Resources and Capabilities (discussion ) This week, our discussion thread is centered on the resources and capabilities of the firm.
Which should be t
This week, our discussion thread is centered on the resources and capabilities of the firm.
- Which should be the primary basis for formulating strategy: The external market or the internal resources and capabilities?
- 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.
- Identify two key resources and two capabilities of the company.
- 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:
- Chapter 5 in Contemporary Strategy Analysis
- Chapter 5 PowerPoint slides Chapter 5 PowerPoint slides – Alternative Formats in Contemporary Strategy Analysis
- Raasch, M., Silveira-Martins, E., Gonçalves Tondolo, V. A., & Luiz de Moura, G. (2020). Productive Dynamic Capability, Environmental Uncertainty, and Organizational Performance: An Analysis of Micro and Small-Sized Agroindustries in Southern Brazil. Brazilian Journal of Management / Revista de Administração Da UFSM, 13(5), 1068–1072. https://doi.org/10.5902/1983465941355.
- Capps III, C. J., Cassidy, C. M., Gravois, R., & Warner, J. A. (2019). Expanding the Competitive Profile Matrix: Introducing the Production/Operations Management, Marketing, Human Resource Management, Finance/Accounting, Research and Development, and Information Systems Competitive Profile Matrices. Journal of Business Strategies, 36(1), 59–69.
- Shan, S., Luo, Y., Zhou, Y., & Wei, Y. (2019). Big data analysis adaptation and enterprises’ competitive advantages: the perspective of dynamic capability and resource-based theories. Technology Analysis & Strategic Management, 31(4), 406–420. https://doi.org/10.1080/09537325.2018.1516866
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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
*
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 | 246 | +7.1 | |
| 2 | Apple | 235 | +2.7 |
| 3 | Microsoft | 143 | +17.6 |
| 4 | Amazon | 139 | +40.7 |
| 5 | 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.
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