BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 1 Lecture Week 4 Assessing The Strategic Position. The Internal Position Part 1

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 2 Learning Outcomes At the end of this weeks learning sessions you are expected to be able to understand: What is meant by strategic capability and how this contributes to the competitive advantage of organisations The strategic importance of resources, competences, core competences and dynamic capabilities The characteristics of strategic capabilities to provide sustainable competitive advantage.

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 3 Strategic Capability - Outline Resources, competences and dynamic capabilities Continual improvement in cost efficiency Strategic capabilities and competitive advantage Organisational knowledge and strategic capability Diagnosing strategic capability: value chain, value networks, activity maps, benchmarking Developing strategic capabilities

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 4 Fit and Stretch Chapter 2 –External environment –Opportunities and threats Chapter 3 –I nternal strategic capability –Strengths and weaknesses Matching strategic capabilities to opportunities in environment –Strategic fit or Leveraging strategic capabilities for competitive advantage –Strategic stretch

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 5 Core Concepts in Strategic Capability – key areas of readings Foundations section 3.2 Cost efficiency Section 3.3 Sustainability (SCA) Section 3.4 Organisational Knowledge Section 3.5 Analysis Section 3.6 (e.g. value chain ) Development of strategic capabilities Section 3.7 Sections in chapter 3 of Johnson et al (2008) – essential readings!

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 6 Resource-based View of Strategy Competitive advantage derives from the distinctiveness of an organisation’s capabilities –Some businesses achieve extraordinary profits compared with others in the same industry –Their resources or competences permit production at lower cost or generation of superior product or service at standard cost

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 7 Strategic Capability Resources –Tangible resources – physical assets of an organisation –Intangible resources – non-physical assets of an organisation Competences –The activities and processes through which an organisation deploys its resources effectively Strategic capability is the adequacy and suitability of the resources and competences of an organisation for it to survive and prosper Strategic capability is the adequacy and suitability of the resources and competences of an organisation for it to survive and prosper

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 8 Exhibit 3.1 Strategic Capabilities and Competitive Advantage

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 9 Resources Physical resources –Machines, buildings, production capacity Financial resources –Capital, cash, debtors/creditors, suppliers of money (shareholders, bankers etc) Human resources –Number and mix of people, skills and knowledge Intellectual capital –Patents, brands, business systems, customer databases, “goodwill”

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 10 Strategic Capability- the terminology (following slides – and core text) Exhibit 3.2

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 11

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 12 Competences How an organisation employs and deploys its resources Efficiency and effectiveness of physical, financial, human and intellectual resources –How they are managed –Cooperation between people –Adaptability –Innovation –Customer and supplier relationships –Learning

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 13 Threshold Capabilities (1) Threshold capabilities: those essential to compete in a given market –Required to be “in the game” Threshold levels change over time –changes in CSFs –new entrants –competitor activity

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 14 Threshold Capabilities (2) Tradeoffs to achieve threshold capability for different customers –high volumes of standard products versus high value specialities Possible redundancy of capabilities –Can be difficult to dispose of Complementary resources and competences –Competences required to manage the resources

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 15 Unique Resources and Core Competences Unique resources –Critically underpin competitive advantage and cannot be imitated or obtained by others Core competences –Activities and processes through which resources are deployed such as to achieve competitive advantages in ways which others cannot imitate or obtain

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 16

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 17 Core Competences Lead to Competitive Advantage When… They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than competitors They are difficult for competitors to imitate

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 18 Cost Efficiency Customers benefit from cost efficiency via –Lower prices –More product features for the same price Cost management can create competitive advantage … but … Cost management may become a threshold capability: –Customers do not buy at any price – need appropriate value at acceptable price –Competitive rivalry requires continual cost reduction

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 19 Sources of Cost Efficiency Exhibit 3.3

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 20 The Experience Curve Exhibit 3.4

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 21 Implications of the Experience Curve (1) Growth not optional –Longer experience means lower costs –Threat of competitors gaining cost advantages Real unit costs should decline each year First mover advantage can be important –Accumulated experience

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 22 Implications of the Experience Curve (2) But Sustained competitive advantage unlikely due to unachievable market share Therefore Cost reduction becomes a threshold competence Outsourcing may become appropriate

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 23 Capabilities for Sustainable Competitive Advantage (1) Value Rarity Robustness Non-substitutability Dynamic capabilities

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 24 Rarity of Strategic Capabilities Ease of transferability Sustainability Core rigidities

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 25 Strategic Capability for the Royal Opera House

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 26 Capabilities for Sustainable Competitive Advantage (1) Value –Ability to deliver what the customer values Rarity –Unique resources, rare competences Who owns the competence and how easily transferable is it? Preferred access to customers/suppliers Situation dependent/non-transferable Sunk costs

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 27 Capabilities for Sustainable Competitive Advantage (2) Rarity – Danger of becoming core rigidities Difficult to change Can lead to strategic drift Robustness –Complexity –Culture and history –Causal ambiguity Non-Substitutability –Risk of substitution At product/service level by other products or services At competence level by a different approach

BLB Tutor. (Core Text Exploring (Corporate) Strategy, Seventh Edition, © Pearson Education Ltd 2008 or 2011) 28 Strategic Capability – Key Points Competitive advantage derives from strategic capabilities Strategic capability comprises tangible and intangible resources deployed via competences Continual improvement of cost efficiency is vital For sustainable competitive advantage strategic capabilities must be valuable, rare, robust or non- substitutable Further readings in chapter 3 of Johnson at al (2008), Black Board site for BLB and do not forget your tutorial preparation and portfolio assessment work »Thank you!