6. Strategjc Capability Flashcards
What are critical success factors
Those things in an organisation that must be done well for it to suceed.
Key performance indicators
A numerical expression of something that can be measured, demonstrates an achievement of a CSF
- KPI must be a target or benchmark to compare against
How can CSFs be acheived?
Company must uuse its resources and competences such that it can gain and sustain competitive advantage.
This can be explained by threshold and strategic capabilities.
Explain threshold capabilities
Threshold resources - basic resources needed by all firms in the market e.g. paper in a newspaper firm
Threshold competences - The activities and processes involved in using and linking the firms resources necessary to stay in business
Explain strategic capabilities
Unique resources - Resources that give the firm a sustainable competitive advantage over its competitors, enabling it to meet its CSFs
Core competences - critical activities and processes that enable the firm to meet its CSFs and therefore achieve a sustainable competitive advantage.
What are Kay’s three sources - core competences?
• Competitive architecture - network of relationships within a business
- help create core competences.
- Take time to build.
- Broken down into internal (employee relationships), External (suppliers, customers), network (between businesses)
• Reputation - why customers come back, investors invest etc
- Takes years to create
• Innovative ability - ability to develop new products and services and maintain a competitive advantage.
Benchmarking
Determined a particular standard against which an activity or department can be measured through KPIs
Bases for benchmarking
A company could source benchmarks from a variety of places:
- Internal - historical or budgetary comparison that considers performance over time
- Competitive - comparison with competitors in same industry or sector
- Activity - comparison directly with best practice inter-industry (aircraft refuelling with F1 pit team )
- Generic - benchmarking against a conceptually similar process
What is a resource audit
Review of strategic capability. Covers physical resoures, intangibles, HR, tech, finance
What are 9ms
Checklist of resources:
• Men and women - availability, cost, culture
• Money - availability of capital, liquidity
• Machinery - physical assets, capacity
• Materials suppliers - innovation, price, quality
• Markets - distribution, how/where we sell, customer relationships
• Management - general competence of board
• Methods - processes used and intellectual property e.g. patents/brands
• Make-up - organisation structure/culture
• management info systems - strategic use of IT
What is Limiting factor? ST vs LT?
a factor which may limit activity of an entity, often occuring where there is a shortage or difficult of availability.
ST- likely materials/labour/Managerial capability
LT - company should: Reufce shortfall by obtaining more of resource, and economise on use by reconsidering activities that consume the resource
What is the value chain ?
- A way of visualising an organisation
- consisting of primary activities
- work to produce the output and earn profit.
- Underpinned by support activities, which don’t add to margin but enable primary to work efficiently
What are the primary activities ?
• Inbound logistics - Receiving, handling and storing inputs to the production system.
• Operations - Convert resource inputs into a final product or service. Materials/resources (includes people)
• Outbound logistics - storage of product and distribution to customers. Including packaging, warehousing etc
• Marketing and sales - informing customers abt the product, persuading to buy, ads, promo
• Service - installation of products, repairs, upgrades, advice
What are the support activities?
• Procurement - Acquisition of resource inputs for the primary activities. E.g. purchase of materials, equipment
• Human Resources - recruiting, training, development and rewards
• Infrastructure - Organisational structure and location of operations.
• Technology - product design, improving processes and resource utilisation
What are cost and value drivers ?
Cost driver - Reduces cost in organisation
Value driver - something customers value and influences buying decisions
What is cost leader strategy ? factors?
- components of the value chain deliver value through cost savings
Factors:
- economies of scale by investing in production facilities
- reduced cost of inputs and distribution of outputs
- relocation to countires with cheap COP
What is differentiation strategy? Factors?
A firm delivering value to its customers by positively setting itself apart from its competitors.
Factors:
- Quality
- special features,
- Brand/marketing/customer services
- IT/ tech
What is porter’s generic strategies
Business should be either a cost leader or a differentiator. Firms should have a focus/niche
Cost leader - High profit lowest costs
‘Stuck in middle’ - Low profit, higher costs
Differentiator - Highest profit. higher costs
What are the advantages VS disadvantages of operating in a niche
ADV:
+ Potential to occupy a position ignored by competitors
+ Avoids spreading the business too thinly (sticks to what its good at)
Disadv
- Focusing on a smaller target segment of the market may sacrifice economies of scale
- There is a risk of disruption should the market change
What is supply chain management (SCM) and the main themes?
The management of all supply activities from the suppliers to a business through delivery to customers.
- Responsiveness - the ability to supply customers quickly
- Reliability - the ability to supply customers reliably
- Relationships - use of single sourcing and long-term contracts better to integrate the buyer and supplier.
What technology applications facilitate SCM?
Extranets: A secure extension of a business’s network to third parties to share management
information such as stock levels, orders and other crucial updates.
Electronic data interchange (EDI): the automatic placement and payment of orders, invoices
and payments without any input from humans.
GPS satellite tracking: to provide real-time information on the positions of trucks and therefore
deliveries.
Radio frequency identification (RFID): tags affixed to pallets or boxes of valuable items to
enable them to be located in the supply chain
What is the formula for relative market share
RMS = Your sales/largest competitor sales
What is the Boston consulting group (BCG) Matrix?
Uses relative market share and rate of market growth to appraise the performance of g&s in its portfolio or SBUs.
RMS RoMG
High High = Star
High Low = Cash cow
Low High = Question mark
Low Low = Dog
Explain question mark of the market
Sometimes called problem child
- Ideally will become a market star. To do this - considerable expenditure will be needed to build up market share. Typically poor cash generators and are likely to show a negative cash flow.
- Market is attracive (high growth) but holds insufficient market share.
- Investment for growth requires signifcant funding
Explain stars of the market
Products with high share of a high growth market.
- Promise high returns in future but ST require significant expenditure to maintain market position.
- Success of product in high growth market will attract newcomers.
- Cash must be reinvested heavily
Explain cash cows of market
- Need very little capital expenditure and generate high levels of cash income.
- Market leader in low growth market, therefore unlikely new entrants will join.
- Returns generated should be used to finance stars and question marks
Explain dog products
- Low share of a low growth market. May be ex-cash cows that have fallen or question marks that never suceeded.
- Market no longer attractive
- Product may exhibit modest cash flow or be a cash trap that ties up resources
- Is there a benefit to keeping producing
- Consider exit strategies
Give criticisms of the BCG model
- Only one star or cash cow may exist in a market. Perfectly competitve products end up unfairly being labelled as question marks or dogs.
- rate of profit for some products/businesses can be high despite having a low market share
- Factors beside market share and sales growth affect cash flow e.g. R&D and investment into new technologies.
Explain BCG matrix with the product life cycle
Infants - where all products start
Star/question mark - star = high sales, question = low sales
Cash cow/dog
War horse = decline from cash cow but still generate good revenues and profits/ dodos = decline from dog, obsolete products, cost higher than revenue.
