Chapter 6: Strategic Capability

Question 1

What is internal analysis?

Answer 1

Internal analysis is used to identify an organisation’s strengths and weaknesses.

Part of this analysis should be to understand the competences which need to be developed in order to achieve success.

Question 2

What are critical success factors?

Answer 2

Critical success factors (CSFs) are a small number of key goals vital to the success of an organisation.

Those product features that are particularly valued by a group of
customers, and, therefore, where the organisation must excel to outperform the competition (Johnson, Scholes and Whittington).

Identifying critical success factors will help the organisation to identify the resources
and competences that are needed to succeed

e.g.:
Critical success factors:
What product features are valued by customers and where must the organisation excel?

Resources and core competences:
What resources and competences will
enable the organisation to achieve its critical success factors?

Question 3

What are threshold and unique resources?

Answer 3

Threshold resources are the basic resources needed by all firms in
the market.

Unique resources are those resources which are better than those of
the competition and difficult to replicate, giving the firm a sustainable competitive advantage.

Question 4

What checklist can be used when performing a resource audit?

Answer 4

The 9Ms model can be used as a checklist when performing a resource audit.

• Men
• Machines
• Money
• MIS
• Material
• Methods
• Management
• Make up
• Markets

Question 5

How do you use the 9Ms model?

Answer 5

The 9Ms model can be used to identify the resources which are available to the
business and those resources may need to be addressed to achieve CSFs.

Men (Human resources)
 Number, skills, motivation, potential, attitudes of staff.

Machines
 Premises, location, productive capacity, age of machinery.

Money (Financial resources)
 Existing finance available and access to future funding from investors.

Materials
 Relations with suppliers, access to key inputs.

Markets
 Existing customers, locals where represented, distribution systems.

Management
 Quality, skills, leadership style of managers.

Methods
 Activities and processes that the business has adopted.

Management Information Systems
 Quality of systems to assist in marketing, production R&D.

Make-up
 Attitudes, culture, structure.

Question 6

What is human capital?

Answer 6

Human capital considers the collective attributes of an organisation’s
human resources. This includes the capabilities, creativity, skills and
knowledge of the workforce and how these combine to create economic value.

Question 7

How can you develop an organisation’s workforce?

Answer 7

An organisation’s workforce can be a unique resource and many organisations develop programmes specifically to enhance the value attained from their workforce.

These typically involve:
 Education and training
 Allowing creativity
 Infrastructure
 Recognising the intellectual property
 Motivation
 Competition
 Participation in activities.

Recent developments allow the workforce to be more flexible, which should maximise the benefits generated from them.

These include:
 Flexible workplace arrangements
 Home working
 Improvements in technology, such as cloud computing.

Question 8

What are technological resources?

Answer 8

Technology is a resource in many different ways and used correctly can enhance a company’s processes and improve profit margins. Although, technology failure can damage a company’s reputation on a huge scale.

Question 9

What are core competences?

Answer 9

Core competences are the critical activities and processes which enable the firm to meet the critical success factors and therefore achieve a sustainable competitive advantage.

The core competences must be better than those of competitors and difficult to replicate.

Question 10

What is Kay’s core competences model?

Answer 10

Kay’s model can be used to assess the core competences of an organisation.

Kay outlined three main sources of competences:

• Reputation: The reason that customers are attracted to the organisation
• Competitive architecture: The network of relationships within and around a business
• Innovative ability: The ability to develop new products and services

Relates to:
- Internal architecture: Relationships with employees
- External architecture: Relationships with suppliers, customers and intermediaries
- Network architecture: Relationships between collaborating businesses

Question 11

What is a value chain?

Answer 11

A value chain identifies the relationships between the company’s
resources, activities and processes that link the business together and
create a profit margin.

Question 12

What is a value chain analysis?

Answer 12

Value chain analysis can be used to analyse the sequence of business
activities which add value to the products or services produced by a
company.

The value (or margin) is measured by the difference between the cost of the activities and sales revenue created by sales to customers.

Also, non-value adding activities can be identified and reduced or eliminated.

Question 13

How do you perform a value chain analysis?

Answer 13

• The start point for value chain analysis is to identify the generic strategy

Then:
Cost leadership:
Seeking to be the lowest cost producer in the industry

The value chain should be consistent with the generic strategy.
So a cost leader should seek cost advantages throughout their value chain

Differentiation:
Creating tangible and
intangible product features that the customer is willing to pay more for

The value chain should be consistent with the generic strategy.
So a differentiator should seek quality advantages throughout
their value chain.

Question 14

What are the drivers behind value chain analysis?

Answer 14

Cost Drivers: The factors that cause costs to be incurred. Important for a cost leader who is trying to reduce costs.

Value drivers: Potential sources of value. These are important for differentiators who
are trying to generate quality advantages in their value chain.

Question 15

What are primary activities in the value chain?

Answer 15

The primary activities are those that create value and are directly concerned with providing the product or service.
 Inbound logistics are activities concerned with receiving, storing and
distributing the inputs to the product.
 Operations transform these various inputs into the final product.
 Outbound logistics relate to collecting, storing and distributing the final product.
 Marketing and sales informing customers about the product, persuading them to buy it, and enabling them to do so.
 Service: After sales services such as installation, repair, training and customer
service.

Question 16

What are the support activities in the value chain?

Answer 16

The support activities do not create value by themselves, but enable the primary activities to take place with maximum efficiency.
 Procurement refers to the processes for acquiring the various resource inputs to the primary activities – not the resources themselves.
 Technology development – All value activities have a technological content,
even if it is just ‘know how’.
 Human resource management which involves all areas of the business and is
involved in recruiting, managing, training, developing and rewarding people
within the organisation.
 Infrastructure refers to the systems of planning, finance, quality control,
information management etc. and is crucially important to an organisation’s
performance in primary activities. It also consists of the structures and routines that sustain the culture of the organisation.

Question 17

What are the linkages in the value chain?

Answer 17

The value chain can used to examine linkages between activities and processes
where value can be created.

Linkages can be a source of sustainable competitive advantage.

As it may be easy
for competitors to identify and copy a single activity, but a linkage (a number of
activities working together) is much harder to identify and copy.

 Internally – Linkages are where two or more activities in the chain impact each other. There are two key types of linkage:
– Co-ordination: Activities should be consistent with each other and work
together to support the generic strategy.
– Optimisation: Strength in one area may enable the firm to commit fewer resources to another area e.g. high quality product design may enable fewer resources to be spent on after sales service as the likelihood of product faults is lower.
 Externally – a business’s internal value chain will link to, and should be consistent with:
– the customer’s chain
– and the supplier’s chain.

Question 18

How do you strengthen the value chain?

Answer 18

A value chain is only as strong as its weakest link and there are several ways to strengthen the value chain.
 Outsourcing – using an external provider to perform activities traditionally performed in-house. E.g. payroll
 Automation – using automatic equipment to replace a process
 Shared service centres – a number of internal activities, which had previously been conducted in a number of different departments are brought together into one site within an organisation

Question 19

What is Harmon’s process-strategy mix?

Answer 19

This can be used to analyse business processes to determine how it should be
managed.

Low importance and
low complexity
Processes are simple and straightforward. E.g. basic customer service queries can be handled by a chatbot or a
third party call centre. OUTSOURCE

High importance and
low complexity
Processes are important to the organisation, but fairly simple to perform. E.g. checkout tills are important to a shop, but
can be performed by a self-service checkout till. IMPROVE

Low importance and
high complexity
Processes add little value, but are too complex for automation, so outsourcing is appropriate. E.g. a farm shop may arrange a specialist company to deliver goods on their
behalf. AUTOMATE/OUTSOURCE

High importance and
high complexity
Processes are a core competence and should be improved as much as possible. E.g. Kaplan invests in its material to
continually improve it.
AUTOMATE