Strategic Management I

Strategic Capability

RESOURCES AND COMPETENCES

Resources Threshold Resources Tangible Intangible Unique Resources Tangible Intangible

Competences Threshold competences

Threshold capabilities

Core competences

Capabilities for competitive advantage

Strategic capability

Ability to perform at the level required to survive and prosper Underpinned by the resources and competences of the organization

Threshold resources

Needed to meet minimum requirements of the business Needed to exist

Threshold competences

Ability to deploy resources to meet minimum requirements of the business and exist

Unique resources

Resources that lead to competitive advantage Difficult for competitors to imitate or obtain

Core competences

Ability to deploy resources that create competitive advantage Difficult for competitors to imitate or obtain

Characteristics of core competences

Must relate to an activity or process that generates value in the product or service features Must lead to levels of performance that are significantly better than competitors Must be difficult to imitate

COST EFFICIENCY

Is cost efficiency a basis for competitive advantage?

Or is it a threshold capability?

Cost drivers

Economies of scale Supply costs Product/process design Experience

Sustainable competitive advantage

Strategic capabilities that are

Valuable to buyers Rare Robust: non imitable Non substitutable

Organizational knowledge

Communities of practice Trust Explicit vs tacit knowledge The role of IT Imitation

DIAGNOSING STRATEGIC CAPABILITY

THE VALUE CHAIN

Analysis of the strategic position

Which activities or cluster of activities provide a special benefit to customers located in particular areas of the value chain

Eg: it may be good at outbound logistics linked to marketing and sales, supported by technology what should the firm concentrate on What the firm might de-emphasize or outsource

Raises questions:

Cost and value of activities

What should management focus on in relation to strategy

The value network

Set of inter organizational links and relationships necessary to create a product or service Specialization within the value network on a set of linked activities leads to excellence Cost and value creation also happens in the supply and distribution chains Manage linkages and relationships to improve customer value

Important issues

Where are cost and value created? Which activities are centrally important? Where are the profit pools?

Potential profits at different parts of the value network

The outsourcing decision Partners and relationships in various parts of the value network

ACTIVITY MAPS

Why is an activity map needed?

Strategic capability is usually rooted in a complex set of linked activities Need to manage them proactively A method is required to identify and understand them

Activity map

Shows how the different activities of an organization are linked together Computer programs or network diagrams Start with critical success factors Identify strategic themes Identify resources and competences that underpin these themes Identify the activities that deliver the customer benefits

BENCHMARKING

Types of benchmarking

Historical benchmarking

complacency Poorly performing industry?

Industry/sector benchmarking

Best in class benchmarking

STRENGTHS AND WEAKNESSES

StrengthsHilton ColomboOnly International Chain in City. Completley Refurbished.

TransAsiaSecurity floors 7th/8th.

Colombo PlazaNew Shopping Complex. New health and recreation centre. Japanese Floors. Located close to US Embassy, British High Comm. & World Bank.

Taj SamudraRooms with great views of the ocean ocean with balconies. Established brand name in the market. captive Indian market. Other properties in Sri Lanka; Taj Exotica and Airport Gardens. Centralized account management.

GaladariOcean view rooms. More interconnecting suites & room.

Large Shopping Arcade.

Largest Grand Ballroom. Wide Variety of Restaurants. Reputation and Prestiege.

Suites with Balconies. Refurbishment of 80 rooms completed.

Location in the City.

Underground parking.

WeaknessesHilton ColomboDue to leading market position,

TransAsiaLocal Hotel - no brand name. Less restaurants and entertainment venues. Sub standard service and lacks in rate integrity.

Colombo PlazaAging Ballroom and Restaurants.

Taj SamudraAttracts the low budget clientele. Perceived as inexpensive. Appeals to the Indian market. Old unrefurbished product.

GaladariLimited number of restaurants.

perceived as Arrogant.Perceived as Expensive in local market. Lack of sufficient carparking. Lack of presence in India.

Appearance of old wing.Inconsistent service standards.

Poorly perceived image.2 floors still not refurbished since WTC bomb blast (1997).

OpportunitiesHilton ColomboCategorized as the best business hotel - image/location. Aggressive approach to obtain outside catering business. Flexibility of demand based pricing.

TransAsiaAdjacent office complex. Refurbished banquet space Flexible rate structure. Accessible location.

Colombo PlazaApartments plus food courts within the hotel premises. Possible international management. Refurbished ballroom. Additional New restaurant and ballroom.

Taj SamudraNetworking with the Taj group.

GaladariAttracts growing low end market. Very low rates to attract airline crews and groups.

ThreatsHilton ColomboRate dumping by competitors. Growing number of freestanding

TransAsiaRate dumping by competitors.

Colombo PlazaProtracted negotiations of international management contract.

Taj SamudraLocated next to military facility. Overly associated with Indian guests.

GaladariReemergence of Ceylon Continental Hotel.

restaurants in the city.Growing number of apartments. Rumour of international brand to manage Colombo Plaza. Freeze of capex due to proposed sale of property.

ConclusionsHilton ColomboCompetitive set has narrowed the gap

TransAsiaRates as the second best hotel.

Colombo PlazaOld property, needs refurbishment.

Taj SamudraPatronized by the lower end of the market. Categorized as a group hotel.

GaladariCategorized as a medium quality hotel offering very low rates.

BUILDING DYNAMIC CAPABILITIES

SECI model of knowledge creationTO TACIT EXPLICIT

TACIT

Socialization

Externalization

FROM

EXPLICIT

Internalization

Combination

Socialization

Tacit to tacit Example:

Where a new member of a work group acquires the tacit knowledge possessed by the other group members through dialogue, observation or cooperative working

Externalization

Tacit to explicit Example

Where an individual is able to make their tacit knowledge explicit Eg through a process of communication and dialogue with others

Combination

Explicit to explicit Example

Linking together of discrete bodies of knowledge to create a more complex body of knowledge

Internalization

Explicit to tacitExample

Where an individual converts explicit knowledge into tacit knowledge through applying it to their work tasks

Applying Nonakas SECI framework to vehicle building

Dyck et al (2005) examined learning processes related to the development and production of a new model of a vehicle in a company with only 20 employees Research data was collected five separate times over a 26 month period

First data collection point

During the collaborative discussions regarding the characteristics of the new vehicle design Corresponded with socialization to externalization Eg. One of the main activities during this stage

The collaborative discussions involved workers articulating their tacit knowledge Resulted in the production of new forms of explicit knowledge eg. Prototype drawings for the new vehicle

Second data collection point

Coincided with the testing of the new prototype design Externalization to combination Example

Formalization of the new vehicles design, which involved the production of systematic design records

Third data collection point

Coincided with the first stages of production of the new vehicle Combination to internalization Example

The learning by doing undertaken by the production staff as they had to develop and learn new ways of producing the new vehicle

Fourth data collection point

When production of the new vehicle had started to reach normal production volumes Internalization to socialization Evidence

Production of the vehicle had reached normal volumes and production procedures had become largely standardized with production staff having fully learned and understood how to produce the new vehicle

WHY DO COMPANIES FAIL?

Inertia

IBM: for 30 years model of success In 1992: lost $5b; laid off 100,000 Reason: innovation in microprocessors decline in cost of computing power Market shifted from mainframes to small, low priced personal computers IBM had failed to shift focus away from mainframes to PCs

Why?

Organizational capabilities are a source of competitive advantage but are difficult to change IBM emphasised close coordination among operating units Favoured decision processes that stressed consensus among interdependent operating units Advantage in 1970s for mainframes Spawned bureaucracy that led to failure in 1990s Changing existing distribution of power and influence is difficult

Prior strategic commitments

Limit ability to imitate rivals and cause competitive disadvantage IBM had major investments in the mainframe business

Manufacturing Research Sales force

The Icarus paradox

Organizations can become so specialized and inner directed that they lose sight of market realities Craftsmen: DEC

Early success through engineering excellence Obsessed with engineering detailsBuilt successful, moderately diversified companies Obsessed with diversification Enamoured by their own originally brilliant innovations Continue to search for more brilliant innovations produce novel but useless products Convinced of ability to sell anything Poor attention to product development and manufacturing excellence Bland, inferior products

Builders: ITT

Pioneers: Wang Labs

Salesmen: Chrysler

How to avoid failure?

Focus on the building blocks of competitive advantage

Efficiency Quality Innovation Responsiveness to customers Develop distinct competences that contribute to superior performance in these areas

How to avoid failure?

Institute continuous improvement and learning Track best industrial practice and use benchmarking

EXERCISE

Analyzing Competitive Advantage

Analyze the competitive position of Infinity Business School

Questions

Does your business school have a competitive advantage? If so,on what basis is this advantage based and is this advantage sustainable If your school does not have a competitive advantage in the market for business education, identify the inhibiting factors that are holding it back How might the internet change the way business education is delivered Does the internet pose a threat to the competitive advantage of your business school in the market for business education or is it an opportunity for your school to enhance its competitive position (it can be both)