Chapter 3
2 concert of outsourcing
1. loss in a firms ability to innovate 2. loss of jobs with in the focal firm
Capabilities - valuable only
entry ticket
offshoring-
outsource to a foreign supplier
"right" resources
those with the potential to be formed into a core competency as the foundation for creating value for customers and developing Competitive Advantage
Tangible resources 4 categories:
1. Financial Resources: Firm's capacity to borrow; Firm's ability to generate funds through internal operations 2. Organizational Resources: Formal reporting structure 3. Physical Resources: The sophistication of a firm's plant and equipment and the attractiveness of its location; Distribution facilities; Product Inventory 4. Technological Resources: Availability of technology- related resources such as copy rights, patents, trade marks, and trade secrets.
Intangible resources 3 categories:
1. Human Resources: Knowledge; Trust; Skills; Abilities to collaborate with others 2. Innovation Resources: Ideas; Scientific capabilities; Capacity to innovate 3. Repetitional Resources: Brand name; Perceptions of product quality, durability and reliability ; Positive reputation with stakeholder such as suppliers and cusotmers
To become a core competence and a source of competitive advantage, a capability must allow the firm to either
1. Perform an activity in a manner that provides value superior to that provides by competitors 2. Perform a value-creating activity that competitors cannot perform.
2 Key characteristics of resources
1. Resource heterogeneity --> different companies have different resources. 2 Resource Immobility- resources can't be moved easily
All competitive advantages have a limited life A Competitive Advantage's sustainability is a function of 3 factors:
1. The rate of core competence obsolescence because of environmental changes 2. The availability of substitutes for the core competence 3. The imitatability of the core competence
Four criteria of sustainable competitive advantages
1. Valuable Capabilities 2. Rare capabilities 3. Costly to imitate capabilities 4. Non substitutable capabilities For a capability to be a core competence- it must be valuable and unique from a customer's point of view for a core competence to be a potential source of a Competitive Advantage- it must be INimitatable and non substitutable by competitors
Two tools help firms identify their core competencies:
1. the first consists of four specific criteria of sustainable competitive advantage that can be used to determine which capabilities are core competencies 2. the second tool is the value chain analysis- firms use this tool to select the value-creating competencies that should be maintained, upgraded, or developed and those that should be outsourced.
Management Capabilities
Ability to envision the future of clothing EX. Hugo Boss; Zara
Capabilities video definition
Bundles of resources or organizational capability to deploy bundles of resources that allow organizations to perform certain aspects of its business well -When an organization has capabilities to exploit industry structure or environment, it can have a sustained competitive advantage
All core competencies have the ability to become "core rigidities" so you can't assume it will produce a
Competitive Advantage permanently
Manufacturing Capabilities:
Design and production skills yield reliable products Product and design quality Miniaturization of components and products EX: Komatsu Witt Gas Technology Sony
Forms of Imitation
Direct imitation Bells and whistles Stripping Substitution
Core Competencies
Distinguish a company competitively and reflect its personality. - they emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities.
Management Information systems Capabilities
Effective and efficient control of inventories thorough point of purchase data collection methods Ex: Wamart
Marketing Capabilities
Effective promotion of brand-name products Effective customer service Innovative merchandising EX: proctor & Gamble; Ralph Lauren Corp. McKinsey & Co.; Nordstrom Inc.; Crate & Barrel
Distribution Capability:
Effective use of logistics management techniques ex: walmart
Creating Value through Support Functions ----> Customer Value read on this
Human Resources Finance Management Information Systems
Strategic leaders
Individuals who make the most successful decisions about using the organization's resources is challenging but it affects the firm's ability to achieve strategic competitiveness. These decision- making positions are called....
Research & Development Capabilities
Innovative technology Development of sophisticated elevator control solutions Rapid Transformation of technology into new products and processes digital Technology EX: Caterpillar; Otils Elevator Co.; Chaparral Steel; Thomson Consumer Electronics
In making decisions affected by these 3 conditions _____ is required
Judgement
Human Resources Capability:
Motivating, empowering, and retaining employees Ex Microsoft
Creating Value through Value Chain Activities -----> Customer Value read on this
Supply Chain Management Follow-up Service Operations Marketing (including Sales) Distribution
Challenge of analyzing the internal organizations Conditions affecting managerial decisions about resources, capabilities and core competencies
Uncertainty Complexity Intraorganizational Conflicts
weaknesses?:
acquire and build capabilities and competencies outsource
1. Valuable Capabilities
allow the firm to exploit opportunities or neutralize threats in its external environment - thus a firm creates value for customers ex: groupon
Organization's internal characteristics determine an
appropriate strategy
Value Chain Analysis definition:
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. allows the firm to understand the parts of its operations that create value and those that do not
4. Nonsubstituale capabilities
are capabilities that do not have strategic equivalents. - more intangible and invisible capabilities are, the more difficult it is for firms to find substitutes and the greater the challenge is to competitors trying to imitate a firm's value- creating strategy
2. Rare capabilities
are capabilities that few, if any, competitors possess. Key ?: "How many rival firms possess these valuable capabilities?" sources of competitive parity- valuable but common capability are sources. ex/ target catching up with and duplicating Walmart's green plan
3. Costly to imitate capabilities
are capabilities that other firms cannot easily develop a. Historical: A unique & a valuable organizational culture or brand name b. ambiguous cause: The causes and uses of a competence are UNCLEAR c. Social complexity: Interpersonal relationships, trust and friendship among mangers, suppliers and customers
Isolating Mechanisms
are means through with a firm can prolong the existence of its competitive advantage or increase the life of a core competency path dependence causal ambiguity social complexity intellectual property protection continous innovation/lead time advance
Core competencies are the
are the underlying foundation for Competitive advantage
Capabilities
are used to complete the organizational tasks required to produce, distribute and serve the goods or services the firm provides to customers for the purpose of creating value for them intangible resources + tangible resources = ________________
Strategic leader
as an individual with an ability to make effective decisions when examining the firm's resources, capabilities, and core competencies for the purpose of making choices about their use.
Tangible resources definition:
assets tat can be observed and quantified.
Intangible resources definition:
assets that are rooted deeply in the firm's history, accumulate over time, and are relatively difficult for competitors to analyze and imitate. - require nurturing to maintain ability to help firms encage in competitive battles.
3. Repetitional Resources
can be a CA level of awareness a firm has been able to develop among stakeholders and the degree to which they hold the firm in high esteem
capabilities- VIR (and O)
core competencies
Capability- not valuable-
core rigidities
Competitive Advantage...
creates more value for customers than their competitors which is the source of Above- average returns - they must focus on: core competencies, in combination w/ product-market position, bc it's the most important sources of Competitive advantage and it should drive the selection of strategies.
Crating value for customers by completing activities that are part of the value chain often requires building....
effective alliances with suppliers (outsrouce) and developing strong relationships w/ suppliers and customers. -----> creates a social capital to build this whereby resources such as knowledge are transferred across organizations requires trust between partners Judgement is needed.
Uncertanty
exists about the characteristics of the firm's general and industry environment and customer's needs
Creating Value
firms use their resources as the foundation for producing goods or services that will create value for customers
Strategy making using the RB model/ already has a new CA
first analyze the firm and identify resources and the capabilities that can yield examine the future characteristics of the industry and its environment based on above, ensure that all entry, thickets required for the future are possessed by the firm Acquire feasible cure competencies to yield future profits.
Today's competitive landscape demand that firms examine their value chain in ________ rather than ____domestic-only context
global rather than domestic-only context
Support function definition
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.
Value
is measured by the product's performance characteristics by which its attributes for which customers are willing to pay
Judgement
is the capability of making successful decisions when no obviously correct model or rule is available or when relevant data are unreliable or incomplete. they bust be aware of possible cognitive biases, such as over confidence.
Outsourcing
is the purchase of a value crating activity or a support function activities from an external supplier increases: flexibility, mitigate risks, and reduces capital investments
Causal ambiguity may make it difficult for the firm to...
learn an may stifle progress because the firm many not know how to improve processes that aren not easily codified and thus are ambiguous
intraorganizational conflicts
may exist among managers making decisions as well as among those affected by the decisions
Intangible resources
more valuable to create capabilities and can be leveraged ex. sharing knowledge
Managers face uncertainty from
new proprietary technologies rapidly changing economic and political trends societal values changing shifts in customer's demands
Firms must recognize that ONLY activities where they cannot create value or where they are at a substantial disadvantage to competitors should be
outsourced *helps with not overextending and being able to focus on what they can and exploit it there
Capabilities that are ___ ___ ____ ___ ___ they are termed as core competencies
rare valuable, imperfectly-imitatable/nonsubstitutable organized to capture value
complexity
results from the interrelationships among conditions shaping a firm
Core Competencies:
something that a firm does better than competitors and which provide it with value Fueled by following resources of southwest turnaround tiem: 1. simplified reservation system 2. culture 3. Fortuitous choice of routes 4. operating from less congested airfields
By analyzing the internal organization, firms identify their
strengths and weaknesses reflects day their resources, capabilities and core competencies
Global mind-set
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
Environmental uncertainty increases-
the complexity and range of issues to examine when studying the internal environment ex. peabody-coal
Tangible Resources are constricted because
they're hard to leverage difficult to derive additional business or value from a tangible resource ex. air plane
Resource Based Model (RB Model)
views firms as a bundle of resources -resources may be tangible or intangible - tangible resources are easy to define and measure-ie large cash reserve -intanbilbe resources are not easy to define and measure: i.e. employee knowledge and the value of a brand name