Management, Organizational Policies and Practices

Lecture 4

Recap Lecture 3

Industrial Organizational View Macro Environment – PESTEL Industry Environment – Porter Five Forces Competitive – Strategic Groups

The Internal Assessment

Lecture 4

Dr Amna Yousaf

PhD-HRM

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Basis for objectives & strategies:Basis for objectives & strategies:

Clear statement of vision and mission External opportunities/threats Internal strengths/weaknesses

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Internal Audit

Gather & assimilate information from:• Management• Marketing• Finance/accounting• Production/operations• Research & development• Management information systems

Key to organizational success:

Coordination and understanding among managers from all functional areas

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3–6

External Analyses’ OutcomesExternal Analyses’ Outcomes

By studying the external environment, firms identify what they By studying the external environment, firms identify what they might choose to do.might choose to do.

OpportunitieOpportunities and s and threatsthreats

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3–7

Internal Analyses’ Outcomes Internal Analyses’ Outcomes

By studying the internal environment, firms By studying the internal environment, firms identify what they identify what they can docan do

Unique resources, Unique resources, capabilities, and capabilities, and competenciescompetencies((required forrequired for sustainable sustainable competitive competitive advantageadvantage))

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Resource Based View

Organizational Resources provide competitive advantage that can be sustained Traditional resources such as labor costs, access to

financial resources and raw materials continue to be sources of competitive advantage but to a lesser degree Globalization and openenss of markets make these

resources accessable worldwide and mobile Need to identify new sources of competitve advantage- do

the internal audit

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3–9

Key Concepts - Resources - Resources

ResourcesResources Are a firm’s assets, including Are a firm’s assets, including

people and the value of its people and the value of its brand name.brand name.

Represent inputs into a firm’s Represent inputs into a firm’s production process, such as:production process, such as: Capital equipmentCapital equipment Skills of employeesSkills of employees Brand namesBrand names Financial resourcesFinancial resources Talented managersTalented managers Raw MaterialRaw Material Strategic LocationStrategic Location

Types of ResourcesTypes of Resources Tangible resourcesTangible resources

Financial resourcesFinancial resources Physical resourcesPhysical resources Technological resourcesTechnological resources Organizational Organizational

resourcesresources Intangible resourcesIntangible resources

ReputationReputation InnovationInnovation

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Types of Resources

Threshold ResourcesThe resources needed to meet customer’s minimum requirements and therefore to continue to exist

Retailer requires the supplier to posses a powerful IT infrastructure to meet retailing requirements.

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Threshold Competences

Activities and processes needed to meet customer’s minimum requirements and therefore to continue to exist

Supplier should be able to use IT systems effectively

Threshold level changes over time as CSF’s change;

Traditional banking versus online internet banking (branchless)

Redundancy & Complementarily

Get away with redundent Resources & Competencies

Competitive rivalry may make cost efficency threshold comeptnece

Complementarity of resources and competencies essentail Brand name as resource but no marketing processes

Lack of understanding – out of the game

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Unique Resources & Core Competences

Unique resources can not be easily imitated and critically underpin competitive advantage Powerful Brand

Kallogs

Core competences are the activities and processes through which an organziation deploys the resources effectively to achieve competitive advatnage in ways non imitable by competitors. Unique ways of providing service or relationship

building with retailers/distributors/suppliers McKinsey & Co. recommends identifying three to four McKinsey & Co. recommends identifying three to four

competencies to use in framing strategic actions.competencies to use in framing strategic actions.

Cost Efficiency

Economies of Scale Supply costs Experience Product/process design

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Robustness of Strategic Capabilities

Rarity Collection of unique books in a library Intellectual capital-particularly talented individuals Relationships with key customers Harmoniuos functioning of the firms

Capabilities around resources may not be rare as IC may move – competences may be rare and non transferable

Robustness of Strategic Capabilities Non-imitability

Causal ambiguity Competences get embedded in organizational culture Tacit knowledge on organizational processes built in one

culture – may not be readily idetifiable; counter cultural for comeptitor

logical path can not be explicilty defined; taken for granted Formal and informal ways

Linkage ambiguity Whcih activities or processes dependent on which other. What is

the chain of linkages? The way customers are dealt on phone, return policies on goods,

flexibility in deliveries

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Robustness of Strategic Capabilities

Valuable Unique capabilities may not lead comepttive advantage

Customer value

Non substitutable Competencies may also be situtation dependent –

MNC’s have different competences accross the globe Competences can be created within organziation and

outside with suppliers and distributors

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Dynamic Capabilities

Danger of redundancy of strategic capability – strategic drift M&S kept inventing value based on past success; faced losses

in 1990’s

Dynamic capabilities refers to an organization’s abilities to develop and change competencies to meet the needs of rapidly changing environments Stable environment, competitive advatange more

durable and vice versa

Core Competencies—Cautions and RemindersCore Competencies—Cautions and Reminders

Never take for granted that core competencies will continue to provide a source of competitive advantage

Never take for granted that core competencies will continue to provide a source of competitive advantageAll core competencies have the potential to become Core RigiditiesAll core competencies have the potential to become Core Rigidities

Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment

Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment

Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats

Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats

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Case Examples (1)

Caterpiller; construction manufacturing company dealing with a range of diversified products such as construction and mining equipment, gas engines attributes success to the technology it uses and resources it spends to update its internal environment Spends $ 4 million per day to mainintain

competitive advantage through technology

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Case Examples (2)

Enterprise Rent-A-Car – 5000 plus offices worldwide and continually expanding CEO attributes success to employee’s efforts and

the intellectual capital they represnt

Japneese Automobile reduced GM Motors dominence with narrow asset base Lowered costs Improved quality Fast production processes

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Creating Value

Value is measured by product’s performance characteristics and by its attributes for which customers are willing to pay. Increasing perceptions of higher value in global

than local brands Firms create value by bundling resources and

capabilities in ways that create value

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The Value-Creating Potential of The Value-Creating Potential of Primary ActivitiesPrimary Activities

Inbound LogisticsInbound Logistics Activities used to receive, store, and disseminate Activities used to receive, store, and disseminate

inputs to a productinputs to a product OperationsOperations

Activities necessary to convert the inputs provided Activities necessary to convert the inputs provided by inbound logistics into final product formby inbound logistics into final product form

Outbound LogisticsOutbound Logistics Activities involved with collecting, storing, and Activities involved with collecting, storing, and

physically distributing the product to customersphysically distributing the product to customers

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The Value-Creating Potential of The Value-Creating Potential of Primary Activities (cont’d)Primary Activities (cont’d)

Marketing and SalesMarketing and Sales Activities completed to provide the means through Activities completed to provide the means through

which customers can purchase products and to induce which customers can purchase products and to induce them to do so.them to do so.

ServiceService Activities designed to enhance or maintain a product’s Activities designed to enhance or maintain a product’s

valuevalue Each activity should be examined relative to competitor’s Each activity should be examined relative to competitor’s

abilities and rated as superior, equivalent or inferior.abilities and rated as superior, equivalent or inferior.

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3–25

The Value-Creating Potential of The Value-Creating Potential of Primary Activities: SupportPrimary Activities: Support

ProcurementProcurement Activities completed to purchase the inputs needed Activities completed to purchase the inputs needed

to produce a firm’s products.to produce a firm’s products. Technological DevelopmentTechnological Development

Activities completed to improve a firm’s product and Activities completed to improve a firm’s product and the processes used to manufacture it.the processes used to manufacture it.

Human Resource ManagementHuman Resource Management Activities involved with recruiting, hiring, training, Activities involved with recruiting, hiring, training,

developing, and compensating all personnel.developing, and compensating all personnel.

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© 2007 Thomson/South-Western. All rights reserved. 3–26

The Value-Creating Potential of The Value-Creating Potential of Primary Activities: Support Primary Activities: Support (cont’d)(cont’d) Firm InfrastructureFirm Infrastructure

Activities that support the work of the entire value Activities that support the work of the entire value chain (general management, planning, finance, chain (general management, planning, finance, accounting, legal, government relations, etc.)accounting, legal, government relations, etc.)

Each activity should be examined relative to Each activity should be examined relative to competitor’s abilities and rated as superior, competitor’s abilities and rated as superior, equivalent or inferior.equivalent or inferior.

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© 2007 Thomson/South-Western. All rights reserved. 3–27

FIGUREFIGURE 3.33.3

The Basic The Basic Value ChainValue Chain

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Benefits of Value Chain

Cost benefit analysis at various levels Help identify comeptences of the firm Outsourcing decisions Identify profit pools Value network – set of inter-organizational

links and relationships necessary to create valuable product Internal position vis a vis other parties

How do we assemble How do we assemble bundlesbundles of of Resources, Capabilities and Core Resources, Capabilities and Core

Competencies to create Competencies to create VALUEVALUE for for customers?customers?

Will environmental changes make our Will environmental changes make our core competencies obsolete?core competencies obsolete?

And...And...

Are substitutes available for our core Are substitutes available for our core competencies?competencies?

Are our core competencies easily imitated?Are our core competencies easily imitated?

Key Questions for Managersin Internal Analysis

Key Questions for Managersin Internal Analysis

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Organizational Knowledge

Collective and shared experience accumulated through systems, routines and activities of sharing accross the organization Explicit Knowldge: Codified information system Implicit Knowledge: Tacit, hald to formalize, personal and

context specific More likely to occur where functional boundaries

are blurred; less demarcation of roles Formal and systematic system of knowledge

poses greater danger of imitation Experience of groups of individuals may not be

copied

SupportActivities

Primary Activities

Technological DevelopmentTechnological Development

Human Resource ManagementHuman Resource Management

Firm InfrastructureFirm Infrastructure

ProcurementProcurement

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MARGIN

MARGIN

Inbound Inbound LogisticsLogistics

OperationsOperationsOutboundOutboundLogisticsLogistics

ServiceService

Marketing Marketing & Sales& Sales

Technological Technological DevelopmentDevelopment

Human Resource ManagementHuman Resource Management

ProcurementProcurement

MARGIN

MARGIN

Firms often purchase a portionportion of their value-creating activities from specialty external suppliers who can perform these functions more more efficientlyefficiently

OutsourcingOutsourcingStrategic Choice to Purchase Some Activities From Outside Suppliers

Lets company focus on broader business issues by having outside experts handle various operational detailsLets company focus on broader business issues by having outside experts handle various operational details

Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing

Improve Business FocusImprove Business Focus

Permits firm to redirect efforts from non-core activities toward those that serve customers more effectivelyPermits firm to redirect efforts from non-core activities toward those that serve customers more effectively

Free Resources for Other PurposesFree Resources for Other Purposes

Provide Access to World-Class CapabilitiesProvide Access to World-Class Capabilities

Accelerate Business Re-Engineering BenefitsAccelerate Business Re-Engineering Benefits

Share RisksShare Risks

The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications

Achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over processAchieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process

Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities

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Activity Maps

An activity map shows how the different activities of an organization are linked together

Help identify and preserve strategic capabilities

Different activties must be consistent to create value

Maybe reinforcing each other

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Activity Maps at Southwest

Frequent, reliable departures Lean, highly productive ground and gate crews High aircraft utliziation Very low ticket prices No meals No seat assignments No baggage transfers Automatic ticketing maxchines No connections with other airlines

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Internal Assessment Analyses

Qunatitative Analyses Balanced Scorecard Basic Financial Ratios

Qualitative Analyses

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The Balanced Scorecard Broad based criteria to assess a firm from multiple perspectives

Financial Ratios

Customer Value in terms of differentiation, low costs, quick response

Operations Which processes need to improve? How should they be changed?

Organizational Adaptability to change? Workforce commitment towards goals?

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Qualitative Analyses

Qualitative information supplements quantitative informatoin

Information on employee morale, commitmnet, creativity, employee views and customer views etc Motorolla invests $600m anually based on

qualitative analyses.

ResourcesResources

** TangibleTangible** IntangibleIntangible

CapabilitiesCapabilities

Teams of ResourcesTeams of Resources

Sources ofSources of

CoreCoreCompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns

CompetitiveCompetitiveAdvantageAdvantage

Gained throughGained throughCore CompetenciesCore Competencies

DiscoveringDiscovering

CoreCore

CompetenciesCompetencies

ValueChain

Analysis

ValuableRareCostly to ImitateNonsubstitutable

****

* Outsource

Criteria ofSustainableAdvantages

Discovering Core CompetenciesDiscovering Core Competencies

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