Lecture 4 : Business Strategy

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Lecture 4 Business Strategy

• Strategic Position-
• Strategic Capability

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Learning Outcomes

• importance of knowledge and knowledge management
• meaning and importance of critical success
  factors
• strategic importance of resources and concept of
  unique resources
• importance and meaning of core competences
• factors that create value for money in products
  and services
• importance of performing better than competitors/
  concept of benchmarking
• why some strategies are more difficult to imitate
  than others
• how key issues can be summarised (SWOT)

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Strategic Capability (SC)

• underpinned by the resources available to firm
• resources can be grouped into
• physical resources (machines, buildings)
• human resources (skills)
• financial resources (capital, cash)
• intellectual capital (intangibles, brands,
  relationships with partners)
• (Johnson and Scholes, 2002)

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Strategic Importance of Resources

• threshold resources
• basic resources needed to enter and stay in a
  market
• change/rise with time as a result of activities
  of competitors and new entrants
• unique resources
• resources which critically underpin competitive
  advantage
• (Johnson and Scholes, 2002)

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Competences /Core Competences

• activities or processes that critically underpin
  an organisations competitive advantage...
• need to view them through eyes of customer
• benchmarking can help in understanding
  performance standards (e.g. constitution of good
  or poor performance)
• must be robust (difficult to imitate)
• (Johnson and Scholes, 2002)

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Where Core Competences Reside

• Managers can find it difficult to establish where
  they reside
• Value chain concept is useful tool
• Value chain describes activities within and
  around a firm which together create a product or
  service
• (Johnson and Scholes, 2002)

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Value Chain

• A value chain is a linked set of value-creating
  activities beginning with basic raw materials
  coming from suppliers, moving on to a series of
  value-added activities involved in producing and
  marketing a product or service, and ending with
  distributors getting the final goods into the
  hands of the ultimate consumer
• (Wheelen and Hunger, 2000, p. 84)

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Value Chain (Porter, 1985)

• Primary Activities
• inbound logistics
• operations
• outbound logistics
• marketing/sales
• service
• Support Activities
• Infrastructure
• Human Resource Management
• Technology Development
• Procurement

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Typical Value Chain for a Manufactured Product
Fabrication
(Source Galbraith, 1991, p. 316)
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Distinctive Competences

• When a firm is able to perform a particular
  value-adding activity in ways that are superior
  to that of its competitors, then this activity
  forms the basis for the firms distinctive
  competence (DC).
• A DC allows the firm to do things in ways that
  distinguish it from competitors and defines how
  firms are likely to form their strategies.
• (Pitts and Lei, 1996, p. 68)

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Delivering Value for Money

• Cost efficiency a measure of the level of
  resources needed to create a given level of value
  (e.g. economies of scale, experience, supply
  costs, product/process design)
• Effectiveness ability to meet customer
  requirements on product features at a given cost
• (Johnson and Scholes, 2002)

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Performing Better than Competitors

• Historical comparison - tracking previous
  performance to identify any significant changes
• Industry norms - compare performance of
  organisation in same industry or sector against a
  set of agreed performance indicators
• Best-in-class benchmarking- compare firms
  performance against best-in-class performance
• (Johnson and Scholes, 2002)

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Importance of Knowledge

• Knowledge is awareness, consciousness or
  familiarity gained by experience or learning
• In complex and dynamic environment, firms able to
  create and integrate knowledge better than
  competitors are likely to gain advantage
• (Johnson and Scholes, 2002)

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Resource-Based Approach

• VRIO framework (key resources)
• Value (Does it provide competitive advantage?)
• Rareness (Do other competitors possess it?)
• Imitability (Is it costly for others to imitate?)
• Organisation (Is the firm organised to exploit
  the resource?)
• (Wheelen and Hunger, 2000, p. 82)

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Sources of Competitive Advantage

• resources difficult to imitate competitive
  advantages
• 3 possible ways to sustain competitive advantage
• advantages residing in the organisation
• advantages stemming from specific functional
  areas
• advantages based on relationships with external
  entities
• (Wensley, 1987, p. 34)

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Sources of Competitive Advantage

• A firm builds a competitive advantage when
• it applies its strengths in ways to perform some
  value-adding activity that other firms cannot do
  as well.
• Competitive advantage comes from the ability
• to perform activities more cheaply than rivals
• or more effectively than rivals
• (Pitts and Lei, 1996, p. 68)

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Strengths and Weaknesses

• A SWOT analysis summarises the key issues from
  the business environment and the strategic
  capability of an organisation that are most
  likely to impact on strategy development
• (Johnson and Scholes, 2002, p. 183)

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Summary

• SC is about ability to provide products/services
  with features that are valued by customers.
  Competitive advantage will be achieved by firms
  able to do this better than competitors in ways
  which are difficult to imitate.
• Understanding what customers value or might value
  in future is important (including threshold and
  critical success factors)
• SC starts with resources
• Resources need to be deployed into activities to
  create competences

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• Core competences underpin competitive advantage -
  fundamentally must contribute to value for money
  in eyes of customer must be performed better
  than competitors must be relatively difficult to
  imitate
• Delivering value for money requires management of
  cost and product features
• Value for money can stem from good links in value
  chain
• Customer value changes over time
• Benchmark performance standards
• Competences might be robust as a result of
  rarity, complexity or cultural issues