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Learning Objectives
To understand:
• the characteristics of resources and capabilities that create a foundation for sustainable competitive advantage
• how resources are interconnected and the implications of resource interconnectedness for firm performance
• the responsibilities of boards of directors and the agency issues associated with corporate governance
• the usefulness of the value chain in understanding sources of competitive advantage
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StrategicStrategicDirectionDirection
Strategy FormulationStrategy Formulation(corporate and (corporate and business level)business level)
Strategy ImplementationStrategy Implementationand Controland Control
Strategic RestructuringStrategic Restructuring
Internal and External Internal and External AnalysisAnalysis
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Organizational Resources Leading to Sustainable Competitive Advantage
Organizational Resources Leading to Sustainable Competitive Advantage
OrganizationalResources and
Capabilities
Financial
Physical
Human
Knowledge &Learning
Organizational
Valuable?
Unique?
Potential forCompetitiveAdvantage
Appropriatesystemsin place?
Managerstaking
advantageof potential?
RealizedCompetitiveAdvantage
Difficult orcostly toimitate?
No readilyavailable
substitute?
SustainableCompetitiveAdvantage
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Organizational Resource Interconnectedness
Organizational Resource Interconnectedness
Human Resources
Knowledge andLearning Resources
General Organizational
Resources
Physical Resources
Financial Resources
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Human ResourcesHuman Resources
• Managers – CEO and top management team
• Employees – recruitment, training programs,
rewards system
• Owners/board of directors – effective
corporate governance
• Managers – CEO and top management team
• Employees – recruitment, training programs,
rewards system
• Owners/board of directors – effective
corporate governance
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Position of Board of DirectorsPosition of Board of Directors
ShareholdersShareholders
Board ofDirectors
Board ofDirectors
Chief ExecutiveOfficer (CEO)
TopManage-MentTeam
TopManage-MentTeam
VP-LegalVP-Financial VP-MarketingVP-Human Res.
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Corporate GovernanceCorporate Governance
Corporate governance is concerned with the balance between:
•Economic and social goals
•Individual goals of managers and firm goals
The board of directors:
•Hires, fires, supervises and compensates top management
•Approves major strategic decisions
•Ensures that the firm and its managers are acting responsibly
•Provides advice to top management
•Provides a social network that helps firms acquire resources
Corporate governance is concerned with the balance between:
•Economic and social goals
•Individual goals of managers and firm goals
The board of directors:
•Hires, fires, supervises and compensates top management
•Approves major strategic decisions
•Ensures that the firm and its managers are acting responsibly
•Provides advice to top management
•Provides a social network that helps firms acquire resources
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Agency TheoryAgency Theory
• Agents--managers with a fiduciary duty to act in the best interests of owners
• Agency problem--managers maximize their own self-interests at the expense of owners• High salaries of CEOs• Emphasis on short-term performance at expense of long-term
performance• Empire building for status• CEO duality
• Agents--managers with a fiduciary duty to act in the best interests of owners
• Agency problem--managers maximize their own self-interests at the expense of owners• High salaries of CEOs• Emphasis on short-term performance at expense of long-term
performance• Empire building for status• CEO duality
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Physical ResourcesPhysical 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
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Financial ResourcesFinancial 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
• Locations – competitive clusters can provide
advantages to companies and consumers
• 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
• Locations – competitive clusters can provide
advantages to companies and consumers
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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• Firm to itself over time
• Identify strengths and weaknesses
• Diagnose problems• Declining profitability• Insufficient liquidity• Leverage too high or too low• Internal mismanagement
• Essential comparisons • Firm to competitors• Firm to itself over time
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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
• Accounts Receivable Turnover Inventory Turnover
• 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
• Accounts Receivable Turnover Inventory Turnover
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Knowledge and Learning ResourcesKnowledge 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 sustainable competitive advantage
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 sustainable competitive advantage
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General Organizational ResourcesGeneral 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
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The Value ChainThe Value Chain
Primary Activities
•Inbound Logistics
•Operations
•Outbound Logistics
•Marketing and Sales
•Service
Activities that Support the Primary Activities
•Administration
•Technology Development
•Human Resource Development
•Procurement
Primary Activities
•Inbound Logistics
•Operations
•Outbound Logistics
•Marketing and Sales
•Service
Activities that Support the Primary Activities
•Administration
•Technology Development
•Human Resource Development
•Procurement