Ch 3 Strategic MGMT

analyzing intangible and tangible assets

Although production assets are tangible, many of the processes necessary to use them are intangible. Thus, the learning and potential proprietary processes associated with a tangible resource, such as manufacturing facilities, can have unique intangible attributes, such as quality control processes, unique manufacturing processes, and technologies that develop over time

Competencies, Strengths, Weaknesses, and Strategic Decisions

By analyzing the internal organization, firms identify their strengths and weaknesses as reflected by their resources, capabilities, and core competencies. If a firm has weak capabilities or does not have core competencies in areas required to achieve a competitive advantage, it must acquire those resources and build the needed capabilities and competencies. Alternatively, the firm could decide to outsource a function or activity where it is weak in order to improve its ability to use its remaining resources to create value.

The Four Criteria of Sustainable Competitive Advantage

Capabilities that are: valuable, rare, costly to imitate, nonsubstitutable are core competencies Capabilities failing to satisfy the four criteria are not core competencies, meaning that although every core competence is a capability, not every capability is a core competence

Complexity Conditions Affecting Managerial Decisions about Resources, Capabilities, and Core Competencies

Complexity results from the interrelationships among conditions shaping a firm.

Example explaining steps in creating a core competence (Apple)

Innovation is thought to be a core competence at Apple. As a capability, R&D activities are the source of this core competence. More specifically, the way Apple has combined some of its tangible (e.g., financial resources and research laboratories) and intangible (e.g., scientists and engineers and organizational routines) resources to complete research and development tasks creates a capability in R&D

Intangible resources

Intangible resources are assets that are rooted deeply in the firm's history, accumulate over time, and are relatively difficult for competitors to analyze and imitate. *Knowledge trust between managers and employees, managerial capabilities organizational routines scientific capabilities the capacity for innovation brand name 3 primary categories human, innovation, and reputational

Intraorganizational Conflicts Conditions Affecting Managerial Decisions about Resources, Capabilities, and Core Competencies

Intraorganizational conflicts may exist among managers making decisions as well as among those affected by the decisions.

Outsourcing

Outsourcing is the purchase of a value-creating activity or a support function activity from an external supplier. Not-for-profit agencies as well as for-profit organizations actively engage in outsourcing. Firms engaging in effective outsourcing increase their flexibility, mitigate risks, and reduce their capital investments firms must recognize that only activities where they cannot create value or where they are at a substantial disadvantage compared to competitors should be outsourced

costly to imitate capabilities

Reasons that capabilities are costly to imitate: organizational culture casually ambigiuous social complexity

Support functions

Support functions include the activities or tasks the firm completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing. A firm can develop a capability and/or a core competence in any of the value chain activities and in any of the support functions. Human resources MIS Finance

Tangible resources

Tangible resources are assets that can be observed and quantified. Production equipment, manufacturing facilities, distribution centers, and formal reporting structures are examples of tangible resources. Copyrights, patents, trademarks, and trade secrets 4 primary categories =financial, organizational, physical, and technological

capabilities

The firm combines individual tangible and intangible resources to create capabilities. In turn, capabilities are used to complete the organizational tasks required to produce, distribute, and service the goods or services the firm provides to customers for the purpose of creating value for them Creates core competencies (manufacturing, mgmt, marketing

strategic decisions

The strategic decisions managers make about the internal organization are nonroutine, have ethical implications, and significantly influence the firm's ability to earn above-average returns.

The value chain

The value chain is a template that firms use to analyze their cost position and to identify the multiple means that can be used to facilitate implementation of a chosen strategy Should be addressed in a global context

Uncertainty Conditions Affecting Managerial Decisions about Resources, Capabilities, and Core Competencies

Uncertainty exists about the characteristics of the firm's general and industry environments and customers' needs ***new proprietary technologies rapidly changing economic and political trends transformations in societal values shifts in customers' demands.

Valuable capabilities

Valuable capabilities allow the firm to exploit opportunities or neutralize threats in its external environment.

Value chain activities

Value chain activities are activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers. Supply chain mgmt Distribution Marketing

Value is measured by: a. a product's performance characteristics and by its attributes for which customers are willing to pay. b. the price of a product set by the manufacturer to be sold in a retail environment. c. the inputs required to produce a product, including human, physical and financial capital. d. the amount of investment required to achieve a competitive advantage.

a. a product's performance characteristics and by its attributes for which customers are willing to pay.

A company is analyzing its value chain to discover its value-creating activities. While formulating its strategy, the firm will: a. consider the operational functions and support functions to determine which activities contribute the greatest value in the product or service being sold to customers. b. create functional departments to manage these activities. c. expand into multiple markets to serve as many customers as possible with its value-creating activities. d. prioritize only its support activities as a source of competitive advantage.

a. consider the operational functions and support functions to determine which activities contribute the greatest value in the product or service being sold to customers

Identifying internal strengths and weaknesses is important because: a. strategies are more successful when they are aligned with a company's resources, capabilities, and core competencies. b. company Boards of Directors are required to submit documentation to the SEC for publicly traded companies. c. it is impossible to select strategies to implement without first having completed an internal analysis. d. these are more important than understanding external threats and opportunities.

a. strategies are more successful when they are aligned with a company's resources, capabilities, and core competencies.

A core rigidity is: a. when a resource becomes an obstacle, generating inertia and stifling innovation, often because of conditions in the external environment. b. when a corporation refuses to change its strategies without an action by the Board. c. when a company puts all of its strategic decisions up for a vote by the company employees.

a. when a resource becomes an obstacle, generating inertia and stifling innovation, often because of conditions in the external environment.

Which of these might be a definition for a value-generating activity? a. A service the company provides to customers that they pay for b. The core competencies that a company holds that make it possible for it to serve customers in a different way from its competitors c. A new machine that reduces energy costs within a company d. A customer promotion or sale

b. The core competencies that a company holds that make it possible for it to serve customers in a different way from its competitors

One example of a tangible resource might be a: a. pharmaceutical company's team of research and development scientists. b. network of distribution centers in strategic locations around the world. c. secret recipe for a restaurant. d. process for moving raw materials more quickly through the plant

b. network of distribution centers in strategic locations around the world.

A CEO is in an argument with his Board of Directors over the direction of the software company he is leading. The CEO wants to branch out and take advantage of its competencies and capabilities to pursue opportunities enabled by new technology that are forecasted to be very profitable. But, these activities are not what the company is used to, and it would have to develop hardware alongside its specialty in software. The Board is arguing that the company is a software company and should remain a software company. What concept must the CEO overcome? a. Strategic flexibility b. Core capabilities c. Core rigidity d. Resources

c. Core rigidity

A software company that is seeking a sustained competitive advantage will constantly be facing obsolescence because of environmental change. To generate a sustained competitive advantage, this company must: a. develop strategies to push competitors out of the business early so it is not faced with technological pressures. b. capture as much revenue as it can quickly, and then close the business when technology surpasses it. c. be continually building its technological capabilities to develop new skills as technology advances so that it can offer constant upgrades to meet customers' needs. d. always hire new people to gain new experience and knowledge into the firm

c. be continually building its technological capabilities to develop new skills as technology advances so that it can offer constant upgrades to meet customers' needs.

An industrial fabrication firm has purchased a facility capable of housing large-scale projects - as long as 120 feet. The firm could develop this tangible resource into a capability by: a. purchasing additional buildings of similar size across the country. b. buying raw metals and shipping them to the facility. c. employing engineers who can design large projects and welders with expertise in these projects. d. selling the building to its customers for them to use for their projects.

c. employing engineers who can design large projects and welders with expertise in these projects.

Check My Work (1 remaining) An intangible resource is one that: a. is based on optimism and planning; they are resources the company is in the process of establishing. b. is created to fill a void in the company so that it might more easily compete with its rivals. c. is rooted deeply in the company history, is gathered over time, and is difficult for competitors to analyze or imitate. d. a service a company provides to satisfy customers' needs.

c. is rooted deeply in the company history, is gathered over time, and is difficult for competitors to analyze or imitate.

Capabilities are: a. the advanced degrees that are held by members of the senior leadership team. b. the physical attributes of the company, including its buildings, machinery, and other assets. c. the combination of tangible and intangible resources to complete the organizational tasks required to produce, distribute and service the goods or services for customers. d. the human capital, through knowledge and experience, applied to producing products.

c. the combination of tangible and intangible resources to complete the organizational tasks required to produce, distribute and service the goods or services for customers.

Blackberry, a one-time leader in secure cellphones, has lost its edge. Without significant upgrades or innovation, the company quickly lost marketshare to iPhones and Android devices. When attempting to imitate these advances with the Blackberry Storm product, it flopped. Blackberry was criticized as trying to leverage capabilities beyond its core competencies. What tool should Blackberry use to regain a scope of their core competencies and determine potential sources of competitive advantage? a. External analysis b. Competitive analysis c. Strategy analysis d. Value chain analysis

d. Value chain analysis

Capabilities develop into core competencies that can serve as the source of competitive advantage when: a. a company invests a lot of financial capital into them. b. a firm copies the way other firms perform them. c. the leadership team chooses to highlight them as part of the company's core values. d. employees, or human capital, integrate them and deploy them to deliver value to customers

d. employees, or human capital, integrate them and deploy them to deliver value to customers

Firms should study their internal organization as part of the strategic management process because: a. they are required to report their results to the government. b. it is the only method for identifying threats and opportunities to the business. c. without this study, strategic leaders do not have a working understanding of how their business operates. d. it provides the insights the firm requires, to match what a firm can do, with what a firm might do when formulating strategies.

d. it provides the insights the firm requires, to match what a firm can do, with what a firm might do when formulating strategies.

If a start-up U.S.-based automobile parts supplier were to apply a global mind-set to its internal analysis, it would: a. review sales data of its North American dealerships to determine its most popular vehicles. b. research the history of the invention of the car and the evolution of the automobile industry. c. find information about the transportation infrastructure in emerging automobile markets around the world, including Asia and Africa. d. study all of its internal resources with an understanding of which capabilities offer value to meet the needs of U.S., Japanese, European and Korean automakers.

d. study all of its internal resources with an understanding of which capabilities offer value to meet the needs of U.S., Japanese, European and Korean automakers.

Value

is measured by a product's performance characteristics and by its attributes for which customers are willing to pay. Firms create value by innovatively bundling and leveraging their resources to form capabilities and core competencies Firms with a competitive advantage create more value for customers than do competitors.

A global mind-set

is the ability to analyze, understand, and manage an internal organization in ways that are not dependent on the assumptions of a single country, culture, or context.

Core competencies

serve as a source of competitive advantage for a firm over its rival Core competencies distinguish a company competitively and reflect its personality Core competencies emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities. Ex: Innovation is thought to be a core competence at Apple. As a capability, R&D activities are the source of this core competence.

There are concerns associated with outsourcing

significant ones are the potential loss in a firm's ability to innovate and the loss of jobs within the focal firm.