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

2. 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

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

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

5. 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

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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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.

13. 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

14. 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.

15. Sustaining Competitive Advantage
Key components:
Durability
Transferability
Replicability

16. 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

17. 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

18. 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.

19. Questions or Comments?