Strategic capability Flashcards
Internal analysis
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.
Critical success factors
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.
Internal analysis
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?
Resources
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
9Ms model
The 9Ms model can be used as a checklist when performing a resource audit.
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.
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 combine to create economic
value.
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.
Technological resources
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.
Core competences
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.
Kay’s core competences model
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
Kay’s core competences model: Competencies lead to:
Internal
architecture
Relationships with employees
External architecture
Relationships with suppliers, customers and intermediaries
Network architecture
Relationships between collaborating businesses
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.
Porter’s value chain analysis
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
Support activities:
Firm infrastructure
Human resources management
Technology development
Procurement
Inbound logistics
Primary activities:
Inbound logistics
Operations
Outbound logistics
Marketing and sales Services
All together create margin
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
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.
Performing a value chain analysis: Cost Drivers
The factors that cause costs to be incurred. Important for a cost leader
who is trying to reduce costs.
Performing a value chain analysis: Value drivers
Potential sources of value. These are important for differentiators who
are trying to generate quality advantages in their value chain.
Performing a value chain analysis: 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.
Performing a value chain analysis: 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 ‘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.
Performing a value chain analysis: Linkages in the chain
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.
Performing a value chain analysis: Linkages in the chain : 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.
Performing a value chain analysis: Linkages in the chain : Externally
a business’s internal value chain will link to, and should be
consistent with:
– the customer’s chain
– and the supplier’s chain.
Hotel
Chocolat
(high quality
supplier)
John Lewis
(high qualify
retailer)
Customer
(wants high
quality
chocolates)
Performing a value chain analysis: Strengthening the value chain
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.
Performing a value chain analysis: 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
Automate/Outsource
Processes are simple and straightforward. E.g. basic
customer service queries can be handled by a chatbot or a
third party call centre.
High importance and low complexity
Improve
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.
Low importance and high complexity
Outsource
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.
High importance and high complexity
Improve
Processes are a core competence and should be improved
as much as possible. E.g. Kaplan invests in its material to
continually improve it.
Portfolio analysis
Many businesses sell more than one product or service to more than one market.
Hence they have a portfolio of different products or services.
The key analytical tools for performing a portfolio analysis are:
Product life cycle
Boston Consulting Group (BCG) Matrix.
Product life cycle
Product life cycle (PLC) analysis is the application of life cycle theory
to products or services (rather than industries and markets).
Usually presented in the form of a diagram as follows: (Sales ^ cash flow)
Portfolio analysis
Development
Introduction
Growth
Maturity
Decline
Stages of the product life cycle
Development
Negative cash flows – heavy investment in R&D and initial marketing
Market research – will be key to ensuring the overall success of the product
Introduction
Continued cash outflow – high marketing costs can outweigh initial sales
Initial demand – will determine pricing policy (price skimming vs penetration)
Growth
New competition – quality improvements may be needed to compete
Economies of scale – may begin to emerge through mass production
Maturity
Critical mass – should be achieved leading to cost efficiencies
Positive cash flow – maximum sales with minimum marketing and investment
Decline
Heavy price discounting – to utilise spare capacity and cover overheads
Brand loyalty – may be key to retaining remaining customers
The overall objective is to achieve a balanced portfolio.
Too many products in any one phase can lead to problems (e.g. cash
flow and product succession).
Boston Consulting Group (BCG) matrix
BCG matrix was developed in the 1970s to help conglomerate companies decide
where to allocate their resources.
The idea is that a company analyses its own position along two dimensions:
– market attractiveness – measured by market growth
– competitive strength – measured by relative market share
The overall objective is to achieve a balanced portfolio with positive cash flow.
RMS =
Your sales / Largest competitor sales
(BCG) matrix: The matrix
High Market growth High Market share
Star
High Market growth Low Market share
Problem child
Low Market growth High Market share
Cash cow
Low Market growth Low Market share
Dog
Stages of the BCG matrix
Products can be plotted onto the matrix and classified. This then shapes the strategy
the business should follow.
Stages of the BCG matrix: Problem child
Definition
Attractive market but
the firm does not
have the market
share to be
competitive.
Implications
Lack of economies
of scale limit cash
flow
Decisions
Should the
company invest
further to gain
market share?
Stages of the BCG matrix: Star
Definition
Dominant position in
an attractive market.
Implications
High threat of new
entrants requires
the company to
continue to invest
to defend market
share.
Decisions
Should the
company
consolidate its
current position or
invest further to
seek additional
growth?
Stages of the BCG matrix: Cash cow
Definition
Dominant position in
a low growth market.
Implications
Competitors will
decide not to attack
our market share
as the market does
not warrant the
investment.
Large positive cash
flow can be
achieved.
Decisions
Should the
company ‘milk the
cow’ and enjoy
positive cash flows
from minimum
investment,
accepting that
market share may
eventually fall?
Stages of the BCG matrix: Dog
Definition
Low share of an
unattractive market.
Implications
The product may
lack economies of
scale but the
market is not
attractive enough to
seek growth.
Decisions
When should the
company ‘put the
dog down’ and
divest from this
product?
