Chapter 6 Strategic capability Flashcards
1.1 Internal analysis – critical success factors
Critical success factors are a small number of 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.
Identifying critical success factors will help the organisation to identify the resources and competences that are needed to succeed.
1.2 Resources
Threshold resources are the basic resources needed by all firms in the market. Unique resources are those which are better than those of the competition and difficult to replicate, giving the firm a sustainable competitive advantage.
1.3 9Ms model
This 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, local 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
1.4 Human capital
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 combines to create economic value.
An organisations workforce can be a unique resource and many companies develop programmes to enhance the value attained from their workforce. These involved education and training, allowing creativity, infrastructure, recognising the intellectual property, motivation, competition and participation in activities.
Developments have allowed the workforce to be more flexible and maximise the benefits generated, these include flexible workplace arrangements, home working and improvements in technology.
1.5 Technological resources
Technology is a resource which can enhance a company’s processes and improve profit margins. But failure can damage a company’s reputation on a high scale.
1.6 Core competences
These 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.
Kay’s core competences model can be used to assess the core competences of a company. The three main sources are reputation (the reason that customers are attracted to the organisation), competitive architecture (network of relationships within and around a business) and innovative ability (the ability to develop new products and services). These link to the internal architecture (relationship with employees), the external architecture (relationships with suppliers, customers and intermediaries) and network architecture (relationships between collaborating businesses).
2.1 Value chain analysis
A value chain identifies the relationships between the company’s resources, activities and processes that link the business together and create a profit margin. The value 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.
2.2 Performing a value chain analysis
The start point for value chain analysis is to identify the generic strategy.
- Cost leadership: seeking to be the lowest cost producer in the industry. Value chain should be consistent with the generic strategy, so a cost leader should seek cost advantages
- Differentiation: creating tangible and intangible product features that the customer is willing to pay more for, the strategy should be to seek quality advantages throughout their value chain
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.
2.3 Primary activities
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
2.4 Support activities
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 known how
- Human resource management 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, and is important for the performance in primary activities. Also consists of structures and routines that sustain the organisations culture
2.5 Linkages in the chain
Value chain can be used to examine links between activities and processes where value can be created. Links 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 (number of activities working together) is harder to identify and copy.
Internally linkages are where two or more activities in the chain impact each other. The two key types are co-ordination (activities consistent with each other and work together to support the generic strategy) and optimisation (strength in one area may enable the firm to commit fewer resources to another area).
Externally a business’s internal value chain will link to and should be consistent with the customers chain and the supplier’s chain.
2.6 Strengthening the value chain
A value chain is only as strong as its weakest link, ways to strengthen the chain include:
- Outsourcing: using an external provider to perform activities traditionally performed in-house
- 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
2.7 Harmon’s process-strategy matrix
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; examples are basic customer service chatbots
High importance and low complexity: processes are important to organisation, but simple to perform, examples are self-service checkout tills in a shop
Low importance and high complexity: process adds little value, but too complex for automation, so outsourcing is appropriate
High importance and high complexity: process is a core competence and should be improved as much as possible
3.1 Portfolio analysis
Key analytical tool includes product life cycle and BCG matrix.
Product life cycle is the application of life cycle theory to product or services. The stages include:
- Development: negative cash flows (heavy investment in R&D and marketing) and market research (key to success of product)
- Introduction: continued cash outflow (high marketing costs can outweigh initial sales) and initial demand will determine price policy (skimming v penetration)
- Growth: new competition (quality improvements may be needed to compete) and economies of scale may begin to emerge through mass production
- Maturity: critical mass should be achieved leading to cost efficiencies and a positive cash flow with minimum marketing and investment
- Decline: heavy price discounting (to utilise spare capacity and cover overheads) and brand loyalty is key to retaining the remaining customers
The overall objective is to achieve a balanced portfolio. Too many products in any phase can lead to problems (for example cash flow and product succession).
3.3 BCG matrix
Idea is that a company analyse its own position along market attractiveness (measured by market growth) and competitive strength (measured by relative market share). Relative market share is measured by your sales divided by the largest competitor sales.
- Star: has high market growth and high market share. Dominant position in an attractive market. High threat of new entrants requires the company to continue to invest to defend market share. The decision is if the company consolidate its current position or invest further to seek additional growth.
- Cash cow: has low market growth and high market share. Dominant position in a low growth market. Competitors will decide not to attack the market share as the market does not warrant investment, large positive cash flow can be achieved. The decision is if the company enjoy the cash flows from minimum investment and accept the market share may fall
- Problem child: has high market growth but low market share. This is when the product is in an attractive market but does not have the market share to be competitive, lack of economies of scale limit cash flow. The decision is if the company invest further to gain market share.
- Dog: has low market growth and low market share. Low share of an unattractive market. The product may lack economies of scale, but the market is not attractive enough to seek growth. The decision is if the company divest the product.
Overall objective is to achieve a balanced portfolio with positive cash flow.
