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
Strengths
Hilton Colombo
Only International Chain in City. Completley Refurbished.
TransAsia
Security floors 7th/8th.
Colombo Plaza
New Shopping Complex. New health and recreation centre. Japanese Floors. Located close to US Embassy, British High Comm. & World Bank.
Taj Samudra
Rooms 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.
Galadari
Ocean 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.
Weaknesses
Hilton Colombo
Due to leading market position,
TransAsia
Local Hotel - no brand name. Less restaurants and entertainment venues. Sub standard service and lacks in rate integrity.
Colombo Plaza
Aging Ballroom and Restaurants.
Taj Samudra
Attracts the low budget clientele. Perceived as inexpensive. Appeals to the Indian market. Old unrefurbished product.
Galadari
Limited 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).
Opportunities
Hilton Colombo
Categorized as the best business hotel - image/location. Aggressive approach to obtain outside catering business. Flexibility of demand based pricing.
TransAsia
Adjacent office complex. Refurbished banquet space Flexible rate structure. Accessible location.
Colombo Plaza
Apartments plus food courts within the hotel premises. Possible international management. Refurbished ballroom. Additional New restaurant and ballroom.
Taj Samudra
Networking with the Taj group.
Galadari
Attracts growing low end market. Very low rates to attract airline crews and groups.
Threats
Hilton Colombo
Rate dumping by competitors. Growing number of freestanding
TransAsia
Rate dumping by competitors.
Colombo Plaza
Protracted negotiations of international management contract.
Taj Samudra
Located next to military facility. Overly associated with Indian guests.
Galadari
Reemergence 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.
Conclusions
Hilton Colombo
Competitive set has narrowed the gap
TransAsia
Rates as the second best hotel.
Colombo Plaza
Old property, needs refurbishment.
Taj Samudra
Patronized by the lower end of the market. Categorized as a group hotel.
Galadari
Categorized as a medium quality hotel offering very low rates.
BUILDING DYNAMIC CAPABILITIES
SECI model of knowledge creation
TO 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 tacit
Example
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 details
Built 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)
