Resources and Capabilities
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
1
Learning Objectives
By the time you have completed this topic you will be able
to:
•appreciate the role of a firm’s resources and capabilities
play in formulating strategy;
•identify and appraise the resources and capabilities of a
firm;
•evaluate the potential for a firm’s resources and
capabilities to confer sustainable competitive advantage;
•use resource and capability analysis to formulate
strategies that exploit internal strengths while defending
against internal weaknesses.
2
Structure of the session
• The role of resources and capabilities in
strategy formulation
• Identifying the organization’s resources
• Identifying the organization’s capabilities
• Appraising resources and capabilities
• Putting resources and capabilities analysis to
work
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
3
Analysing resources and capabilities: the
interface between strategy and the firm
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
4
Rationale for the Resource-based
Approach to Strategy
• When the external environment is subject to
rapid change, internal resources and
capabilities offer a more secure basis for
strategy than market focus.
• Resources and capabilities are the primary
sources of profitability
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
5
The links among resources, capabilities
and competitive advantage
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
6
Identifying resources
RESOURCE
Tangible
Resources
CHARACTERISTICS
INDICATORS
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
Technology
Patent, copyrights, know-how, R&D
facilities
Technical and scientific employees
Number 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
Training, experience,adaptability,
commitment and loyalty of employees
Employee qualifications,
Pay rates, turnover
Intangible
Resources
Human Resources
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
7
Major firms with the highest valuation ratios,
April 2014
Company
Valuation
Ratio
Country
Company
Valuation
Ratio
Country
Unilever (Hindustan)
46.6
India
Alexion Pharma.
11.9
US
Tesla Motors
37.7
US
Starbucks
11.8
UK
Colgate Palmolive
26.3
US
ITC Ltd
11.7
India
Altria
18.3
US
Mastercard
11.4
US
AbbVie
16.7
US
Roche Holding
11.3
Swz
Yum! Brands
15.4
US
GlaxoSmithKline
11.0
UK
Regeneron Pharma
15.0
US
Salesforce.com
11.0
US
Amazon
14.9
US
Hermes Intl.
11.0
US
British Sky Broadcasting
14.0
UK
ARM Holdings
10.7
UK
United Parcel Services
13.8
US
CSL
10.6
Australia
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
8
The world’s most valuable brands, 2013
Rank
Brand
Brand Value $ Billion
Change from 2009 (%)
Country of Origin
1
Apple
98.3
+28
USA
2
Google
93.3
+34
USA
3
Coca-Cola
79.2
+2
USA
4
IBM
78.8
+4
USA
5
Microsoft
59.5
+3
USA
6
GE
46.9
+7
USA
7
McDonald’s
42.0
+5
USA
8
Samsung
39.6
+20
South Korea
9
Intel
37.2
-5
USA
10
Toyota
35.3
+17
Japan
11
Mercedes-Benz
31.9
+6
Germany
12
BMW
31.8
+10
Germany
13
Cisco
29.0
+7
USA
14
Disney
28.1
+3
USA
15
Hewlett-Packard
25.8
-1
USA
16
Gilette
25.1
+1
USA
17
Louis Vuitton
24.9
+6
France
18
Oracle
24.1
+9
USA
19
Amazon
23.6
+27
USA
20
Honda
18.5
+7
Japan
n
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
9
Source: Interbrand
Identifying organizational capabilities by function
FUNCTION
CAPABILITY
EXEMPLARS
CORPORATE FUNCTIONS
Financial control
Management development
Strategic innovation
Multidivisional coordination
Acquisition management
International management
ExxonMobil, PepsiCo
General Electric, Shell
Google, Haier
Unilever, Shell
Cisco Systems, Luxottica
Shell, Banco Santander
MANAGEMENT
INFORMATION
Comprehensive, integrated MIS network linked to
managerial decision making
Wal-Mart, Capital One, Dell
R&D
Research
Innovative new product development
Fast-cycle new product development
IBM, Merck
3M, Apple
Canon, Inditex (Zara)
OPERATIONS
Efficiency in volume manufacturing
Continuous improvements in operations
Flexibility and speed of response
Briggs & Stratton, YKK
Toyota, Harley-Davidson
Four Season Hotels
PRODUCT DESIGN
Design capability
Nokia, Apple
MARKETING
Brand management
Building reputation for quality
Responsiveness to market trends
Procter & Gamble, Altria
Johnson & Johnson
MTV, L’Oreal
SALES AND DISTRIBUTION
Effective sales promotion and execution
Efficiency and speed of order processing
Speed of distribution
Customer service
PepsiCo, Pfizer
L. L. Bean, Dell
Amazon.com
Singapore Airlines, Caterpillar
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
10
Identifying resources and
capabilities: Porter’s value chain
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
11
Hierarchy of organizational
capabilities
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
12
Appraising resources and
capabilities
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
13
Using resource and capability
analysis to formulate strategy
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
14
Summary: a framework for analyzing
resources and capabilities
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
15
The Nature and Sources of
Competitive Advantage
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
1
Learning Objectives
By the time you have completed this topic you will be able to:
•understand the meaning of the term ‘competitive advantage’ and
identify the circumstances in which a firm can create a competitive
advantage over a rival
•predict the potential for competition to wear away competitive
advantage through imitation
•recognise how resource conditions create imperfections in the
competitive process that offer opportunities for competitive advantage
•distinguish the two primary types of competitive advantage: cost
advantage and differentiation advantage
•identify potential sources of cost and differentiation advantage and
recommend strategies to enhance competitiveness
•appreciate the pitfalls of being ‘stuck in the middle’ and the challenge
of achieving effective differentiation and low cost together
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
2
Emergence of Competitive
Advantage
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
3
Competitive Advantage from
Innovation: New Game Strategies
• Strategic Innovation: Creating customer value
from novel products, experiences or modes of product
delivery.
• Strategic innovation may involve:
o Creating new industries, e.g. Xerox and plain paper
copies; Craig McCaw and wireless telephone technology
o Creating new customer segments, e.g. Apple established
the market for home computers; the Nintendo Wii
extended the market for video games to new types of
customer
o New sources of competitive advantage; novel approaches
to creating consumer value, e.g. Dell Computer’s direct
sales model; Cirque du Soleil’s reinvention of the circus
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
4
Sustaining Competitive Advantage:
Types of Isolating Mechanism
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
5
Sources of Competitive Advantage
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
6
Features of Cost Leadership and
Differentiation Strategies
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
7
Drivers of Cost Advantage
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
8
Value Chain Analysis
of Cost Advantage
1. Disaggregate the firm into separate
activities
2. Establish the relative importance of different
activities with respect to the total cost of the
product
3. Identify cost drivers and linkages within the
value chain
4. Identify opportunities for reducing costs
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
9
Using the Value Chain Analysis to Explore
Cost-Saving: Singapore Airlines
Porter’s category
Examples of airline activities that fit Porter’s
categories
Cost-saving opportunities and initiatives
Inbound logistics
Aircraft, fuel, food and drink
Young fleet – the lower average age of SIA’s aircraft offer greater fuel
efficiency. Staff are trained to reduce food and drink wastage.
Operations
Airport and gate operations, ticketing, flight
scheduling, baggage handling, repair &
maintenance
SIA endeavors to reduce costs through improving efficiency and
adopting best practices.
Outbound logistics
Flight connections, partnerships and alliances
with other operators
Routes are constantly being added and subtracted from the
company’s route map to optimize load factors.
Marketing & sales
Promotion, advertising
The company’s success in achieving awards provides free publicity
and promotes the company and its brand.
Service
Pre and post flight service
Firm infrastructure
Management system – yield management, IT
services, budgeting
Online booking of meals and seats allows better forward planning.
Social media provides a low cost means of building connections with
customers.
Small headquarters located in low-cost location.
HRM
Recruitment and Reward
Training
Training is in-house and delivered by senior cabin crew rather than
third parties. Training emphasizes both attentive service and waste
control.
Technology
development
IT systems
Non-strategic IT services outsourced to low-cost providers. Off-the
shelf software systems purchased.
Procurement
Acquisition of aircraft and other inputs
A culture of hard bargaining
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
10
Using the Value Chain to Identify Differentiation
Potential on the Supply Side
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
11
Porter’s Generic Strategies
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
12
Stuck in the Middle:
Porter’s Three Generic Strategies
©2015 Robert M. Grant & Judith Jordan
www.foundationsofstrategy.com
13
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