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Paper P3 – Business Analysis Internal Resources

Table of Contents

1 THE INTERNAL RESOURCES OF AN ORGANISATION, COMPETENCES AND CAPABILITIES AND STRATEGY

1.1

Capabilities

1.2 Resources (Audit)

3

3

3

2

COST EFFICIENCY Cost efficiency is very important to organisation especially for:

5

5

2.1

is very important to organisation especially for : 5 5 2.1 What is innovation? What are

What is innovation?

What are the drivers of innovation?

Sources of cost efficiency:

5

5

5

5

5

5

6

Economy of scale Experience (learning curve) Supply and production costs Product/ process design

2.2

3

3.1

Case study:

STRATEGIC CAPABILITIES & SUSTAINING COMPETITIVE ADVANTAGE

Key features of strategic capabilities Value to buyers 6 Rarity 6 Robustness 6

6

Non-substitutability

6

6

7

7

7

3.2

4

4.1

4.2

Case study

INNOVATION AND BUSINESS STRATEGY

4.3

How do companies organise for innovation?

8

4.4

Case study

8

5

5.1

5.2

5.3

KNOWLEDGE AND STRATEGIC CAPABILITY

What is knowledge?

Knowledge and competitive advantage

Knowledge Management (KM)

9

9

9

10

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Paper P3 – Business Analysis Internal Resources

6 SWOT ANALYSIS

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Tutors Paper P3 – Business Analysis Internal Resources 6 SWOT ANALYSIS 11 © 2008. Segun Zack.

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Paper P3 – Business Analysis Internal Resources

1 The Internal resources of an organisation, competences and capabilities and strategy

1.1 Capabilities

Resources + competences = Capabilities

A strategic capability is the adequacy and suitability of the resources and competences an organisation needs to obtain and maintain a sustainable competitive advantage against competitors.

Capabilities can be:

Threshold- minimum required capability an organisation needs to be able to compete in a given market. It consists of:

to be able to compete in a given market. It consists of:  Threshold resources 

Threshold resources

Threshold competences

Capabilities for competitive advantage- required to obtain and maintain a sustainable competitive advantage (SCA). It consists of

Unique resources

Core competences

Definitions

Threshold resources

Minimum required resources to play in the market place

Threshold competence

Minimum required competences to play in the market place

Threshold capability

Essential for the organisation to be able to compete in a given market

Unique resources

Resources that competitors may not be able to obtain or imitate and are sources of competitive advantage e.g Brands (Coca Cola), patents (Viagra), sourcing etc

Core competences

Activities, processes or methods through which an organisation uses its resources in a way competitors can not imitate or obtain e.g. sophisticated IT (Google), corporate culture that fosters innovation (Google), brand management (P & G), knowledge management etc

1.2 Resources (Audit)

Obviously without the right resources, an organisation can not compete in the market. Organisation will have to develop or acquire the necessary resources (threshold and unique) to compete in a given market or change its operations and plan.

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Paper P3 – Business Analysis Internal Resources

Resources can be Tangible or intangible.

Tangible resources are physical asset of an organisation e.g plant, labour, finance

Intangible resources are non-physical asset e.g. information, reputation & knowledge. They are usually developed through organisational competences.

The main resources an organisation requires are summarised with the Ms with the inclusion of Brands and IT.

Money

Management

 Management information  Manpower (human resources)  Machinery/manufacturing  Markets  Materials 
 Management information
 Manpower (human resources)
 Machinery/manufacturing
 Markets
 Materials
 Brand
 IT

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Paper P3 – Business Analysis Internal Resources

2 Cost Efficiency

Cost efficiency is very important to organisation especially for:

Companies pursuing low cost leadership strategies e.g. Dell

Companies in mature market

Companies in market where revenue is declining and there is pressure on the margin

Companies competing against low cost competitors from China and India etc

Cost efficiency can be thought as a threshold strategic capability because customer do not value product features at any price and competitive rivalry will drive down prices and hence cost has to move along same line

2.1 Sources of cost efficiency:

has to move along same line 2.1 Sources of cost efficiency: Economy of scale Reduction of

Economy of scale

Reduction of cost per unit as scale of operation increase. This might be from increase specialisation and spreading of fixed elements of costs.

Experience (learning curve)

The passage of time will allow an organisation to improve cost efficiency leading to continue decline in real unit costs.

Supply and production costs

The costs of input have a serious effect on cost structure and represent an opportunity through which cost efficiency can be achieved by using appropriate procurement strategies.

Product/ process design

Business processes that are well designed and operated can be a source of cost efficiency and can lead to reduction in both direct and indirect costs. Products design can also be a source of cost efficiency.

Generally, critical look at each points and linkages in the value chain and value networks can lead to cost efficiency- from sourcing, production and marketing and sales to support activities HR and technology.

Cost efficiency that can not be obtained or imitated by other players in the market can lead to competitive advantage.

2.2 Case study:

Dell inventory and production system

IBM selling off the computer arm to Lenovo

GM and Ford now have problems because of cost efficiency and are developing different programs to cut down cost in contrast to Toyota which is prospering now

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Paper P3 – Business Analysis Internal Resources

3 Strategic capabilities & Sustaining Competitive Advantage

3.1 Key features of strategic capabilities

For strategies to be based on the strategic capabilities (resource-based view) of an organisation it must have the following features

Value to buyers

The strategic capability must of value to the customer and contributes to an organisation’s ability to satisfy customer needs. A strategic capability is not useful if it can not generate products and services that customer needs.

Rarity

A strategic capability that other competitors have can not lead to competitive advantage. Unique

resources and competences are needed to achieve competitive advantage and allow organisation to outperform their pears

advantage and allow organisation to outperform their pears Robustness A or competences that can be copied

Robustness

A

or competences that can be copied or acquired can not lead to sustainable competitive advantage. Robustness can be found in competences involved in linking activities and processes in ways that both satisfy the critical success factors defined by customer priorities and are difficult for competitors to imitate.

strategic capability that will give competitive advantage must be hard to imitate. Any resources

3 aspects of competence that makes it robust are:

Complexity of linkage of activities

Culture and history

Causal ambiguity

Non-substitutability

The products/ should not be substitutable and the competence must not be replaceable.

In condition of hyper competition when competitive and market variables are constantly changing, strategic capabilities needs to be dynamic in response to these rapid changes. This then becomes dynamic capabilities.

3.2 Case study

Coca Cola.

Value = satisfy the need of thirst

Rarity = Coca Cola Concentrate

Robustness = Brand Management, Bottling & Distribution

Non-substitutability = loyal customers, brand etc

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Paper P3 – Business Analysis Internal Resources

Microsoft

Value = Operation of Computer systems, phones etc

Rarity = Window operating system codes and patent

Robustness = Relationship with PCs manufacturers, software development

Non- substitutability = Majority of PCs used Windows

4 Innovation and business strategy

4.1 What is innovation?

4 Innovation and business strategy 4.1 What is innovation? Innovation is the generation and exploitation of

Innovation is the generation and exploitation of new ideas.

It can deliver 3 priceless assets to corporate strategy:

Substantial future growth

Competitive advantage

Ability to leapfrog major competition, even dominant companies

However none of 3 above areas will automatically deliver profits for the organisation.

4.2 What are the drivers of innovation?

There are 2 major drivers that are insufficient by themselves:

Market pull (based on customer need analysis)

Technology push (based on technology development analysis)

An approach that combines the two may be better because here technologists will be trying to solve customers’ problems and marketers will be trying to find applications for new and emerging technologies

Drivers of innovation

Market pull

This results from new ideas that are developed as a result of good understanding of customer requirements (demand drivers), or close collaboration with customers. This simply: find out what customer want and give it to them. It depends on identifying a market need that needs to be satisfied by technological advance.

Technology push

This result from new ideas that are developed as a result of good understanding of science and

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Paper P3 – Business Analysis Internal Resources

technology. New products and services are made because of technology advances. Technology push frequently leads to products that do not have a market.

e.g.

Disruptive innovation

This is another type of innovation which involves taking existing market and identifying technologies that will offer simpler, less expensive products or services that have been offered previously.

eg. China version of some phones which has TV.

4.3

4.4

How do companies organise for innovation? Research and Development (R&D) is the organisation of innovation
How do companies organise for innovation?
Research and Development (R&D) is the organisation of innovation at the level of the firm.
R&D aims to satisfy market need by new product and process development. R&D should have a
major innovative role but innovation in companies goes beyond R&D alone, there are group of
people whose responsibilities include the creation of new business ideas and techniques.
Drivers of innovation
Product R&D
This can be a major source of competitive advantage. It can be a new product research and
development or modifications of existing products which include value engineering, extension
of product life cycle and versioning.
Process R&D
This involves research and developments in how goods/ services are produced. This can be a
source of competitive advantage that is difficult to imitate.
R&D strategy should support chosen corporate strategy. For an example, if corporate strategy is
focusing on innovation, it will not make for R&D to focus on minimising costs.
Case study
Amazon
Internet-based sales of goods (Books, CDs).
Apple
IPod and IPhone
Google
Search – based advertising

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Paper P3 – Business Analysis Internal Resources

5 Knowledge and strategic capability

5.1 What is knowledge?

Knowledge is the fluid mix of framed experience, values, contextual information and expert insights that provides a framework for evaluating and incorporating new experiences and information. It originates and it is applied in the mind of the knower. In organisations, it often becomes embedded not only in documents and repositories but also in organisation routines, processes, practices and norms.

Simply, knowledge is the information in a person’s mind.

Knowledge is not just data - a set of discrete and observable facts about an event. Eg of data is lists of outstanding invoices

about an event. Eg of data is lists of outstanding invoices Knowledge is not just information

Knowledge is not just information – data that has a meaning. Eg of information is lists of outstanding invoices sorted out by customers showing amount owed by each customer.

Knowledge can be Explicit or Tacit.

Explicit knowledge is defined, written down and organisation knows it exists. Eg manufactuting procedures

Tacit knowledge is not defined, unwritten and is locked in the minds of people. Organisations may be unaware of its existence or the extent to which it exists. Eg personal knowledge of customers by sales personnel

5.2 Knowledge and competitive advantage

Knowledge can be a source of competitive advantage. Tacit knowledge usually delivers sustainable competitive advantage (SCA) because competitors can not replicate it.

The MD of Toyota can invite competitors to tour his plant because he knows that the secrets of Toyota Production System lie in the tacit knowledge.

Explicit knowledge can also give SCA e.g patents

There is interrelationship between tacit and explicit knowledge:

Socialisation – sharing of tacit knowledge

Externalisation – turn tacit to explicit knowledge

Internalisation – turn explicit to tacit knowledge

Combination - combines separate elements of tacit knowledge into a larger, more coherent systems

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Paper P3 – Business Analysis Internal Resources

5.3 Knowledge Management (KM)

What is KM?

KM is the process in which knowledge is uncovered or discovered, captured, shared, distributed, levered and maintained.

The KM systems

This is the information technology/systems that is used to enhance the process of KM. This includes office automation, groupware, intranet, extranet, expert systems, and data mining.

KM Systems

Explanation

Office automation

Word processing and voice messaging systems

Lotus notes A software systems as
Lotus notes
A
software systems
as

Groupware

Intranets

An internal network used to share information using Internet technology and protocols.

Extranets

When access to an intranet is extended to trusted external agencies, such as suppliers and customers,

Expert systems

computer program that captures human expertise in a

limited domain of knowledge. Eg bank loan application

Data warehouse and Data mining

Data warehouse receives data from operational systems, such

a sales order processing system, and stores them in its

most fundamental form, without any summarisation of transactions.

Datamining software discovers previously unknown relationships and provides insights that cannot be obtained through ordinary summary reports.

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Paper P3 – Business Analysis Internal Resources

6 SWOT Analysis

Opportunities X Strengths Weaknesses Threats
Opportunities
X
Strengths
Weaknesses
Threats