Slide strategic management 6e by harrison chapter 3 the internal environment and strategic direction

Chapter 3Organizational Resources and Competitive Advantage Chapter 3 Organizational Resources and Competitive Advantage... Learning ObjectivesTo understand: • the characteristics of res

Chapter 3

Organizational Resources and

Competitive Advantage

Chapter 3 Organizational Resources and

Competitive Advantage

Learning Objectives

To understand:

• the characteristics of resources and capabilities that create a

foundation for sustainable competitive advantage

• how human resources, physical resources, financial resources,

knowledge and learning resources and general organizational resources can lead to competitive advantage

• how resources are interconnected and the implications of

resource interconnectedness for competitive advantage

• the usefulness of the value chain in understanding sources of

competitive advantage

• traditional and stakeholder-based measures of firm performance

To understand:

• the characteristics of resources and capabilities that create a

foundation for sustainable competitive advantage

• how human resources, physical resources, financial resources, knowledge and learning resources and general organizational resources can lead to competitive advantage

• how resources are interconnected and the implications of

resource interconnectedness for competitive advantage

• the usefulness of the value chain in understanding sources of

competitive advantage

• traditional and stakeholder-based measures of firm performance

Direction

Strategy Formulation (corporate and business level)

Strategy Implementation

and Control

Strategic Restructuring

External and Internal

Analysis Strategic Management Process

Organizational Resources Leading to

Sustainable Competitive Advantage

Organizational Resources Leading to

Sustainable Competitive Advantage

Organizational

Resources and

Capabilities

Financial

Physical

Human

Knowledge &

Learning

Organizational

Valuable?

Unique?

Potential for Competitive Advantage

Appropriate systems

in place?

Managers taking advantage

of potential?

Realized Competitive Advantage

Difficult or costly to imitate?

No readily available substitute?

Sustainable Competitive Advantage

Organizational Resource

Interconnectedness

Organizational Resource

Interconnectedness

Human Resources

Knowledge and Learning Resources

General Organizational Resources Physical Resources

Financial Resources

Human Resources

• Employees – recruitment, training programs,

rewards system

• Managers – CEO and top management team

• Owners/board of directors – effective

corporate governance

• Employees – recruitment, training programs,

rewards system

• Managers – CEO and top management team

• Owners/board of directors – effective

corporate governance

Physical Resources

• Tangible resources such as machinery, plants

and products – easy to imitate, but the

processes to create them are not

• Locations – competitive clusters can provide

advantages to companies and consumers

• Tangible resources such as machinery, plants

and products – easy to imitate, but the

processes to create them are not

• Locations – competitive clusters can provide

advantages to companies and consumers

Financial Resources

• Strong cash flow, low levels of debt, strong credit

rating, access to low interest capital and reputation for creditworthiness can increase strategic flexibility – more responsive to new opportunities

• Strong cash flow, low levels of debt, strong credit

rating, access to low interest capital and reputation for creditworthiness can increase strategic flexibility – more responsive to new opportunities

Use of Financial Analysis in

Strategic Management

Use of Financial Analysis in

Strategic Management

• Identify strengths and weaknesses

• Diagnose problems

• Declining profitability

• Insufficient liquidity

• Leverage too high or too low

• Internal mismanagement

• Essential comparisons

• Firm to competitors

• Identify strengths and weaknesses

• Diagnose problems

• Declining profitability

• Insufficient liquidity

• Leverage too high or too low

• Internal mismanagement

• Essential comparisons

• Firm to competitors

Some Commonly Used Ratios

Some Commonly Used Ratios

• Profitability

• Gross Profit Margin

• Net Profit Margin

• ROA

• ROE

• Liquidity

• Current

• Quick

• Leverage

• Debt to Equity

• Total Debt to Total Assets (Asset Ratio)

• Activity

• Asset Turnover Average Collection Period

• Profitability

• Gross Profit Margin

• Net Profit Margin

• ROA

• ROE

• Liquidity

• Current

• Quick

• Leverage

• Debt to Equity

• Total Debt to Total Assets (Asset Ratio)

• Activity

• Accounts Receivable Turnover

Knowledge and Learning Resources

Organizational learning leads to strengths in other

resource areas It involves:

•Knowledge creation

•Knowledge retention

•Knowledge sharing

•Knowledge utilization

Two types of knowledge:

•Codified – can be communicated with precision

through written means Typically not a good source of

sustainable competitive advantage

•Tacit – difficult to describe with words Better source of

Organizational learning leads to strengths in other

resource areas It involves:

•Knowledge creation

•Knowledge retention

•Knowledge sharing

•Knowledge utilization

Two types of knowledge:

•Codified – can be communicated with precision

through written means Typically not a good source of

sustainable competitive advantage

•Tacit – difficult to describe with words Better source of

General Organizational Resources

Some general organizational resources are hard to

imitate and are therefore excellent sources of

sustainable competitive advantage:

•Organizational reputation

•Corporate brands

•Unique configurations of stakeholder relationships –

joint venture, long-term contracts and other types of

partnerships and alliances

•Organizational structure and internal systems

•Organizational culture

Some general organizational resources are hard to

imitate and are therefore excellent sources of

sustainable competitive advantage:

•Organizational reputation

•Corporate brands

•Unique configurations of stakeholder relationships –

joint venture, long-term contracts and other types of

partnerships and alliances

•Organizational structure and internal systems

•Organizational culture

Value Chain Activities Value Chain Activities

Supply Chain

Management

Internal Operations Management

Distribution and Location Management

Marketing Management

Management

of Post-Transaction Contacts

Basic Value Chain Activities

Activities that Support the Basic Value Chain Activities

Product/service R&D

Financial management/accounting

Human resources/compensation systems Legal support

Strategic planning processes

Firm Performance

• Traditionally performance measured as financial

performance (ROA, ROE, shareholder returns)

› Short-term mentality

› Externalities

• Activities of the firm provide value to a broad

spectrum of stakeholders

› Need a more balanced and complete set of measures

› Reflect more of the value a firm creates for its stakeholders

Examples of Stakeholder-Based

Performance Measures

Examples of Stakeholder-Based

Performance Measures

• Employees

• Customers

• Suppliers

• Shareholders

• Community