendations from Resource/Capability Analysis

Copyright © 2019 John Wiley & Sons, Inc.

POTENTIAL FOR

SUSTAINABLE

COMPETITIVE

ADVANTAGE

CAPABILITIES

3. Develop strategy implications:

(a) How can strengths be exploited most

effectively?

(b) In relation to weaknesses:

–Can they be offset by investment?

–Can they be outsourced?

–In which segments do they least

impact?

2. Appraise the firm’s resources and

capabilities in terms of:

(a) strategic importance

(b) relative strength

1. Identify the firm’s resources and

capabilities

STRATEGY

The Framework for Analyzing
Resources and Capabilities

RESOURCES

SUMMARY

Copyright © 2019 John Wiley & Sons, Inc.

10

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