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Internal Analysis and Strategic Capabilities

Internal Analysis and Strategic Capabilities

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Internal Analysis and Strategic Capabilities

  1. 1. Slide 3.1 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Lesson 03: Strategic Capabilities BM3040 Strategic Management Pro. Wasantha Rajapakshe, PhD Associate Professor, SLIIT Business School, SLIIT, Malabe.
  2. 2. Slide 3.2 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Learning outcomes • Identify strategic capabilities in terms of organisational resources and competences and how these relate to the strategies of organisations. • Analyse how strategic capabilities might provide sustainable competitive advantage on the basis of their Value, Rarity, Inimitability and Organisational support (VRIO). •
  3. 3. Slide 3.3 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Strategic capabilities: the key issues
  4. 4. Slide 3.4 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 New videos • Author • https://www.youtube.com/watch?v=MK6Cv5S s3x4
  5. 5. Slide 3.5 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Resource-based strategy The resource-based view (RBV) of strategy asserts that the competitive advantage and superior performance of an organisation are explained by the distinctiveness of its capabilities. distinctiveness“…firm-specific strengths that allow a company to differentiate its products from those offered by rivals, and/or achieve substantially lower costs….” It is sometimes also called the ‘capabilities view’.
  6. 6. Slide 3.6 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Resources and competences • Strategic capabilities are the capabilities of an organisation that contribute to its long-term survival or competitive advantage. – Resources are the assets that organisations have or can call upon (e.g. from partners or suppliers), that is ‘what we have’. – Competences are the ways those assets are used or deployed effectively, that is ‘what we do well’ .
  7. 7. Slide 3.7 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Components of strategic capabilities
  8. 8. Slide 3.8 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Redundant capabilities • Capabilities, however effective in the past, can become less relevant as industries evolve and change. • Such ‘capabilities’ can become ‘rigidities’ that inhibit change and become a weakness.
  9. 9. Slide 3.9 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 https://www.youtube.com/watch?v=AnShAUIpr Ew Jay Barney • https://www.youtube.com/watch?v=- KN81_oYl1s&t=59s • https://www.youtube.com/watch?v=iKv- GjnsuII&t=153s • https://www.youtube.com/watch?v=l0IXEFZJs v0
  10. 10. Slide 3.10 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Dynamic capabilities Dynamic capabilities are the means by which an organisation has the ability to renew and recreate its strategic capabilities to meet the needs of changing environments. I-pod / Cassette player Such capabilities are distinct from ordinary capabilities that may be necessary to operate efficiently now but that may not be sufficient to sustain superior performance in the future.
  11. 11. Slide 3.11 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Threshold and distinctive capabilities (1) • Threshold capabilities are those needed for an organisation to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market – ‘qualifiers’. • Distinctive capabilities are those that are required to achieve competitive advantage. Distinctive or unique capabilities that are of value to customers and which competitors find difficult to imitate – ‘winners’.
  12. 12. Slide 3.12 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Threshold and distinctive capabilities (2) https://www.youtube.com/watch?v=clVzKav6mn8&t=177s
  13. 13. Slide 3.13 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Core competences Core competences1 are the linked set of skills, activities and resources that, together: • deliver customer value • differentiate a business from its competitors • potentially, can be extended and developed as markets change or new opportunities arise. 1G. Hamel and C.K. Prahalad, ‘The core competence of the corporation’, Harvard Business Review, vol. 68, no. 3 (1990), pp. 79–91.
  14. 14. Slide 3.14 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Strategic capabilities and competitive advantage The four key criteria by which capabilities can be assessed in terms of providing a basis for achieving sustainable competitive advantage are: • value • rarity • inimitability and • organisational support 1Jay Barney: ‘Firm resources and sustained competitive advantage’, Journal of Management, vol. 17 (1991), no. 1, pp. 99–120. VRIO1
  15. 15. Slide 3.15 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 • https://www.youtube.com/watch?v=hRAx4Bo HtTk
  16. 16. Slide 3.16 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 VRIO (1)
  17. 17. Slide 3.17 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 VRIO (2) V – Value of strategic capabilities Strategic capabilities are of value when they: • take advantage of opportunities and neutralise threats • provide value to customers • are provided at a cost that still allows an organisation to make an acceptable return.
  18. 18. Slide 3.18 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 VRIO (3) R – Rarity • Rare capabilities are those possessed uniquely by one organisation or only by a few others. (E.g. a company may have patented products, have supremely talented people or a powerful brand.) • Rarity could be temporary. (E.g. Patents expire, key individuals can leave or brands can be de-valued by adverse publicity.)
  19. 19. Slide 3.19 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 VRIO (4) I – Inimitability Inimitable capabilities are those that competitors find difficult and costly to imitate, to obtain or to substitute. • Competitive advantage can be built on unique resources (a key individual or IT system) but these may not always be sustainable (key people leave or others acquire the same systems). • Sustainable advantage is more often found in competences (the way resources are managed, developed and deployed) and the way competences are linked together and integrated.
  20. 20. Slide 3.20 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Criteria for the inimitability of strategic capabilities Figure 3.3 Criteria for the inimitability of strategic capabilities
  21. 21. Slide 3.21 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 VRIO (5) O – Organisational support The organisation must be suitably organised to support the valuable, rare and inimitable capabilities that it has. This includes appropriate processes and systems.
  22. 22. Slide 3.22 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 VRIO (6) Table 3.2 The VRIO framework Source: Adapted with the permission of J.B. Barney and W.S. Hesterly, Strategic Management and Competitive Advantage, Pearson, 2012.
  23. 23. Slide 3.23 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 SWOT analysis SWOT provides a general summary of the Strengths and Weaknesses explored in an analysis of strategic capabilities (Chapter 3), and the Opportunities and Threats explored in an analysis of the environment (Chapter 2). INTERNAL ANALYSIS = STRENGTHS WEAKNESSES EXTERNAL ANALYSIS = OPPORTUNITIES THREATS
  24. 24. Slide 3.24 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Uses of SWOT analysis (1) • Major strengths and weaknesses are identified using the analytic tools explained in Chapter 3. • Scoring (e.g. + 5 to −5) can be used to assess the interrelationship between environmental impacts and the strengths and weaknesses. • SWOT can be used to examine strengths, weaknesses, in relation to competitors. • Focus on strengths and weaknesses that differ in relative terms compared to competitors and leave out areas where the organisation is at par with competitors.
  25. 25. Slide 3.25 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Uses of SWOT analysis (2) • Key opportunities and threats are identified using the analytical tools explained in Chapter 2. • Focus on opportunities and threats that are directly relevant for the specific organisation and industry and leave out general and broad factors. • Finally, summarise the results and draw concrete conclusions. • SWOT can be used to generate strategic options – using a TOWS matrix.
  26. 26. Slide 3.26 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 • https://www.slideshare.net/hammadrasheed7 /nestle-strategic-model 26
  27. 27. Slide 3.27 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 The TOWS matrix
  28. 28. Slide 3.28 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Dangers in a SWOT analysis • Long lists with no attempt at prioritisation. • Over generalisation – sweeping statements often based on biased and unsupported opinions. • SWOT is used as a substitute for analysis – it should result from detailed analysis using the frameworks in Chapters 2 and 3. • SWOT is not used to guide strategy – it is seen as an end in itself.
  29. 29. Slide 3.29 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Chapter summary (1) • The competitive advantage of an organisation is based on the strategic capabilities it has that are valuable to customers and that its rivals do not have or have difficulty in obtaining. Strategic capabilities comprise both resources and competences. • The concept of dynamic capabilities highlights that strategic capabilities need to change as the market and environmental context of an organisation changes.
  30. 30. Slide 3.30 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Chapter summary (2) • Ways of diagnosing organisational capabilities include: − Benchmarking as a means of understanding the relative performance of organisations. − VRIO analysis of strategic capabilities as a tool to evaluate if they contribute to competitive advantage. − Analysing an organisation’s value chain and value system as a basis for understanding how value to a customer is created and can be developed. − Activity mapping as a means of identifying more detailed activities which underpin strategic capabilities. − SWOT analysis as a way of drawing together an understanding of strengths, weaknesses, opportunities and threats an organisation faces.
  31. 31. Slide 3.31 Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014 Chapter summary (3) • Sustainability of competitive advantage is likely to depend on an organisation’s capabilities being of at least threshold value in a market but also being valuable, relatively rare, inimitable and supported by the organisation – thus fulfilling the VRIO criteria. • Managers need to think about how and to what extent they can manage the development of strategic capabilities of their organisation by internal and external capability development and by the way they manage people in their organisation.

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