Organizational Analysis

Resource and Capabilities Analysis The Resource-Based View Approach

Analysing Resources and Capabilities: the Interface between strategy and the Firm

The Firm Goals and Values Resources & Capabilities Structure & Systems

The Industry Environment

STRATEGY
STRATEGY

Competitors Customers Suppliers

The Firm-Strategy Interface

The environmentStrategy Interface

Basing Strategy on Resouces and Capabilities

When the external environment is in a state of flux, the firm itself, in terms of the bundles of resources and capabilities, may be a much more stable basis on which to define its identity and the more likely it is that internal R & C will provide a secure foundation for long-term strategy.

The Evolution of Honda Motor Company Resource and Capabilities

Honda Technical Research Institute founded 1st Competes in Isle of Man TT motorcycle races 4-cylinder 750cc motorcycle
Portable generator

1st gasoline-powered car to meet US Low Emission Vehicle Standard Power products: ground tillers, marine engines, generators, pumps, chainsaws snowblowers

Civic Hybrid (dual gasoline/ electric) Civic GS (natural gas powered)

motorcycle: 98cc, 2-cycle Dream D

405cc motor cycle

1946 1950 1955

1960

1965

1970
N360 mini car

1975

1980

1985

1990
Acura Car division

1995

2000

4 cycle engine

The 50cc Supercub

Honda Civic First product: Model A clip-on engine for bicycles Enters Formula 1 Gran Prix racing

1000cc Goldwing touring motor cycle

Home cogeneration system

Enters Indy car racing Honda FCX fuel cell car

Canon: Products and Core Technical Capabilities Precision Mechanics Fine Optics

35mm SLR camera Plain-paper copier Compact fashion camera Color copier EOS autofocus camera Color laser copier Digital camera Laser copier Video still camera Basic fax Laser fax Mask aligners Inkjet printer Excimer laser aligners Stepper aligners Laser printer Color video printer

Calculator Notebook computer

MicroElectronics

The Links between Resources, Capabilities and Competitive Advantage

COMPETITIVE ADVANTAGE INDUSTRY KEY SUCCESS FACTORS

STRATEGY ORGANIZATIONAL CAPABILITIES RESOURCES

TANGIBLE Financial Physical

INTANGIBLE Technology Reputation Culture

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

The Resource Based-View

The key to profitability is NOT through doing the same as other firms, but rather through exploring differences. Establishing competitive differences. advantage involves formulating and implementing a strategy that exploits the uniqueness of a firms portfolio of resources firm and capabilities.

Resources and Capabilities (or competences)

Resource are productive assets owned by the

firm. firm. Individual resources do NOT confer competitive advantage. advantage.

Capabilities are what the firm can do or

knows how to do with its resources. Create resources. superior performance.

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

Physical

Technology Intangible Resources Reputation

Human Resources

Worlds Most Valued Brands (2010)

Firm Walmart Google Coca-Cola IBM Microsoft GE HSBC HP Nokia Citi

Country USA USA USA USA USA USA UK USA Finland USA

Value (USD $ Millions) 41,365 36,191 34,844 33,706 33,604 31,909 28,472 27,383 19,558 14,362

Rating AAAAA AAA AAAAA AA AAA AA+ AA+ A

http://www.brandfinance.com/

Capabilities: Some examples

R&D Speed of distribution Research Negotiation skills Flexibility and speed of response Responsiveness to market trends Brand management Customer management relationship

The Rent-Earning Potential of Resources and Capabilities

THE EXTENT OF THE COMPETITIVE ADVANTAGE ESTABLISHED Scarcity Relevance Durability SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE Transferability Replicability Property rights APPROPRIABILITY Relative bargaining power Embeddedness

THE PROFIT EARNING POTENTIAL OF A RESOURCE OR CAPABILITY DEPEND ON:

VWs Resources and Capabilities

RESOURCES
R1. Finance R2. Technology R3. Plant and equipment Importance VWs Relative Strength 4 5 8

CAPABILITIES
C1. Product development C2. Purchasing C3. Engineering C4. Manufacturing

Importance

VWs Relative Strength

6 7 8

9 7 7 8 6 6 9

4 5 9 7 3 4 4

R4. Location R5. Distribution

7 8

4 5 C5. Financial management C6. R&D C7. Marketing & sales C8. Government relations

Appraising VWs Resources and Capabilities

10

Superfluous Strengths
C8

Key Strengths
C3 R3 C4 C2

Relative Strength

5
R1 C6

R2 R4 C5

R5 C1 C7

1 1

Zone of Irrelevance 5

Key Weaknesses 10

Strategic Importance

Approaches to Capability Development

1) Acquire and develop the underlying resources. Especially human resources

--Externally (hiring) --Internally through developing individual skills

2) Acquire/access capabilities externally through acquisition or alliance 3) Greenfield development of capabilities in separate organizational unit (IBM & the PC, Xerox & PARC, GM & Saturn) 4) Build team-based capabilities through training and team development (i.e. develop organizational routines) 5) Change management to transform values and behaviors (GE, BP) 6) Knowledge Management (systematic approaches to acquiring,
storing, replicating, and accessing knowledge)

The Internal Factor Evaluation Matrix Weight Rating W*R (IFE)

Strengths
Brand recongnition - high Product Flavour high Shareholders perception of the company Efficiency in productive and logistics proc Portfolio value diversified and know Know-how of the local market Med-hig Distribution coverage- high 0.12 0.05 0.05 0.05 0.10 0.08 0.15 4 4 4 3 3 3 4 0.48 0.20 0.20 0.15 0.30 0.24 0.60

Weaknesses
Product independence- low Shareholders historical stability - low Leadership image med-low Distributors independence TOTAL MEDIUM-HIGH INTERNAL POSITION 0.10 0.05 0.10 0.15 1 1-4 1 2 2 1 0.10 0.10 0.20 0.15

2,72