1. Foundations of Strategy Chapter 3 Resources and Capabilities
By: Spencer Brown, Laura Carr, Ike Huestis, Brad Klingberg, Treanne Turner

2. Summary

3. The Role of Resources and Capabilities in Strategy Formulation
Emphasis on correlation between strategy and the internal environment of a firm
Relationship between strategy and the resources and capabilities of a firm
Two main reasons for this change
Internal resources and capabilities are more secure when forming a strategy
Competitive advantage has become the source of profitability
Chapter 3 of Foundations of Strategy moves away from discussing the effect of the external environment on a firm’s strategy and switches its emphasis to the interface between the strategy and the firm’s internal environment. More specifically, there is a strong relationship between strategy and the resources and capabilities of a firm. The two reasons behind this switch are 1) internal environment of a firm has become a more stable and secure way to form a strategy, and 2) it has been found that competitive advantage is now the primary source of superior profitability.

4. Resource-based view Tangible Intangible Human
Competitive Advantage
Strategy
Industry Key Success Factors
Organizational Capabilities
Resources
Tangible
Financial (cash, securities, borrowing capacity)
Physical (plant equipment, land, mineral reserves)
Intangible
Technology (patents, copyrights, trade secrets)
Reputation (brands, relationships)
Culture
Human
Skills/know-how
Capacity for communication and collaboration
Motivation

5. Identifying Resources
Tangible Resources
Easiest to identify and evaluate
Financial resources and physical assets are located in a firm’s financial statements
How does a firm create additional value?
Improving efficiency
Using existing assets more profitably

6. Identifying Resources
Intangible Resources
Brand names and trade marks are a form of reputational asset
Value lies in the confidence it instills in customers
Technological and artistic resources
Patents
Copyrights
Trade secrets
Trade marks

7. Identifying Resources
Human Resources
Comprised of the expertise of employees
Most firms devote considerable time into improving HR
Competency Modeling
Comparing potential employees to a set of skills they are looking for
Company Culture
Organization’s values and traditions

8. Classifying Capabilities
Organizational Capability
Using resources to attain desired goals
Must find a firm’s distinct and core competencies
What a firm does to make them superior relative to competitors
Important success factors a firm competes on

9. Classifying Capabilities
Identifying a firm’s capabilities
Functional Analysis
Identifies capabilities in relation to certain functional areas
Value Chain Analysis
Determine capabilities according to the sequential chain of activities of the firm

10. Functional Functional Area Capability Example Corporate Functions
Financial Control
Exxon Mobil
Management Information
Comprehensive MIS network
Wal-Mart
Research and Development
Innovative Product Development
Apple
Operations
Efficiency in Volume
Briggs and Stratton
Product Design
Design Capability
Nokia, Apple
Marketing
Brand Management
Proctor and Gamble
Sales and Distribution
Customer Service
Caterpillar

11. Generic Value Chain Label Examples of Activities
Type of Activity
Generic Value Chain Label
Examples of Activities
Primary Activities
Logistics
Purchasing, SCM
Operations
Design, Assembly, Quality Control
Marketing and Sales
Market Research, Ads, Promoting, Pricing
Service
Warranties, Parts, Recycling
Support Activities
Infrastructure
Global Communications, Risk Management
HR Management
Training, Recruitment
Technology Development
Technology managed design and manufacture
Procurement
Database and Inventory management

12. Profit-Earning Potential of a Resource/Capability
The extent of the competitive advantage established
The sustainability of the competitive advantage
Appropriability of the returns

13. Establishing Competitive Advantage
Scarcity
Resource/capability must be widely unavailable within the industry
Relevance
Resource/capability must be relevant to the key success factors in the market

14. Sustaining Competitive Advantage
Durability
Resource/capability must have a useful lifespan
Transferability
Resource/capability must be mobile between companies
Replicability
Product can not be imitated by competitors

15. Appropriating the Returns to Competitive Advantage
Property rights
Relative bargaining power
with determining the division of returns between the firm and its individual members
Embeddedness
Deeply embedded individual skills and knowledge leads to dependence on corporate systems and reputation

16. Competitive Advantage: Gucci
French retailer PPR acquires Gucci Group in 2001.
Chairman Domenico De Sole and vice chairman Tom Ford leave Gucci in 2004.
The duo had masterminded Gucci’s transformation into a Global style leader, and the combination of talented CEO and designer proved to be a competitive advantage for the company.
As a result, Gucci’s share price fell from $86.10 to around $75, losing the company an estimated $1.2 billion.

17. Putting Analysis Into Practice
Step 1: Identify the key resources and capabilities
Step 2: Appraising resources and capabilities
which resources are most important in conferring sustainable competitive advantage?
what are the firms strengths/weaknesses compared to its competitors?
Step 3: Developing strategy implications
Exploiting key strengths
Managing key weaknesses
Utilizing inconsequential strengths

18. Organizational Capabilities
Develop over long time periods
Can be traced back to prevailing circumstances during the founding and early development of a company.
Embodied within organizational structure
The more complex the task, the greater the gains from learn-by-doing.
Embedded with organizational culture
Collaboration without managerial direction depends upon shared perceptions, common values and behavioral norms.

19. Approaches to Capability Development
Acquiring Capabilities
acquisitions and alliances
Internal Development
focus and sequencing

20. Acquiring Capabilities
Acquisitions
Can help fast track the process of capability development, especially in technological environments.
However, major risks include culture clashes, expenses, and surpluses.
Alliances
Quick and low-cost means of extending capabilities available to a firm.
However, building trust and managing alliance relationships is critically important.

21. Internal Development Focus Sequencing
Must limit the number and scope of the capabilities that it is attempting to create at any point of time.
Sequencing
Develop capabilities incrementally through several stages, and target no more than a few capabilities in each time period.

22. Comparison

23. 20 Mile March Elements Performance markers Self-imposed constraints
Tailored to the enterprise
Lies largely within your control
A proper timeframe
Designed and self-imposed by the enterprise
Must be achieved with great consistency
Great By Choice

24. Why it Wins
It builds confidence in your ability to perform well in adverse circumstances
It reduces the likelihood of catastrophe when you’re hit by turbulent disruption
It helps you exert self-control in out-of-control environments
Great By choice

25. Six Paths Framework Path 1: Look across alternative industries
Path 2: Look across strategic groups within industry
Path 3: Look across the chain of buyers
Path 4: Look across complementary product and service offerings
Path 5: Look across emotional or functional appeal to buyers
Path 6: Look across time
Blue Ocean strategy

26. Classes

27. Economics Competitive advantage Strategy Identify means of resources
An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition.
Example: firm's cost structure, product offerings, distribution network and customer support.
Strategy
An adaption or complex of adaptions that serve an important function
Identify means of resources

28. Human Resource Development
Human Resources
Current Trends in HR
Training
Leading and Managing Change
Motivation
Employee Engagement

29. Accounting Intangible Assets Tangible Assets Profit Earning Potential
Strategic Analysis
Financial Analysis
Assessing worth of on Asset

30. Functional Areas
Capability
Exemplars
Corporate functions
Financial control
Exxon Mobil, PepsiCo
Management development
General Electric, Shell
Strategic innovation
Google, Haier
Multidivisional coordination
Unilever, Shell
Acquisition management
Cisco, Systems, Luxottica
International Management
Shell, Banco Santander
Management information
Comprehensive, integrated MIS network linked to managerial decision making
Wal-Mart, Capital One, Dell Computer

31. Examples of Hyundai’s Capabilities by function
Corporate functions
Management information
Research and Development
Operations
Product Design
Marketing

32. Our Company:
Dick’s Sporting Goods

33. Resources: Tangible Financial Physical 2012: $5.64 Billion in revenue
$294.49M Total cash on hand
Physical
511 Stores in 44 states

34. Resources: Intangible
Relationships with high margin brands, such as Nike and Under Armour.
Private brands that create customer loyalty.
Reputation for customer service.

35. Resources: Human Stores employ experts in their fields
PGA and LPGA golf pros
Certified fitness trainers
Specialty trained footwear sales associates
Professional fisherman and kayakers

36. Capabilities Specialty shops within stores.
Dicks combines their tangible resources (massive stores) with intangible resources (relationships with high margin brands) to create specialty shops to help promote brands.
Currently have 45 Under Armour All-American shops and 105 Nike Field House shops

37. Capabilities - Continued
Specialty stores also include more specialized markets

38. The Lodge

39. Fitness

40. Footwear

41. Appraising Resources Resource Importance Relative Strength Finance 8 9
Technology 2 3
Location 7
Distribution 4
Brands 10

42. Appraising Resources Key Strengths Superfluous Strengths
Key Weaknesses
Zone of Irrelevance

43. Dealing With Key Weaknesses
Currently has only three distribution centers, barely enough to keep up with current stores.
Plans to build a new 600,000 square foot distribution center that will allow for about 250 more stores.

44. Questions?