BA405 CH 3 and 4

Effective social networks provide advantages for the firm AND for an individual's career advancement:

Access to private information communicated in the context of personal relationships Access to public information from sources such as the Internet Access to diverse skill sets - trading information or skills with people whose experiences differ from your own Access to power

The Central Role of Knowledge

A company's value is not derived solely from its physical assets. Rather it is based on knowledge, know-how, and intellectual assets - all embedded in people.

Technology can leverage human capital & knowledge

Within the organization With customers With suppliers

sustainability can take at least two forms

1. it may be impossible for a firm to imitate exactly another firm's resource, it may be able to substitute a similar resource that enables it to develop and implement the same strategy 2. very different firm resources can become strategic substitutes. ex. amazon books vs barns and nobles

Meaningful ratio analysis must include:

Analysis of how ratios change over time How ratios are interrelated

Financial Ratio Analysis

Balance sheet Income statement Market valuation Historical comparison Comparison with industry norms Comparison with key competitors

Sound recruiting approaches to attract human capital:

Building a pool of qualified candidates The challenge becomes having the right job candidates, not the greatest number of them

Managers must focus on those critical internal operations that enable them to satisfy customer needs:

Business processes - Cycle time, quality, employee skills, productivity Decisions Coordinated actions Key resources and capabilities

Benefits of value chain streamlining

Commonality between parts & suppliers Integration of sales forecasting & inventory management Lowered transaction, infrastructure & operating costs Deliver products to market faster

Sharing knowledge and information throughout the organization

Conserves resources Develops products and services Creates new opportunities

Networking

Current employees may be the best source of new ones Provide incentives for referrals

General administration involves

Effective planning systems to attain overall goals & objectives Excellent relations with diverse stakeholder groups Effective information technology to coordinate & integrate value-creating activities across the value chain Ability of top management to anticipate & act on key environmental trends & events, create strong values, culture & reputation

Four factors help explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits that they generate:

Employee bargaining power Employee replacement cost Employee exit costs Manager bargaining power

Balanced Scorecard Stakeholder Perspective

Employees Owners Customer satisfaction Internal processes Innovation, learning & improvement activities Financial perspectives

A meaningful integration of many issues that come into evaluating performance

Four key perspectives: How do customers see us? (customer perspective) What must we excel at? (internal perspective) Can we continue to improve and create value? (innovation & learning perspective) How do we look to shareholders? (financial perspective)

Social capital does have some potential downsides:

Groupthink Dysfunctional human resource practices Expensive socialization processes (orientation, training) Individuals may distort or selectively use information to favor their preferred courses of action

Attracting Human Capital

Hire for attitude, train for skill Emphasis on: General knowledge & experience Social skills Values Beliefs Attitudes

Managers must make frequent changes to existing products & services as well as introduce entirely new products with extended capabilities. This requires:

Human capital (skills, talent, knowledge) Information capital (information systems, networks) Organization capital (culture, leadership)

Recognizing Intellectual Assets: Intangible Resources

Human capital: does the organization effectively attract, develop, and retain talent? Does the organization value diversity? Social capital: does the organization have positive personal and professional relationships among employees? Do the social networks within the organization have the appropriate levels of closure and bridging relationships? Technology: does the organization effectively use technology to transfer best practices across the organization, codify knowledge, and develop dynamic capabilities for competitive advantage?

Resources can lead to a competitive advantage

If they are valuable, rare, hard to duplicate When tangible resources, intangible resources, & organizational capabilities are combined

Managers must not ignore the importance of interrelationships among value-chain activities

Interrelationships among activities within the firm Relationships among activities within the firm and with other stakeholders such as customers & suppliers Expand the value chain by exchanging resources

Tangible resources are assets that are relatively easy to identify:

Physical assets: plant & facilities, location, machinery & equipment Financial assets: cash & cash equivalents, borrowing capacity, capacity to raise equity Technological resources: trade secrets, patents, copyrights, trademarks, innovative production processes Organizational resources: effective planning processes & control systems

Managers must measure how the firm's strategy, implementation, and execution are indeed contributing to bottom line improvement. Financial goals include:

Profitability, growth, shareholder value Improved sales Increased market share Reduced operating expenses Higher asset turnover

Value-Chain Analysis

Support activities either add value by themselves or add value through important relationships with both primary activities & other support activities: Procurement Technology development Human resource management General administration

Five types of financial ratios

Short-term solvency or liquidity Long-term solvency measures Asset management or turnover Profitability Market value

The Limitations of SWOT Analysis

Strengths may not lead to an advantage SWOT's focus on the external environment is too narrow SWOT gives a one-shot view of a moving target SWOT overemphasizes a single dimension of strategy

Effective collaboration requires overcoming barriers:

The not-invented-here or hoarding barrier (people aren't willing to provide help) The search barrier (people are unable to find what they're looking for) The transfer barrier (people are unable to work with people they don't know well)

To encourage collaboration, leaders can choose a mix of three levers:

Unification levers create compelling common goals & articulate a strong value of cross- company teamwork People levers get the right people to collaborate on the right projects through T-shaped management Network levers build nimble interpersonal networks across the company

Strategic resources have four attributes

Valuable in formulating & implementing strategies to improve efficiency or effectiveness Rare or uncommon; difficult to exploit Difficult to imitate or copy due to physical uniqueness, path dependency, causal ambiguity, or social complexity Difficult to substitute with strategically equivalent resources or capabilities

Using networks to share information and develop products and services

Through e-mail Through an intra-company news feed Through electronic teams or e-teams Advantages: few geographic constraints; access to multiple social contacts Challenges: failure to identify team members with the most appropriate knowledge and resources; low cohesion, low trust, lack of shared understanding creates "process loss"

Managers must articulate goals for four key categories of customer concerns:

Time Quality Performance and service Cost

Technology development

activities associated with the development of new knowledge that is applied to the firm's operations. is related to a wide range of activities: Effective R&D activities for process & product initiatives Collaborative relationships between R&D and other departments State-of-the-art facilities & equipment Excellent professional qualifications of personnel Organizational culture to enhance creativity & innovation

Marketing & sales

activities involve purchases of products & services by end users and includes how to induce buyers to make those purchases: Advertising Promotion Sales force management Pricing & price quoting Channel selection Channel relations

support activities

activities of the value chain that either add value by themselves or add value through important relationships with both primary activities and other support activities, including procurement, technology development, human resource management, and general administration

Sound management of diverse workforces can improve

an organization's effectiveness & competitive advantages by making the following arguments: Cost Resource acquisition Marketing Creativity Problem solving Organizational flexibility

Intangible resources

are difficult for competitors to account for or imitate - are embedded in unique routines & practices: Human resources: trust, experience & capabilities of employees; managerial skills & effectiveness of work teams Innovation resources: technical & scientific expertise & ideas; innovation capabilities Reputation resources: brand names, reputation for fairness with suppliers; reliability & product quality with customers

human capital interdependent activities

attracting human capital retaining human capital developing human capital

Organizational capabilities are

competencies or skills that a firm employs to transform inputs into outputs; the capacity to combine tangible & intangible resources to attain desired ends Outstanding customer service Excellent product development capabilities Superb innovation processes & flexibility in manufacturing processes Ability to hire, motivate, & retain human capital

Human resource management

consists of activities involved in recruitment, hiring, training & development, & compensation of all types of personnel: Effective employee retention mechanisms Quality relations with trade unions Reward & incentive programs to motivate all employees

Knowledge management is

critical to organizational success. Knowledge includes: Explicit knowledge - codified, documented, easily reproduced, and widely distributed. Tacit knowledge - in the minds of employees, based on their experiences and backgrounds.

operations

include all activities associated with transforming inputs in to the final product form: Machining Packaging Assembly Testing or quality control Printing Facility operations

Service

includes all actions associated with providing service to enhance or maintain the value of the product: Installation Repair Training Parts supply Product adjustment

Outbound logistics

includes collecting, storing, & distributing the product or service to buyers: Finished goods Warehousing Material handling Delivery vehicle operation Order processing Scheduling & distribution

Human capital

includes the individual capabilities, knowledge, skills, and experience of the company's employees and managers.

Social capital

includes the network of relationships that individuals have throughout the organization.

Procurement

involves how the firm purchases inputs used in its value chain: Procurement of raw material inputs - Optimizing quality & speed - Minimizing associated costs Development of collaborative win-win relationships with suppliers Analysis & selection of alternative sources of inputs to minimize dependence on one supplier

Intellectual capital

is a measure of the value of a firm's intangible assets - the difference between a firm's market value & book value. It includes these assets: Reputation Employee loyalty & commitment Customer relationships Company values Brand names Experience & skills of employees

inbound logistics

is primarily associated with receiving, storing & distributing inputs to the product: Material handling Warehousing Inventory control Vehicle scheduling Returns to suppliers

social complex process

leadership culture trust

Intellectual property rights are

more difficult to define and protect than property rights for physical assets. Unlike physical assets, intellectual property can be stolen. If intellectual property rights are not reliably protected by the state, there will be no incentive to develop new products and services.

The resource-based view of the firm (RBV)

perspective that firms competitive advantages are due to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute Combines an internal analysis of phenomena within a company With an external analysis of the industry & its competitive environment

four characteristics of imitability

physical uniqueness path dependency - characteristic of resources that is developed and/or accumulated through a unique series of events causal ambiguity- characteristic of a firm's resources that is costly to imitate because a competitor cannot determine what the resource is and/or how it can be re-created social complexity- a characteristic of a firm's resources that is costly to imitate because the social engineering required is beyond the capability of competitors, including interpersonal relations among managers, organizational culture, and reputation with suppliers and customers

Primary activities contribute to

sequential activities of the value chain that refer to the physical creation of the product or service; the sale & transfer to the buyer; and service after the sale: Inbound logistics Operations Outbound logistics Marketing & sales Service

three concerns for crowdsourcing

strong brand reputation high demand uncertainty too many initiatives

Training and development must

take place at all levels of the organization Requires the active involvement of leaders at all levels Includes mentoring & sponsoring lower-level employees Monitoring progress & tracking development Evaluating human capital

two ways firms can directly incorporate their customers into the value creation process

the can employ the prosumer concept and directly team up with customers to design and build products to satisfy their particular needs. firms can leverage the power of crowdsourcing

360-degree evaluation and feedback systems address

the limitations of the traditional approach to performance evaluation. Superiors, direct reports, colleagues, and even internal and external customers rate a person's performance. 360-degree feedback systems complement teamwork, employee involvement, and organizational flattening.

Value-chain analysis looks at

the sequential process of value-creating activities Value is the amount buyers are willing to pay for what a firm provides How is value created within the organization? How is value created for other organizations in the overall supply chain or distribution channel? The value received must exceed the costs of production

Retention mechanisms must prevent

the transfer of valuable and sensitive information outside the organization: Help employees identify with an organization's mission and values Provide challenging work and a stimulating environment Offer financial and nonfinancial rewards & incentives Money is not the most important reason why people take or leave jobs

In the knowledge economy

wealth is increasingly created by effective management of knowledge workers instead of by the efficient control of physical & financial assets.