Chapter 3: Resources and Capabilities Group 5: Gloria Solorzano, Cooper Smith & Luis Hernandez

Introduction and Objectives Firm’s resources and capabilities play in formulating strategy Identify and Appraise resources and capabilities Evaluate potential of the resources and capabilities in competitive advantage Results from resources and capabilities analysis will exploit internal strengths while defending internal weaknesses

Case: Harley Davidson, Inc. Indicators of Harley-Davidson Performance 1994-2013 The Product Portfolio The Brand Operations Distribution Sales of Related Products

Case: Harley Davidson - Threats and Opportunities Market Environment Growth Competitive Advantage Extending Product Range

Role of Resources and Capabilities in Strategy Formulation Internal Environment Resources Capabilities The Firm Goals and Values Resources and Capabilities Structure and Systems Strategy The Industry Environment Competitors Customers Suppliers The Firm-Strategy Interface The Environment-Strategy Interface

Identifying the organization’s resources and capabilities Industry Key Success Factors Competitive Advantage Strategy Organizational Capabilities Resources Tangible Human Intangible

Tangible vs. Intangible Resources Tangible: Are the easiest to identify and evaluate: financial resources and physical assets are identified and valued in the firm’s financial statements Ex: British Airways - location of land and buildings, types of planes, landing slots and gate facilities at airports, etc. Intangible: Are more valuable than tangible resources Yet, in company financial statements, intangible resources remain largely invisible Brand names and other trademarks are a form of reputational: their value lies in the confidence they instil in customers

Human Resources Human Resources: comprised of the expertise and effort offered by employees Like intangible resources, human resources do not appear on the firm's balance sheet Firm does not own employees; it purchases their services under employment contacts Appraisal Criteria: Competencies Modelling Emotional intelligence Organizational Culture

Identifying Organizational Capabilities Organizational Capability: the firm’s capacity to deploy resources for a desired end result Distinctive Competence: used to describe those things that an org. does particularly well compared to its competitors Core Competencies: make a disproportionate contribution to ultimate customer value, or to the efficiency in which the value is delivered Provide a basis for entering new markets

Classifying Capabilities Functional Analysis: identifies organizational capabilities in relation to each of the principal functional areas of the firm Value Chain Analysis: separates the activities of the firm into s sequential chain and explored the linkages between activities in order to gain insight into a firm’s competitive position

Porter’s value chain Value chain analysis: separates the activities of the firm into a consecutive chain and explores the linkages between activities in order to gain insight into a firm’s competitive position

Hierarchy of Capabilities The hierarchy of capabilities is where more general, broadly defined capabilities are formed from the integration of more specialized capabilities Ex: Hospital’s capability in treating heart disease Patent diagnosis, physical medicine, cardiovascular surgery, etc.

Appraising Resources and Capabilities Strategically important resources and capabilities are those with the potential to generate substantial streams of profit for the firm that owns it How do we appraise their potential for value creation? Three Factors of Appraisal: Establishing a competitive advantage Sustaining Competitive Advantage Appropriating the returns from competitive advantage

Establishing Competitive Advantage For a resource or capability to establish a competitive advantage, two conditions must be present: Scarcity: If a resource or capability is widely available within the industry, it may be necessary in order to compete but it will be sufficient basis for competitive advantage. Relevance: A resource or capability must be relevant to the KSFs in the market.

Sustaining Competitive Advantage Key components: Durability Transferability Replicability

Appropriating returns from superior capabilities: Employees vs. Owners Establish which resources and capabilities are strategically most important to the company Benchmarking, identify the outstanding practices of the organization Try to keep a harmonious relationship with its employees, suppliers and dealers

Developing Strategy Implications: Exploiting Key Strengths: Develop your company’s’ strengths to its fullest potential Ex: Disney Brand; aiming toward the affection that children and parent’s share for Disney characters Our Company: PepsiCo aims to fulfill the beloved snacks and flavours people grew up on Managing Weakness: Manage weaknesses by transforming them into strengths Ex: Harley Davidson could not compete with the technology of big automobile companies so it used it’s traditional look to its advantage

Choosing the Industry Context Industry Context depends on how we define competitive environment Choice of Industry is a matter of judgement Define industry context relatively broadly Our Company: PepsiCo: can choose to define themselves in the Food Industry, Drink Industry, Chip Industry etc.

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