ISM Week 3: Strategic Capabilities

Industry/sector benchmarking

- Looking at the comparative performance of other organisations in same industry - An overriding danger of industry norm comparison is that the whole industry may be performing badly.

Value network

is the set of interorganisational links and relationships that are necessary to create a product or service (A single organisation rarely undertakes in-house all activities of the value activities from design through the delivery of the final product.

R - Rarity

rare capabilities - those possessed uniquely by one organisation or by a few others - must: > meet customer needs >be sustainable ( apple without Steve jobs?)

SWOT

summaries the key issues from the business environment and the strategic capability of an organisation that are most likely to impact on strategy development.

Resource-Based View of Strategy

the competitive advantage and superior performance of an organisation is explained by the distinctiveness of its capabilities

Threshold competences

Activities and processes needed to meet customers' minimum requirements and therefore to continue to exist Individual training regimes, physiotherapy/injury management, diet planning

Core competences

Activities that underpin competitive advantage and are difficult for competitors to imitate or obtain E.g. A combination of dedication, tenacity (Hartnäckigkeit), time to train, demanding levels of competition and will to win

Primary activities

are directly concerned with the creation of delivery of a product or service

Competences

are the skills and abilities by which resources are deployed effectively through an organisation's activities and processes

How does the value chain help us to understand strategic capabilities?

describes the categories of activities within and around an organisation, which together create a product or service Questions to ask: - relative importance of activity costs internally? - relative importance of activities externally? - where and how can costs be reduced?

Support activities

help to improve the effectiveness or efficiency of primary activities

Organisational knowledge

is the collective experience accumulated through systems, routines and activities of sharing across the organisation

Dynamic capabilities

- capabilities are dynamic in nature, cannot be static or rigid (today you have it, but you might lose it tomorrow) - dynamic capabilities refer to the organization's ability to renew and recreate strategic capabilities to meet the needs of changing environments (ensuring capabilities to be there also tomorrow is crucial) 3 types of dynamic capabilities - sensing opportunities and threats (understanding organisation's strategic position) - seizing opportunities (making strategic choices) - re-configuring the capabilities of an organization (enacting strategies) E.g. Dyson, if they do not keep up, Electrolux will run in

Strategic capability

-is the resources and competences of an organisation needed for it to survive and prosper -The ability to perform at the level required to survive and prosper. It is underpinned by the resources and competences of the organisation. E.g. Equipment and athletic ability suited to a chosen event

Diagnosing strategic capabilities

Benchmarking - industry/sector benchmarking - best-in-class - surface comparison

Risk of benchmarking

More important than comparing is the impact benchmarking has on the behaviour. - Measurement distortion (where you get what you want) - Surface comparison

Best.in-class benchmarking

Compares an organisation's performance against best-in-class performance - wherever that is found - and therefore seeks to overcome the limitations of the other approaches. Can encourage a more fundamental reconsideration of how to improve organisational competences.

Cost efficiency is influenced by:

Continual improvement of cost efficiency is a vital strategic capability if an organisation is to continue prosper. - Economies of scale - Experience - Product/process design - Supply costs

N -Non-substitutability

Free from: - product or service substitution - competence substitution

Unique resources

Resources that underpin competitive advantage and are difficult for competitors to imitate or obtain E.g. Exceptional heart and lungs, height or weight, world-class coach

I -Inimitability

Inimitable capabilities, those that competitors find difficult to imitate or obtain - superior performance - linked competences

How to: Managing strategic capabilities

Internal capability development >leveraging capabilities (identify strategic capabilities in one part of the organisation and extend this to another area) > stretching capabilities (build new products or services out of existing capabilities) External capability development >acquisitions or alliances or JV Ceasing activities >outsource or reduce

Resources vs. Capabilities

Resources: - assets that organizations have or call upon - "what we have" - physical: machines, buildings, raw materials, products, patents, databases - financials: balance sheet, cash flow, suppliers of funds - human: managers, employees, partners, suppliers, customers Capabilities: - effective ways to use or deploy assets - "what we do well" - physical: ways of achieving utilization of plant, efficiency, productivity, flexibility, marketing - financials: ability to raise funds and manage cash flows, debtors, creditors, etc. - human: how people gain and use experience, skills, knowledge, build relationships, motivate others and innovate --> long term survival and competitive advantage (both resources and capabilities together)

V - Value of strategic capabilities

Strategic capabilities are of value when they provide potential competitive advantage in a market at a cost that allows an organisation to realise acceptable levels of return: - taking advantage of opportunities and neutralising threats - value to the customers - providing competitive advantage - cost

Threshold (= Schwelle) resources

The resources needed to meet customers' minimum requirements and therefore to continue to exist e.g. a healthy body, medical facilities and practitioners

Strategic capabilities and competitive advantage

The sustainability of competitive advantage is likely to depend on strategic capabilities being of value to customers, rare, inimitable or non-subsititutable.

VRIN

Value of strategic capabilities - do capabilities exists that are valued by customers and provide potential competitive advantage? Rarity - do capabilities exist that no (or few) competitors posses? Inimitability - are capabilities difficult for competitors to imitate? Non-substitutability - is the risk of capability substitution low?

Dynamic Capabilities

are an organisation's abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment