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