Chapter Five - Second Edition

7/31/2019 Chapter Five - Second Edition

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ChapterFive

AnalyzinganOrganizationsS

trategicResourceBase

Cornelis A.

de Kluyver

and

John A.

Pearce II

Second Edition

2006

StrategyA View From

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Evaluating a companys strategic

resource base

Strategic resources:

Physical Resources

Financial Resources

Human Resource

Organizational Asset

Key questions:How valuable is the

resource?

Is this a uniqueresource?

Is the strategicresource easy toimitate?

Is the companypositioned to exploitthis resource

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Measures of Financial

Performance

Return on Investment (ROI)

Economic Value Added (EVA)

EVA = Profit [(cost of Capital)/(TotalCapital)]

Market Value Added (MVA)

MVA = Market Value Capital

Invested

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Cost benchmarking can help

assess competitiveness

Competitors

Cost

Our Data

Vs.Key Drivers

Their Data

Vs.Key Drivers

Identify

Key Drivers

Of Cost

Our Cost Compare

Cost Model

Strategy


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Analyzing Financial Resources:

The Dupont Formula for RoA

Cost of Goods

Sold

Plus

Operating

Expenses

Invento

ries

Plus

Accounts

Receivable

Plus

Cash

Plus

Prepaid

Expenses

CurrentAssets

Plus

Fixed Assets

Sales

Minus

Costs

Earnings Before

Interests & Taxes

Divided by

Sales

Earning

s as

Percentage of

Sales

Multiplied by

AssetTurnover

Sales

Divided by

Total Assets

Return

on

Assets

Strategy


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People make the difference People drive forklifts

People serve customers People process claims

People solve problems

People decide to ship quality products

People send legal briefs

People warn other people People bid jobs

People do the jobs right the first time

People greet people

People pick up blood samples

People lift boxes

People take workers compensation vacations

People quit to join the competition

People call in sick

People chew gum

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People make the difference

Stakeholder analysis identifies keystakeholders

inside and outside the organization

Internal stakeholders

Executives, employees and their

families

External stakeholders

Customers, suppliers, alliancepartners, directors, government and

regulatory agencies, and the local

community

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World-class organizations focus

on people

A clear, shared visionthat represents what theorganization wants to become and embodies valuesthat drive peoples behavior.

An external focus with primary emphasis oncustomers, but also on best-in-class organizations,shareholders, regulatory bodies, the community,

families, etc.. Leadershipcommitted to shaping values, providing

resources, removing obstacles, building teams,empowering people and generating commitmentrather than being managers who command, control,

give orders, direct and check. Involved employeesactively engaged incontinuously improving ever nook.

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World-class organizations focus

on people

Competence that assures the right people withthe right mix of skills are doing precisely the right

jobs at all times.

Flexible organizational structures that fosterspeed, agility, the ability to turn on a dime, movein and out of markets quickly, change product orservice features and add new value.

Measurement that matters, which meansmeasuring that which is necessary for strategicsuccess.

Alignment of systems that represent the

supporting infrastructure and help drive theorganization, including reward and recognitionsystems, financial and accounting systems,performance management processes, distributionsystems, training and development, etc

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Organizational strategic

resources

Knowledge/ Intellectual Capital

Reputation with customers, partners,

suppliers and the financial community

Brands

Competences, processes and skill sets

Corporate culture

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2004

Rank

2003

Rank

Country of

Ownership

Brand Brand Value 2004 ($

millions)

% change over

previous year

Brand Value 2003 ($

millions)

1 1 US Coca-

Cola

67 394 -4% 70 453

2 2 US Micros

oft

61 372 -6% 65 174

3 3 US IBM 53 791 4% 51 767

4 4 US GE 44 111 4% 42 340

5 5 US Intel 33 499 8% 31 112

6 7 US Disney 27 113 -3% 28 036

7 8 US McDon

ald's

25 001 1% 24 699

8 6 Finland Nokia 24 041 -18% 29 440

9 11 Japan Toyota 22 673 9% 20 784

10 9 US Marlb

oro

22 128 0% 22 183

2004 Top 10 Global Brands by

ValueStrategy


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Core Competencies

Are unique capabilitiesthat allow a company tocreate a competitiveadvantage

3M in coatings

Canon in optics, imaging

P&G in marketing

Honda in small engines

Are focused on creatingvalue for customers, andtherefore should beadapted as customer

needs evolve

Core competenciesshould:

Provide access to a

broad array of markets

Help differentiate core

products and services

Be hard to imitate

Strategy


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Analysis of internal change and

resistance forces is key

Company life cycle analysis helps identifythe need for change

Resistance forces often have cultural rootsStructural & organizational rigidities

Closed mindsets

Entrenched cultures

Counterproductive change momentum

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Strategy

Skills

Structure

Shared

Values

Staff

Systems

Style

McKinseys 7-S ModelStrategyA View From

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SWOT analysis

Four Key Questions:

Will the companies competitive positionbe strengthened or weakened if the presentstrategy is continued?

How does the company rank relative to itskey competitors ?

Does the company enjoy a distinctsustainable competitive advantage?

How well can the company defend its

current position?

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Potential Strengths &

Weaknesses

Strengths Core competencies

Financial resources

Well thought of by key

buyersMarket leader

Economies of scale

Proprietary technology

Cost advantages

Better manufacturingskills

Superior technology

Weaknesses No clear strategic

direction

Obsolete facilities

Lack of managerialdepth

Internal operating

problem

Weak market image

Poor financial resource

Higher costs

Strategy


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Potential Opportunities &

Threats

OpportunitiesAbility to expand into

new market/ segments

Ways to expand product

linesAbility to to transfer skills

or technological know-

how

Falling trade barriers Emerging new

technologies

Threats Entry of low cost

competitors

Rising sales of substituteproducts

Slower market growth

Adverse shift in foreignmarkets

Costly regulatory

requirements Vulnerability to recession

Changing buyer needs

Strategy


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References for Chapter 5

1. Rice, V. A. 1996. Why EVA works for Varity. Chief Executive, 110: 40-44.

2. Lehn, K. and A. K. Makhija. 1996. EVA & MVA: As Performance Measures and

Signals for Strategic Change. Strategy & Leadership, 24 (3): 34-41.3. Tully, S. 1999. The EVA Advantage. Fortune Magazine, 139 (6): 210.

4. White, J. B. 1997. Value-Based Pay Systems Are Gaining Popularity. The Wall

Street Journal, April 10, B8.

5. Dodd, J. L. and J. Johns. 1999. EVA Reconsidered. Business and EconomicReview,

45 (3): 13-18.

6. Oliver, R. 2001. The Return on Human Capital. Journal of Business Strategy,

July/August: 7-10.

7. Byrne, J., A. Reinhardt, and R. D. Hof. 1999. The Search for the Young and Gifted:

Why Talent Counts. Business Week, October 4.

8. Brown, J. S. and P. Duguid. 2000. Balancing Act: How to Capture Knowledge Without

Killing It. Harvard Business Review, 78: 73-80.

9. Cross, R. and L. Baird. 2000. Technology Is Not Enough: Improving Performance by

Building Organizational Memory. Sloan Management Review, 41: 69-78.

10. The Top Global Brands, Business Week, August 2004

11. Quinn, J. B. 1999. "Strategic Outsourcing: Leveraging Knowledge Capabilities." Sloan

Management Review, 40 (4): 9-22.

12. Prahalad, C. K. and G. Hamel. 1990. The Core Competence of the Corporation,Harvard Business Review, (MayJune): 7993.

13. Strebel, P. 1994. Choosing the Right Change Path. California Management Review,

36: 30.

14. Robert H, Waterman, Jr., Thomas J. Peters,, and Julien R. Phillips, 1980, Structure is

Not Organization, Business Horizons, June, pp. 14-26

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Chapter Five - Second Edition