Business Strategy Lecture 5 - Capabilities

Uses of SWOT Analysis

- 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. - 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.

Distinctive capabilities

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'.

Uses of the value chain

A generic description of activities - understanding how the discrete activities (or clusters of linked activities) contribute to consumer benefit - Identifying activities where the organisation has particular strengths or weaknesses - Analysing the competitive position of the organisation using the VRIO criteria - thus identifying sources of sustainable advantage - Looking for ways to enhance value or decrease cost in value activities (e.g. outsourcing) - Understanding cost/price structures across the value system - analysing the best area of focus and the best business model - Identifying 'profit pools' (i.e. The levels of profit in different parts of the system) - seeking ways to use existing capabilities in order to exploit these - The 'make or buy' decision - which activities to do 'in-house' and which to outsource - Partnering - deciding who to work with and the nature of these relationships.

Internal capability development

Building and recombining capabilities - this requires creative entrepreneurial skills (e.g. a culture that promotes capability innovation) Leveraging capabilities - identifying capabilities in one part of the organisation and transferring them to other parts (sharing best practice) Stretching capabilities - building new products or services out of existing capabilities.

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.

External capability development

Ceasing activities - non-core activities can be stopped, outsourced or reduced in cost Monitor outputs and benefits - to better understand sources of consumer benefit and enhance anything that contributes to this Awareness development - recognising what enhances strategy. Training, development and organisation learning are important.

Core competences

Core competences 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.

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. 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.

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.

Dangers of SWOT

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.

3 Types of Resources and Competences

Physical Human Financial

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.)

What is 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

Generic Dynamic Capabilities

Sensing capabilities - constantly scanning and exploring new opportunities across markets and technologies (e.g. R & D and market research) Seizing capabilities - addressing opportunities through new products, processes and activities Re-configuring capabilities - new products and processes may require renewal and re-configuration of capabilities and investment in new technologies.

Value

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.

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' .

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.

Resource based view (RBV)

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. It is sometimes also called the 'capabilities view'

What is the value chain?

The value chain describes the categories of activities within an organisation which, together, create a product or service. The value chain consists of five primary activities (which are directly concerned with the creation or delivery of a product or service) and four support activities (which help to improve the effectiveness or efficiency of primary activities). Competitive advantage can be analysed in any of these activities.

The four key criteria by which capabilities can be assessed in terms of providing a basis for achieving sustainable competitive advantage

VRIO: value rarity inimitability and organisational support

Threshold capabilities

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'.