Resources and Capabilities (discussion ) This week, our discussion thread is centered on the resources and capabilities of the firm. Which should be t

 This week, our discussion thread is centered on the resources and capabilities of the firm. 

  1. Which should be the primary basis for formulating strategy: The external market or the internal resources and capabilities?  
  2. Provide an example of a company in KSA whose strategy has been based upon developing a set of capabilities and then applying them to different product markets. 
    1. Identify two key resources and two capabilities of the company.
    2. Explain the advantages and disadvantages of this approach.

In your response to student posts, clearly express the distinction between resources and capabilities.Embed course material concepts, principles, and theories (which require supporting citations) in your initial response along with at least one scholarly, peer-reviewed journal article. Keep in mind that these scholarly references can be found in the Saudi Digital Library by conducting an advanced search specific to scholarly references. Use  APA style guidelines.You are required to reply to at least two peer discussion question post answers to this weekly discussion question and/or your instructor’s response to your posting. These post replies need to be substantial and constructive in nature. They should add to the content of the post and evaluate/analyze that post’s answer. Normal course dialogue doesn’t fulfill these two peer replies but is expected throughout the course. Answering all course questions is also required. 

 Required:

*

CONTEMPORARY STRATEGY ANALYSIS

tenth edition

Robert M. Grant

John Wiley & Sons Ltd., 2019

Chapter 5

Analyzing Resources

and Capabilities

  • The role of resources and capabilities in strategy formulation
  • Identifying resources and capabilities
  • Appraising resources and capabilities
  • Developing strategy implications

      Analyzing Resources & Capabilities

                  *

                  Copyright © 2019 John Wiley & Sons, Inc.

                  OUTLINE

                  THE FIRM

                  • Goals &

                  Values

                  • Resources &

                  Capabilities

                  • Structure &

                  Systems

                  THE

                  INDUSTRY

                  ENVIRONMENT

                  • Competitors
                  • Customers
                  • Suppliers

                  The

                  Firm-Strategy

                  Interface

                    The

                    Environment-Strategy

                    Interface

                          Shifting the Focus from the External

                          to the Internal Environment

                          Copyright © 2019 John Wiley & Sons, Inc.

                          STRATEGY

                          THE ROLE OF RESOURCES AND CAPABILITIES IN STRATEGY FORMULATION

                          5

                          • When the industry environment is volatile, internal resources and capabilities offer a more stable basis for strategy than an external market focus
                          • Resources and capabilities are the primary sources of competitive advantage—and, therefore, profitability

                                      Rationale for the Resource-based Approach to Strategy

                                      Copyright © 2019 John Wiley & Sons, Inc.

                                      THE ROLE OF RESOURCES AND CAPABILITIES IN STRATEGY FORMULATION

                                      1946 1950 1960 1970 1980 1990 2000 2010 2018

                                      Honda

                                      Technical

                                      Research

                                      Institute

                                      founded

                                      405cc

                                      motor

                                      cycle

                                      Marine engines, generators, pumps, chainsaws, snow-blowers, ground tillers,

                                      Model A

                                      clip-on bicycle

                                      engine

                                      N360

                                      minicar

                                      1000cc

                                      Goldwing

                                      motorcycle

                                      Acura Car

                                      division

                                      Enters

                                      motorcycle

                                      racing

                                      4-cylinder

                                      750cc

                                      motorcycle

                                      Portable

                                      generator

                                      Enters

                                      Formula 1

                                      racing

                                      Honda

                                      Civic

                                      Enters Indy

                                      car racing

                                      Civic Hybrid

                                      Home co-

                                      generation

                                      system

                                      Product-ion of diesel engines

                                      Honda business jet

                                                GE-Honda turbofan engine

                                                Variable Cylinder Management

                                                98cc, 2-stroke

                                                Dream motorcycle

                                                50cc

                                                Super-cub

                                                Fuel cell car

                                                Product Evolution at Honda Motor Company

                                                THE ROLE OF RESOURCES AND CAPABILITIES IN STRATEGY FORMULATION

                                                Copyright © 2019 John Wiley & Sons, Inc.

                                                2

                                                2

                                                Fine

                                                Optics

                                                Micro-

                                                Electronics

                                                Canon: Products and Technical Capabilities

                                                1980-2000

                                                Copyright © 2019 John Wiley & Sons, Inc.

                                                Precision

                                                Mechanics

                                                35mm SLR camera

                                                Compact fashion camera

                                                EOS autofocus camera

                                                Digital camera

                                                Video still camera

                                                Video security systems

                                                Camcorders

                                                Plain-paper copier

                                                Color copier

                                                Color laser copier

                                                Laser copier

                                                Basic fax

                                                Laser fax

                                                Scanners

                                                Mask aligners

                                                Excimer laser aligners

                                                Stepper aligners

                                                Inkjet printer

                                                Laser printer

                                                Color video printer

                                                Digital commercial

                                                printer

                                                Calculator

                                                Notebook computer

                                                Binoculars

                                                      THE ROLE OF RESOURCES AND CAPABILITIES IN STRATEGY FORMULATION

                                                      4

                                                      4

                                                      Carborundum

                                                      mining

                                                      Sandpaper

                                                      Scotch-tape

                                                      Road signs & markings

                                                      Post-it notes

                                                      Audio tape

                                                      Surgical tapes & dressings

                                                      Videotape

                                                      Acetate film

                                                      Floppy disks & data storage

                                                      products

                                                      Pharmaceuticals

                                                      Homecare & kitchen products

                                                      Abrasives

                                                      Adhesive

                                                      chemistry

                                                      Coatings & thin-film technologies

                                                      PRODUCTS

                                                      TECHNICAL CAPABILITIES

                                                      Materials sciences

                                                      Health sciences

                                                      Micro-replication

                                                      Flexible electronics

                                                      LED lighting

                                                      Drug delivery systems

                                                      Nanotechnology

                                                      Sensors

                                                      Surface modification

                                                      Insulation products

                                                      Display screens

                                                      Anticorrosion coatings

                                                      1902

                                                      2018

                                                      Polymers

                                                      Evolution of Capabilities and Products: 3M

                                                      Copyright © 2019 John Wiley & Sons, Inc.

                                                      THE ROLE OF RESOURCES AND CAPABILITIES IN STRATEGY FORMULATION

                                                      STRATEGY

                                                      COMPETITIVE

                                                      ADVANTAGE

                                                        ORGANIZATIONAL

                                                        CAPABILITIES

                                                        RESOURCES

                                                        INTANGIBLE

                                                        • Technology
                                                        • Reputation
                                                        • Culture

                                                        HUMAN

                                                        • Skills/know-how
                                                        • Capacity for communication & collaboration
                                                        • Motivation

                                                            The Links between Resources, Capabilities,

                                                            and Competitive Advantage

                                                            Copyright © 2019 John Wiley & Sons, Inc.

                                                            TANGIBLE

                                                            • Financial
                                                            • Physical

                                                            IDENTIFYING RESOURCES AND CAPABILITIES

                                                            Appraising Resources

                                                            Copyright © 2019 John Wiley & Sons, Inc.

                                                            IDENTIFYING RESOURCES AND CAPABILITIES

                                                            RESOURCECHARACTERISTICSINDICATORS
                                                            Tangible ResourcesFinancialBorrowing capacity
                                                            Internal funds generation
                                                            Debt/Equity ratio
                                                            Credit rating
                                                            Net cash flow
                                                            PhysicalPlant and equipment:
                                                            Size, location, technology flexibility.
                                                            Land and buildings
                                                            Raw materials
                                                            Market value of fixed assets.
                                                            Scale of plants
                                                            Alternative uses for fixed assets
                                                            Intangible ResourcesTechnologyPatent, copyrights, know how, R&D facilities
                                                            Technical and scientific employees
                                                            No. Of patents owned
                                                            Royalty income
                                                            R&D expenditure
                                                            R&D staff
                                                            ReputationBrands. Customer loyalty, company reputation (with suppliers, customers, government)Brand equity
                                                            Customer retention
                                                            Supplier loyalty
                                                            Human ResourcesTraining, experience, adaptability, commitment and loyalty of employeesEmployee qualifications,
                                                            Pay rates, turnover

                                                            Large Companies with the Highest Valuation Ratios (Sept. 2017)

                                                            IDENTIFYING RESOURCES AND CAPABILITIES

                                                            CompanyNationalityMarket cap.
                                                            ($ bn.)
                                                            Market-to-book ratio
                                                            Lockheed Martin Corp.USA8840.8
                                                            Home Depot, Inc.USA18927.8
                                                            Netflix, Inc.USA8026.0
                                                            Amazon.comUSA47222.8
                                                            MasterCard, Inc.USA15222.8
                                                            AbbVie, Inc.USA14022.0
                                                            Glaxo Smith KlineUK9614.9
                                                            NVIDIA Corp.USA10214.5
                                                            PepsiCo, Inc.USA16413.4
                                                            Novo Nordisk A/SDenmark9513.1
                                                            Celgene Corp.USA11112.8
                                                            Naspers Ltd.S. Africa10012.4
                                                            Starbucks Inc.USA7712.2
                                                            Tencent HoldingsChina40812.0
                                                            Accenture plcUK8810.5
                                                            3M CompanyUSA12510.5
                                                            AlibabaChina44910.4
                                                            RocheSwitzerland1759.1
                                                            Coca-Cola Co.USA1998.9
                                                            Altria Inc.USA1208.8

                                                            The World’s Most Valuable Brands, 2017

                                                            *

                                                            Copyright © 2019 John Wiley & Sons, Inc.

                                                            IDENTIFYING RESOURCES AND CAPABILITIES

                                                            RankBrandValue, 2017 ($ bn.)Change from 2016 (%)
                                                            1Google246+7.1
                                                            2Apple235+2.7
                                                            3Microsoft143+17.6
                                                            4Amazon139+40.7
                                                            5Facebook130+26.6
                                                            6AT&T115+7.2
                                                            7Visa111+10.1
                                                            8Tencent108+27.5
                                                            9IBM102+18.4
                                                            10McDonald’s98+10.2
                                                            11Verizon89-4.2
                                                            12Marlboro88+4
                                                            13Coca-Cola78-2.7
                                                            14Alibaba59+19.9
                                                            15Wells Fargo58-0.2
                                                            16UPS58+17.0
                                                            17China Mobile57+1.1
                                                            18Disney52+5.7
                                                            19General Electric50-7.2
                                                            20Mastercard50+8.2

                                                            Key Success Factors

                                                            • How do customers choose?
                                                            • What do we need to survive

                                                            competition?

                                                            What resources & capabilities

                                                            do we need to deliver these

                                                            KSFs?

                                                              Starting from the outside

                                                              Two Approaches to Identifying an

                                                              Organization’s Resources and Capabilities

                                                                *

                                                                Copyright © 2019 John Wiley & Sons, Inc.

                                                                Starting from the inside

                                                                IDENTIFYING RESOURCES AND CAPABILITIES

                                                                  FIRM INFRASTRUCTURE

                                                                  HUMAN RESOURCE MANAGEMENT

                                                                  TECHNOLOGY DEVELOPMENT

                                                                  PROCUREMENT

                                                                  INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

                                                                  LOGISTICS LOGISTICS & SALES

                                                                    PRIMARY

                                                                    ACTIVITIES

                                                                    SUPPORT

                                                                    ACTIVITIES

                                                                    IDENTIFYING RESOURCES AND CAPABILITIES

                                                                    Copyright © 2019 John Wiley & Sons, Inc.

                                                                    Porter’s Value Chain

                                                                    6

                                                                    6

                                                                    Exploration Capability

                                                                    Negotiating Capability

                                                                    Geological Capability

                                                                    Seismic Capability

                                                                    Drilling Capability

                                                                    Well Construction Capability

                                                                    Partnering Capability

                                                                    Procurement Capability

                                                                    Directional Drilling Capability

                                                                    Well Logging Capability

                                                                    Hydraulic Fracturing Capability

                                                                    Deepwater Drilling Capability

                                                                    Well Casing Capability

                                                                    A Hierarchy of Capabilities:

                                                                    An Oil and Gas Company

                                                                    IDENTIFYING RESOURCES AND CAPABILITIES

                                                                    Copyright © 2019 John Wiley & Sons, Inc.

                                                                    Scarcity

                                                                    Relevance

                                                                    Durability

                                                                    Transferability

                                                                    Replicability

                                                                    Property rights

                                                                    Relative

                                                                    bargaining power

                                                                    Embeddedness

                                                                    THE EXTENT OF THE

                                                                    COMPETITIVE ADVANTAGE

                                                                    ESTABLISHED

                                                                    SUSTAINABILITY OF THE

                                                                    COMPETITIVE ADVANTAGE

                                                                    APPROPRIABILITY

                                                                    THE PROFIT

                                                                    EARNING POTENTIAL

                                                                    OF A RESOURCE OR

                                                                    CAPABILITY

                                                                      Appraising the Strategic Importance of Resources and Capabilities

                                                                      *

                                                                      Copyright © 2019 John Wiley & Sons, Inc.

                                                                      APPRAISING RESOURCES AND CAPABILITIES

                                                                      8

                                                                      8

                                                                        Who Appropriates the Returns from Organizational Capabilities?

                                                                        Employees vs. Shareholders at Goldman Sachs

                                                                        APPRAISING RESOURCES AND CAPABILITIES

                                                                        Copyright © 2019 John Wiley & Sons, Inc.

                                                                        Data for 2016
                                                                        Net income $7.1 bn.
                                                                        Dividends to shareholders$1.1 bn.
                                                                        Total employee compensation$11.7 bn.
                                                                        Average compensation per employee $338,576

                                                                          Resource and Capability Appraisal:

                                                                          Grant vs. Barney

                                                                          APPRAISING RESOURCES AND CAPABILITIES

                                                                            Copyright © 2019 John Wiley & Sons, Inc.

                                                                            GRANT: Strategic Importance CriteriaBARNEY:
                                                                            VRIO Criteria
                                                                            Comparison
                                                                            Establishing competitive advantage  
                                                                            RelevanceValuableSimilar: both about creating customer value
                                                                            ScarcityRareIdentical: scarcity = rareness
                                                                            Sustaining competitive advantage  
                                                                            Durability No equivalent criterion in VRIO
                                                                            Transferability ImitableSimilar: imitation requires either buying (i.e. transfer) or replicating a resource/capability
                                                                            Replicability
                                                                            Appropriating competitive advantageOrganizationSimilar: appropriating value requires being organized for value capture

                                                                            Strategic Importance

                                                                            Relative Strength

                                                                            Low

                                                                            Low

                                                                            High

                                                                            High

                                                                              Superfluous Strengths

                                                                              Key Strengths

                                                                              Key Weaknesses

                                                                              Zone of Irrelevance

                                                                              The Framework for Appraising

                                                                              Resources and Capabilities

                                                                              APPRAISING RESOURCES AND CAPABILITIES

                                                                              Copyright © 2019 John Wiley & Sons, Inc.

                                                                              Strategic Importance

                                                                              Relative Strength

                                                                              Low

                                                                              Low

                                                                              High

                                                                              High

                                                                                • 0

                                                                                Superfluous

                                                                                Strengths

                                                                                Key Strengths

                                                                                Key Weaknesses

                                                                                Inconsequential Weaknesses

                                                                                Deriving Strategy Recommendations from Resource/Capability Analysis: Icelandair Group

                                                                                Fleet

                                                                                Brand

                                                                                Location

                                                                                Route network

                                                                                Landing slots

                                                                                General management

                                                                                Human resources

                                                                                Cabin services

                                                                                Flight operations

                                                                                Marketing

                                                                                Financial resources

                                                                                Maintenance

                                                                                DEVELOPING STRATEGY IMPLICATIONS

                                                                                STRATEGY:

                                                                                • Iceland location means small domestic market and limited appeal as international hub.
                                                                                • Hence, airline must utilize its operational, service, and HR strengths to offset these disadvantages.
                                                                                • Core strategy:
                                                                                • Collaborate to develop Iceland as a year-round tourist destination
                                                                                • Develop vacation destinations for domestic customers
                                                                                • Use to low fares and superior customer experience to compete on North Atlantic routes
                                                                                • Use general management strengths for flexible responses to emerging opportunities, e.g. new routes

                                                                                Copyright © 2019 John Wiley & Sons, Inc.

                                                                                Exploiting Key Strengths:

                                                                                • Target market/customer segments where core strengths have biggest impact, e.g. Virgin America focuses on long-haul routes where its differentiated offering has greatest customer
                                                                                • Replicate in new locations, e.g. Disney theme parks in Tokyo, Paris, Hong Kong, Shanghai
                                                                                • Exploit key strengths by diversifying into new markets, e.g. Fuji Film entered cosmetics to exploit capabilities in coatings, collagen, and nanotechnology

                                                                                Key Weaknesses

                                                                                • Invest in weaknesses—but (a) may require investment over a long period; (b) not effective when weaknesses are based on deep-seated cultural factors
                                                                                • Outsource to firms with strengths in these activities, e.g. Apple outsources manufacturing to Foxconn
                                                                                • Partner with firms with complementary resources and capabilities
                                                                                • Target market/customer segments where core weaknesses have smallest impact, e.g. Harley-Davidson’s technological weakness has encouraged its focus on retro-styled, heavyweight cruiser bikes

                                                                                Superfluous Strengths

                                                                                • Seek innovative ways to exploit seemingly unimportant strengths.

                                                                                DEVELOPING STRATEGY IMPLICATIONS

                                                                                Deriving Strategy Recommendations from Resource/Capability Analysis

                                                                                Copyright © 2019 John Wiley & Sons, Inc.

                                                                                  POTENTIAL FOR

                                                                                  SUSTAINABLE

                                                                                  COMPETITIVE

                                                                                  ADVANTAGE

                                                                                  CAPABILITIES

                                                                                  3. Develop strategy implications:

                                                                                  (a) How can strengths be exploited most

                                                                                  effectively?

                                                                                  (b) In relation to weaknesses:

                                                                                  –Can they be offset by investment?

                                                                                  –Can they be outsourced?

                                                                                  –In which segments do they least

                                                                                  impact?

                                                                                  2. Appraise the firm’s resources and

                                                                                  capabilities in terms of:

                                                                                  (a) strategic importance

                                                                                  (b) relative strength

                                                                                  1. Identify the firm’s resources and

                                                                                  capabilities

                                                                                  STRATEGY

                                                                                  The Framework for Analyzing
                                                                                  Resources and Capabilities

                                                                                  RESOURCES

                                                                                  SUMMARY

                                                                                  Copyright © 2019 John Wiley & Sons, Inc.

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