paper: 3, strategic management module: 9, strategic competence and capability...

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Management Strategic Management

Strategic Competence And Capability Analysis

Module: 9, Strategic Competence And Capability Analysis

Paper: 3, Strategic Management

Prof Alka Sharma

The Business School

University of Jammu, Jammu.

Dr. Anil Gupta Senior Assistant Professor University of Jammu, Jammu 180006

Prof YoginderVerma

Pro–Vice Chancellor

Central University of Himachal Pradesh. Kangra. H.P.

Prof. S P Bansal Vice Chancellor

Maharaja Agrasen University, Baddi

Content Writer

Co-Principal Investigator

Paper Coordinator

Principal Investigator

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ITEM DESCRIPTION OF MODULE

Subject Name MANAGEMENT

Paper Name STRATEGIC MANAGEMENT

Module Name/ Title STRATEGIC COMPETENCE AND CAPABILITY

ANALYSIS

Module Id 9

Pre-requisites Basic understanding of Management and its functions

Objectives Understand the organization’s internal environment.

Keywords Internal Environment, Capability, Competency,

Organisational Appraisal

QUADRANT - I

Module 1 : Concept of Strategy

1. Learning Outcomes

2. Internal Environment Understanding

3. Strengths and Weaknesses

4. Synergy and its Effects

5. Competencies

6. Organizational Capability

7. Capability Factors

8. Strategic Advantage

9. Organisational Appraisal

10. Summary

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1. Learning Outcomes

After reading this you should be able to:

Explain the need for firms to study and understand their internal environment

Define capabilities and discuss how they are developed

Describe resources and capabilities as core competencies

Discuss the importance of identifying internal strengths and weaknesses with SWOT analysis

Distinguish elements of strategic capability in organizations: resources, competences, core

competences and dynamic capabilities.

Consider how managers can develop strategic capabilities

Define strategic advantage

Explain organizational appraisal

2. Internal Environment Understanding

Internal organizational assessment is a functional assessment of financial, human resource, information

systems, and marketing strengths and weaknesses and endeavor to recognize the present and potential

competitive advantages of the firm. Effective strategic management requires an understanding of

organizational resources and competencies as well as how each contributes to the formation of

organizational strengths and ultimately to the development of a competitive advantage.

Concentrating on the uncontrollable external environment highlights the significance of adjusting to

change, fitting organizations to the bigger environment, and understanding that the standards of

accomplishment are composed outside individual business firms. Strategic decision makers need a

systematic technique for scanning their internal organization.

By planning arrangements of strength and weaknesses and figuring out which ones are aggressively

important, they can see definitely how each competitively relevant strength and weakness has the

potential for including or subtracting value. Despite the fact that the procedure can be effortlessly

adjusted to the corporate level, our goal is to give a business level method to systematically assessing

the relationship between internal strengths and weaknesses and competitive advantage. This method

takes existing thoughts and collects and incorporates them into a four-stage choice process that can be

effectively and proficiently utilized by strategic decision makers. The prescribed methodology utilizes

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the primary and support activities in value chain analysis as the space for seeking out strengths and

weaknesses, analyses every strength and weakness regarding its capacity to make or decrease

competitive advantage, and proposes particular ways firms may accomplish a more focused position in

the market place.

Components of Internal Analysis

3. STRENGTHS AND WEAKNESSES

Distinguishing an association's strengths and weaknesses is troublesome in light of the fact that

attributes that show up as strengths and weaknesses, on itemized examination, may have next to zero

importance for competitive advantage or disadvantage. The list of strengths and weaknesses produced

by traditional procedures is generally minimal more than a starting impression of what a firm does well

and where it needs change. The list is usually long, not very concrete, and agreed on by only a

relatively few people. In any case, even a shallow list of conceivable strengths and weaknesses is

critical to start key deduction and to center speculation on regions where the firm can actually add or

lose value. This approach requires a survey of infrastructure, human resources, technology

development, procurement, inbound and outbound logistics, operations, marketing and sales, and

service activities, financial statements, staffing standards, information resources, organization charts,

and customer and employee surveys and interviews. The findings are then compared with industry

standards and historical trends, and judgments are made as to whether the organization's performance

represents strengths or weaknesses relative to others in the strategic group.

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SWOT

SWOT examination expects to recognize the key internal and external factors seen as imperative to

accomplishing an objective. SWOT analysis groups of data into two principle classes:

•Internal factors – the strengths and weaknesses inside to the organization

•External factors – the opportunities and threats exhibited by nature outside to the organization

SWOT outlines the key issues from the business environment and the strategic capability of an

organization that are most likely to impact on strategy development. This can likewise be valuable as a

premise against which to create strategic options and assess future course of action.

So SWOT analysis is really only useful if it is comparative – if it examines strengths, weaknesses,

opportunities and threats in relation to competitors.

Strategy building

SWOT analysis can be used effectively to build organization or personal strategy. Steps necessary to

execute strategy-oriented analysis involve: identification of internal and external factors, selection and

evaluation of the most important factors and identification of relations existing between internal and

external features.

Matching and converting

One way of utilizing SWOT is matching and converting. Matching is used to find competitive

advantage by matching the strengths to opportunities. Converting is to apply conversion strategies to

convert weaknesses or threats into strengths or opportunities. An example of conversion strategy is to

find new markets. If the threats or weaknesses cannot be converted, a company should try to minimize

or avoid them. An illustration of transformation procedure is to discover new markets. In the event that

the threats or weaknesses can't be changed over, an organization ought to attempt to minimize them.

A SWOT examination ought to focus discussion on future decisions and the degree to which an

organization is fit for supporting these methodologies.

4. SYNERGY AND ITS EFFECTS

Synergy is the creation of a whole that is greater than the simple sum of its parts. The

term synergy comes from the Greek word synergos meaning "working together. As such, when two or

more individuals or associations join their endeavors, they can achieve more together than they can

independently. They can accomplish more cooperating than they can working separated. In numerical

terms, synergy is when 2 + 2 = 5.

Negative synergies additionally exist. On the off chance that there is a negative synergy, the entire is

not exactly the entirety of its parts. At the end of the day, individuals can really achieve more by

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working alone instead of cooperating. In numerical terms, a negative synergy is when 2 + 2 = 3. A

simple case is an excessively social work group that spends too much time 'team building' and not

enough time working.

Synergy impacts

The synergy impacts are troublesome (even inconceivable) to copy by competitors and hard to

replicate by their creators on the grounds that these impacts rely on upon the blend of elements with

time-changing attributes. The synergy impacts are regularly called ""synergistic benefits", representing

the direct and implied result of the developed/adopted synergistic actions. Functional activities, such as

marketing, finance, operations, human resources and development are subsystems of an organization.

Too much emphasis on a single activity reduces synergy. Internal analysis ought to consider

organisation in totality to see the "big picture" to accomplish synergetic impacts. Units turn out to be

more profitable together than autonomously.

Synergistic impacts rise up out of:

Cost saving : Cost economics to the organization.

Elimination of duplication facilities.

Effective use of available resources.

Synergetic effects are measured in terms of effects on functional activities.

Marketing synergy : It occurs when existing ,price, place, promotion support each other.

Production synergy :It occurs when new production use existing production facilities, technological

skills and human resources capabilities.

Research and development synergy: It occurs when existing R&D facilities can be used for

development of new production.

Financial synergy: It occurs when increased net revenue can be gained for a given level of investment

or a decrease level of investment is required for a given level of earning.

The combination of organizational resources, Organizational behavior and strengths/weakness lead to

synergistic effects.

5. Competencies

The most fundamental idea is that of assets. Tangible resources are the physical assets of an

organization such as plant, people and finance. Intangible resources are non-physical assets such as

information, reputation and knowledge.

Regularly, an association's assets can be considered under the accompanying four general classes:

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● Physical resources –, for example, the machines, structures or the creation limit of the organisation.

The way of these assets, for example, the age, condition, limit and area of every asset, will decide the

usefulness of such assets.

● Financial resources – for example, capital, money, debtors and creditors, and suppliers of cash

(shareholders, brokers, and so on.).

● Human resources – including the blend (for instance, demographic profile), aptitudes and learning of

representatives and other individuals in an organization’s network.

● Intellectual resources – as an impalpable asset – incorporates licenses, brands, business systems and

customer databases. A sign of the estimation of these is that when organizations are sold, a portion of

the quality is 'goodwill'. In an information based economy scholarly capital is prone to be a noteworthy

resource of numerous associations.

Such resources are surely imperative, but what an organization does – how it utilizes and conveys these

resources – matters at any rate as much as what assets it has.

The term capabilities is utilized to mean the aptitudes and capacities by which assets are conveyed

successfully through an organization’s activities and processes. While threshold capabilities are vital,

they don't of themselves make competitive advantage or the premise of superior performance. These

are subject to an association having particular or remarkable abilities that competitors will find hard to

impersonate. This could be on the grounds that the association has one of a kind assets that

fundamentally support upper hand and that others can't emulate or acquire – a long-established brand,

for instance.

It is, in any case, more probable that an organization accomplishes competitive advantage in light of

the fact that it has distinctive, or core competences. The concept of core competences was developed

most prominently, by Gary Hamel and C.K. Prahalad. Core competences are taken to mean the

aptitudes and capacities by which assets are conveyed through an organization’s activities and

processes such as to achieve competitive advantage in ways that others can't impersonate or get.

Assembling these ideas, the outline contention is that - To survive and thrive an organization needs to

address the difficulties of the environment that it faces. Specifically it must be fit for performing

regarding the basic achievement calculates that emerge from requests and needs of its clients. The vital

capacity to do as such is subject to the assets and the abilities it has. These must reach a threshold level

in order for the organization to survive.

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6.Organizational Capability

Distinctive writers, managers and consultants use diverse terms and ideas in clarifying the significance

of organizational capability. Strategic capability can be characterized as the assets and abilities of an

association required for it to survive and flourish.

Developing strategic capabilities

There are distinctive ways in which managers may create strategic capabilities:

● Adding and evolving capabilities. Capabilities can be included, or changed so they turn out to be all

the more strengthening of results that convey against critical success factors.

● Extending capabilities. Administrators may recognize strategic capabilities in one territory of the

business, maybe client administration in one geographic specialty unit of a multinational, that are not

present in different specialty units. They might then seek to extend this throughout all the business

units. The capabilities of one part of an organization might not be easily transferred to another because

of the problems of managing change.

● Stretching capabilities. Managers may see the chance to construct new items or administrations out

of existing abilities. Without a doubt, assembling new organizations along these is the basis of related

diversification.

● Entrepreneurial bricolage. Strategic capabilities may be fabricated by misusing assets, aptitudes and

learning that have been overlooked or dismissed by others; in reality this is regularly what business

visionaries who grow new plans of action do.

● Ceasing exercises. The current activities not central to the delivery of value to customers can be

done away with, outsourced or reduced in cost.

● External capability development. There may be methods for looking so as to create abilities

remotely. For instance, managers may try to create or learn new capacities by procurement or by going

into alliance and joint ventures.

7.Capability factors

One of the greatest difficulties in building capacity models is motivating individuals to move from

utilitarian considering (the things we do) to ability considering (the capacity we need to do things). The

reason this is so troublesome is that organizations for the most part make hierarchical capacities around

abilities so they frequently look fundamentally the same. For instance, most organizations have an

advertising ability and a showcasing capacity where the vast majority of the promoting ability dwells.

For example, most organizations have marketing capability and a marketing function where most of

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the marketing capability resides. Even when marketing is distributed across different lines of business

we still think of it as a function first.

Here are five key capabilities each organization ought to have:

Leadership: Leadership is considered as an arrangement of individuals at the highest point of the

organization yet it is really an aptitude that can, and ought to, exist at each level. Leadership is the

capability to inspire and propel individuals to satisfy a mission. At the highest point of the association

authority incorporates coordinating others while at lower levels it is proficient through affecting others.

At the top of the organization leadership includes directing others while at lower levels it is

accomplished through influencing others. A company’s leadership performance has a lot to do with

how much the organization can accomplish in a given amount of time.

Collaboration: Collaboration effort is the capacity to work beneficially with others. At the low end of

execution, coordinated effort gives the capacity to successfully separate complex assignments and

disperse the parts over a gathering of individuals or organizations. At higher levels of performance

collaboration creates organizational synergy, producing a performance boost where the whole is

greater than the sum of its parts

Adaptability: Products, services, organizations, companies, and even whole industries go back and

forth instant. Adaptability is the organization’s capacity to surrender the current abilities, procedures,

and innovations that have prompted its past achievement and make new aptitudes and methodologies

that guarantee achievement tomorrow. Organizations should be versatile just to survive and highly

adaptable if they expect to thrive

Creativity: The issues we confront today are a great deal more mind boggling and time-basic than

those of the past. They frequently can't be tackled by savage constrain alone. Creativity depicts the

organization’s capacity to think distinctively and permit diverse deduction to impact every day and key

choices. At the low end of the performance curve organizations can be trapped in tradition and best

practices, unable to solve persistent problems. At the high end they are often challenged to prioritize

among numerous new ideas.

Innovation: goes past imagination to transform inventive thoughts into reality. It is the capacity to

make an interpretation of a decent idea into a convincing worth suggestion that others are willing to

support and invest in. At the point when advancement capacity is high, organizations go past

imaginative items to outline creative procedures, hierarchical structures, administration practices, and

job engagement approaches.

These five capacities pervade the whole association and each person. Practical units can be set up to go

about as focuses of perfection that support and energize the improvement of these capabilities. Each of

these abilities is fundamental for a high-performing association.

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An organization is partitioned into diverse functional areas for simplicity of comprehension and

analysis. In actuality organization capacity elements don't exist or work in isolation. Individual

capability factors within a functional area, and across different areas work in tandem, in cohesion and

combination in the internal environment of the organization.

Organization Capabilities is a net consequence of the diverse types of interaction occurring inside the

organization.

8. Strategic advantage

Strategic advantage is the most fundamental and persistent advantage that the target companies possess

over its competitors over the very long term. These advantages or disadvantages are generated by the

company’s actions.

For Example: Wal-Mart strategic advantage of interest is their low costs. Their dependably have the

most reduced costs, which puts any competitor off guard when contrasted straightforwardly with Wal-

Mart. Coca-Cola has their image name, which permits them to charge higher costs for comparable

items.

Short term advantages or disadvantages are not useful for a long-term investor. Additionally,

externally-generated advantages or disadvantages are better categories as price triggers (opportunities

or threats), because they can move the stock price over the short-term, but not the long-term.

FRAMEWORK FOR DEVELOPMENT OF STRATEGIC ADVANTAGE

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9.Organizational appraisal

The procedure of watching an organizations inward environment to distinguish the strengths and

weaknesses that may impact the organization’s capacity to accomplish objectives. A firm can exploit

its chances effectively, contingent upon its corporate qualities. It can be said that the corporate abilities

of the firm turn into the point of convergence for its execution and survival. They play a crucial role,

both in identifying the strategy and its success. Corporate abilities go beyond sales, profit and net

worth. It is concerned with the perspective and outlook of the firm.

Corporate strategy at last means a coordinating amusement between environmental opportunities and

organizational strengths to gain competitive advantage. Evaluation of organizations strengths and

weaknesses is also called Corporate Appraisal. The internal environment of an organization includes

forces that operate inside the organization with specific implications for managing organizational

performance. Internal environmental factors, unlike external environmental factors come from within.

These factors, collectively defined both trouble sports that need strengthening and the core

competencies that the firm can build.

STARTEGIC ADVANTAGE

ORGANIZATIONAL CAPABILITIES

COMPETENCIES

SYNERGETIC EFFECTS

STRENGTHS & WEAKNESSES

ORGANIZATIONAL BEHAVIOUR

ORGANIZATIONAL RESOURCES

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An organization can better investigate the amount of activity may value or contribute fundamentally to

shape a compelling procedure by methodically looking at its internal environtment.

METHODS & TECHNIQUES USED FOR ORGANIZATIONAL APPRAISAL

BCG, GE Matrix , PIMS, McKinsey 7S

Balanced Scorecard

Competitive Advantage Profile

Strategic Advantage profile

Internal Factor Analysis

10. Summary

Internal environment understanding: Internal organizational assessment is a functional

assessment of financial, human resource, information systems, and marketing strengths and

weaknesses and attempt to identify the present and potential competitive advantages of the

firm. Strategic decision makers need a systematic technique for scanning their internal

organization.

SWOT:

o internal factors – the strengths and weaknesses internal to the organization

o external factors – the opportunities and threats presented by the environment external to

the organization

SWOT analysis can be used effectively to build organization or personal strategy.

Synergy effects: A synergy is where the whole is greater than the sum of its parts. In other

words, when two or more people or organizations combine their efforts, they can accomplish

more together than they can separately.The combination of organizational resources,

Organizational behavior and strengths/weakness lead to synergistic effects.

Tangible resources: are the physical assets of an organization such as plant, labor and finance.

Intangible resources: are non-physical assets such as information, reputation and knowledge.

Competences: The term competences is used to mean the skills and abilities by which

resources are deployed effectively through an organization’s activities and processes

Organizational capability: Strategic capabilitycan be defined as the resources and competences

of an organization needed for it to survive and prosper.

Dynamic capabilities: The strategic capabilities that achieve competitive advantage in dynamic

conditions are dynamic capabilities, by which an organization builds the ability to renew and

recreate its strategic capabilitiesto meet the needs of a changing environment.

Developing strategic capabilities

o Adding and changing capabilities.

o Extending capabilities.

o Stretching capabilities.

o External capability development.

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Capability factors

o Financial Capability

o Marketing Capability

o Operations Capability

o Personnel Capability

o Information Management Capability

o General Management Capability

Here are five essential capabilities every organization should have:

Leadership, collaboration, adaptability, creativity, innovation.

Strategic advantage: Strategic advantage is the most fundamental and persistent advantage that

the target companies possess over its competitors over the very long term

Organizational appraisal: The process of observing an organizations internal environment to

identify the strengths and weaknesses that may influence the organization's ability to achieve

goals

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