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Organizational Resource & Competitive Advantage

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  1. Organizational Resource & Competitive Advantage Tutorial 04

  2. Internal Resources and Capabilities • Internal resources and capabilities as falling into five general categories: • Financial • Physical • Human • Knowledge-based • General organizational Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  3. Examples of Firm Resources & Capabilities Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  4. Sustainable Competitive Advantage • Sustainable Competitive Advantage exists when a firm enjoys a long – lasting business advantage compared to rival firms • The ability of a resource or capability to lead to a sustainable competitive advantage depends on the answers to six questions Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  5. Sustainable Competitive Advantage (Contd.) • Does the resource or capability have value in the market? • These types of resources allow a firm to exploit opportunities and/or neutralize threats. • Example: • Sony has developed the capability to design, manufacture, and sell miniaturized electronics. • This capability has value to customers. • Sony has applied this capability to numerous market opportunities such as stereos, tape players, disc players, televisions, and video cameras. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  6. Sustainable Competitive Advantage (Contd.) • Is the resource or capability unique? • If an organization is the only one with a particular resource or capability, then it may be a source of competitive advantage. • Example: • LG were pioneers in producing Frost Free Refrigerators for the convenience of their customers. Keeping food fresh is very important for the health and well-being of your family. LG understands the importance for their customers to get the best value from their food and the best value for their money, and have developed cutting-edge technology to make their refrigerators help to achieve these goals. • Note that uniqueness does not mean that only one organization possesses a capability or resource only that few firms do. • If numerous organizations possess a particular resource or capability, then the situation is described as “competitive parity”-no company has the advantage. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  7. Sustainable Competitive Advantage (Contd.) • Is there a readily available substitute for the resource or capability? • Sometimes competing organizations may not have the exact resource or capability, but they have easy access to another resource or capability that will help them to accomplish the same results. • Example • A company may have resources which are extremely limited in the country. However, competitors have been able to acquire this needed raw material at almost the same cost by importing through foreign vendors. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  8. Sustainable Competitive Advantage (Contd.) • Do organizational systems exist that allow realization of potential? • For potential to be realized, the firm must also be organized to take advantage of it. • Example: • Companies such as Wal-Mart and Disney are masters at exploiting their sources of competitive advantage. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  9. Sustainable Competitive Advantage (Contd.) • Is the organization aware of and realizing the advantages? • One of the great differentiators between successful and unsuccessful companies is the ability of managers to recognize and tap into resource advantages. • An organization may have employees that have great potential in an area, but the organization does not know it. • The company may have the ability to produce a product that is highly unique and valuable to a particular market segment, but the firm does not realize it. • In fact, an organization may even have systems in place that would allow realization of potential. • Nevertheless, managers have to be able to identify sources of competitive advantage and take positive actions for potential to be realized. •  At this point, an organization is using its systems and knowledge to take advantage of a unique and valuable resource or capability. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  10. Sustainable Competitive Advantage (Contd.) • Is the resource or capability difficult or costly to imitate? • Competing firms face a cost disadvantage in imitating a resource or capability. • The more difficult or costly a resource or capability is, the more valuable it is in producing a sustainable competitive advantage. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  11. How to determine the Competitive Value of Resources & Capabilities? • Firm Resources & Capabilities • Financial • Physical • Human • Knowledge & Learning • General Organizational Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  12. Firm Resources & Capabilities • Tangible Resources • Tangible Resources are organizational assets that can be seen , touched , and/or quantified • Examples • Plants • Money • Products • These resources tend to be easy to imitate. • Although some products can be patented, a patent provides a measure of protection only until it runs out Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  13. Firm Resources & Capabilities (Contd.) • Intangible Resources • Intangible Resources are organizational assets that are hard to quantify • Examples • Knowledge • Skills • Abilities • Stakeholder Relationship • Reputations • Intangible resources and capabilities are the hardest to imitate. • Therefore intangible resources and capabilities are often the ones most likely to lead to competitive advantage. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  14. Firm Resources & Capabilities (Contd.) • The resources and capabilities that lead to competitive advantage are different in each industry, and can also change over time. • Some times resource advantages within nations can lead to significant competitive advantages for the firms that compete there. • Example: • India is second only to the United States in the number of scientists and Engineers its schools produce. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  15. Firm Resources & Capabilities (Contd.) • Global Insight • India's emerging competitive Advantage in services India has not yet caught the fancy of foreign investors-even though its population exceeds 1 billion, and its gross domestic product (GDP) of $500 billion ranks it as the eleventh-largest economy in the world. Political turmoil obviously explains why many global companies are hesitant to invest in India. Nevertheless, India has a potential source of competitive advantage that could fuel significant economic growth and foreign investment in the future. India's competitive potential does not lie in the same fields as other low­ income developing countries. Rather than enjoying competitiveness in natural-resource industries or low-skill , labor-intensive manufacturing, India is revealing surprising strength in skill-intensive tradable services, including soft­ ware development, information-technology (IT)-enabled services, product/project engineering and design, biotechnology, pharmaceuticals, media, entertainment, and health care. New clusters are emerging in these activities in cities such as Bangalore and Hyderabad, where vibrant Indian firms are being joined by well-known multinationals. One interesting example is General Electric, which is investing $100 million in Bangalore to build its 1argest R& O lab in the world, employing twenty-six hundred scientists, including more than three hundred with Ph.D. degrees. It was while inaugurating this lab that GE's past CEO, Jack Welch, said: "The real treasure of India is its intellectual capital. The real opportunity of India is its incredibly skilled work force. Raw talent here is like nowhere else in the world." India has received much attention recently on the prowess of its software industry, prompting Bill Gates to proclaim that "India is likely to be the next software superpower." For the better part of a decade, India's software Industry has been growing at 50 percent annually. By 2000, the software sector's output had grown to $8 billion, and exports had risen to $6.2 billion. More than eight hundred firms provided a range of software services, targeted mostly at foreign customers. The United States accounted for nearly 60 per­ cent of Indian software exports; followed by Europe, with 23.5 percent; and Japan, with just 3.5 percent. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  16. Firm Resources & Capabilities (Contd.) • Human Resource • Human resources need to be managed effectively so that learning and innovation are the result. • If human resource development is neglected or misguided, learning and innovation will cease, and the organization will eventually wear down, thus breaking out of the loop. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  17. Firm Resources & Capabilities (Contd.) • Knowledge and Learning • Knowledge creation and innovative activities should be channeled so as to produce better processes and more-innovative products and services. • If this does not happen, the value of a company's brand will be eroded, and its reputation may suffer. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  18. Firm Resources & Capabilities (Contd.) • General Organizational • Finally, brand names, organizational reputation, and stakeholder relationships should be carefully guarded and developed in order to produce strong financial results. • The point here is that all of the resource areas are interdependent, and an organization can't afford to neglect any of them. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  19. Firm Resources & Capabilities (Contd.) • Financial Resources • Financial resources can be a source of advantage, although they rarely qualify as “unique" or “difficult to imitate." • Nevertheless, strong cash flow, how levels of debt, a strong credit rating, access to low-interest capital, and a reputation for creditworthiness are powerful strengths that can serve as a source of strategic flexibility. • Firms that are in a strong financial position can be more responsive to new opportunities and new threats, and are under less pressure from stakeholders than are their competitors who suffer financial constraints. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  20. Value Chain By Michael Porter • This is a useful tool in identifying potential sources of competitive advantage. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  21. Value Chain (Contd.) • A representation of organizational processes , divided into primary & support activities that create value for customers • Value-adding activities are a source of strength or competitive advantage if they meet the requirements such as • Value, • Uniqueness, • Non Substitutability, and • Inimitability Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  22. Value Chain - Primary Activities • Inbound Logistics • Primary activities of the value chain including those associated with acquiring inputs used in the product • Operations • Primary activities of the value chain that refer to transforming inputs into the final product • Outbound Logistics • Primary activities of the value chain related to storing and physically distributing a final product to customers • Marketing & Sales • Primary activities of the value chain associated with customers purchasing the product & processes through which they are induced to do so • Service • Primary activities of the value chain associated with providing service to enhance or maintain product value such as repairing parts Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  23. Value Chain - Supportive Activities • Resource Procurement • Support activities of the vale chain related to the purchase of inputs for the primary processes and support activities of the firm • Technology Development • Support activities of the vale chain associated with learning processes that result in improvements in organizational function performance • Human Resource Management • Support activities of the vale chain associated with human based activities such as recruiting & training • Administration • Support activities of the vale chain consisting of general management activities such as planning & accounting Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  24. Value Chain (Contd.) • The dotted lines connecting most of the support activities with the primary activities demonstrate that the support activities can be associated with each of the primary activities as well as support the complete chain. • Margin/ Profit • This is found at the right side of the chain, an indication that firms can achieve higher profit margins through the development of competencies and superior resources based on their value-chain activities. • Administration is the only exception, since it applies to the complete chain instead of to any one unit. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  25. Value Chain Vs Competitive Advantage • An organization can develop a competitive advantage • in any of the primary or support activities, or • in the way they are combined, or • in the way internal activities are linked to the external environment. • An organization can develop a competitive advantage in any of the primary or support activities. • For each area, the relevant question is, "How much value is produced by this area vs. our cost of producing that value?" • This analysis of value and costs is then compared with competing firms. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  26. Human-Based Resources Our true "core competency" today is not manufacturing or services, but the global recruiting and nurturing of the world's best people and the cultivation in them of an insatiable desire to learn, to stretch and to do things better every day. • The humans that make up an organization are its lifeblood - its unique and most valuable asset. • Most of the other factors of production such as • properties, • machinery, and • even special knowledge may be duplicated over the long term, but every human being is totally unique. General Electronic Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  27. Chief Executive Officer - CEO • Common title for the highest ranking manager in a firm is called as “CEO”. • Most of the research evidence indicates that CEOs have a significant impact on the strategies and performance of their organizations. •  In fact, in some cases a CEO can be a source of sustainable competitive advantage. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  28. CEO Vs Business Success or Failure (Contd.) • A CEO such as • Michael Eisner at Disney, • the retired Jack Welch at GE, or • Bill Gates at Microsoft can leave little doubt that much of the success or failure of an organization is dependent on the person at the top. • Just as excellent leadership can have an enormous positive influence; poor leadership can have a powerful negative influence. • Example • Coca-Cola enjoyed many years of double-digit growth under the leadership of Roberto Goizueta. However, since his death in 1997, the company has "fizzled." Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  29. Strategic Leadership • Generally refers to Leadership behaviors associated with • Creating organizational vision , • Establishing core values, • Developing strategies and a management structure fostering organizational learning and • Serving as a steward for the firm Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  30. Strategic Leadership (Contd.) • Creating Organizational Vision • Visionary Leadership pertains to envisioning what the organization should be like in the future , communicating the vision , and empowering followers to enact it • Visionary leadership can be divided into three stages: • Envisioning what the organization should be like in the future • Communicating this vision to followers, and • Empowering these followers to enact the vision. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  31. Strategic Leadership (Contd.) • Establishing Core Values • The underlying philosophies that guide decisions and behavior in a firm called as organizational values • leaders influence the social system in their organizations is through the core values they bring to the organization • A strong value system can be a source of competitive advantage. • However, putting too much emphasis on a particular factor can also be dangerous. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  32. Strategic Leadership (Contd.) • Developing Strategies and structure • Strategic leaders are directly responsible for overseeing the development of strategies the organization should follow. • Effective strategy development implies a strong awareness of the resource and capabilities that an organization • has or • can develop or • acquire • that will lead to a sustainable competitive advantage. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  33. Strategic Leadership (Contd.) • Fostering Organizational Learning • True role of a leader is to harness the creative energy of the individual, so that the organization as a whole learns over time. • A learning environment is created by helping organizational members question their assumptions about the business and its environment: • what customers want, • what competitors are likely to do, • which technology choices work best, and • how to solve a problem. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  34. Strategic Leadership (Contd.) • Serving As a Steward • Finally, effective leaders are stewards for their firms: they care about the company and the society in which it operates; both voluntary and involuntary stakeholders. • Leaders must feel and convey a passion for the organization, its contribution to society, and its purpose. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  35. Leadership Approaches and Organizational Fit • Commander-style leadership.  • The CEO formulates strategy and then directs top managers to implement it. • Change-style leadership • The CEO formulates strategy, and then plans the changes in structure, personnel, information systems, and administration required to implement it. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  36. Leadership Approaches and Organizational Fit (Contd.) • Collaborative-style leadership. • The CEO initiates a planning session with executive and division managers. • After each participant presents ideas, the group discusses and agrees to a strategy. • Participants are then responsible for implementing strategy in their areas. • Cultural-style leadership. • After formulating a vision and strategy for the company, the CEO and other top-level managers mold the organization's culture so that all organizational members make decisions that are consistent with the vision. • In this approach, the culture inculcates organizational members into unity of purpose and action. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  37. Leadership Approaches and Organizational Fit (Contd.) • Crescive-style leadership.   • Under this leadership model, lower-level managers are encouraged to formulate and implement their own strategic plans. • The CEO's role is to encourage innovation while still filtering out inappropriate programs. • Unlike the other models, the Crescive model of leadership makes use of the creative energies of all members of the organization, which is consistent with the philosophy of Total Quality Management (TQM). Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  38. Types of Strategies • Managers are capable of adapting to changing environments and strategies, it is not likely that they are equally effective in all situations Examples • low-cost strategies are focus on firms efficiency and engineering. • differentiation strategies focus on creating unique product through innovation • Growth strategies may be best implemented by managers with greater sales and marketing experience, willingness to take risks, and tolerance for ambiguity. • Radical Restructuring is focus on creating major changes to a firm’s direction, strategies, structures & plans ChamaraBandara FCA,ACMA,MBA (USQ - AUS)

  39. Organizational Structure • Leaders, managers, directors, and employees can all be sources of competitive advantage. However, the way they are organized can also lead to competitiveness. • Organizational Structure reports relationships and the division of people into groups, • teams, • forces, and • departments within an organization. Chamara Bandara F CA,ACMA,MBA (USQ - AUS)

  40. Organizational Structure (Contd.) • Organizational Structure has a lot to do with how successful a firm will be. Example: • In a world where innovations are widely understood by competitors within a year, a flexible structure is a key to success in many companies. • Big companies are trying to increase speed and flexibility by altering their organization structures and management systems. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  41. How to Increase Flexibility? • By attempting to become worldwide "modular corporations.“- A modular corporation nurtures a few core activities that it does best, and then lets outside specialists do the rest. Example: • Dell Computers • By decentralizing responsibility and rewarding employees for innovations and flexibility. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  42. Organizational Culture • Organizational Culture is a system of shared values of an organization’s members • Organization culture often reflects the values and leadership styles of executives and managers, and is, to a great degree, a result of the past human resource management practices, such as recruitment, training, and rewards. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  43. Organizational Culture (Contd.) • Many companies are realizing the benefits of a shared set of values as a potential source of competitive advantage. • There is an intangible quality that stakeholders look for when making decisions about the products and services that they purchase or in selecting alliance partners. They want to be able to rely on the company. They want promises and commitments to be fulfilled. • There are many pragmatic benefits to a high-profile organizational culture that can help an organization in its recruiting, employee development, and relationships with customers. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  44. Organizational Culture (Contd.) • An organization's culture can be its greatest strength or its greatest weakness. • Some firms have succeeded in creating cultures that are completely consistent with what the company is trying to accomplish. These are called high-performance cultures. Example: • At Johnson & Johnson, the company's commitment to customers as its primary stakeholder is reflected in policy statements and is adopted by employees. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  45. Defining an Organizational Culture Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  46. Defining an Organizational Culture (Contd.) • For each of these factors, an organization should ask: • Which characteristics support the vision and strategies of the organization and should be sustained in the future? • Which characteristics do not support the vision and strategies and should be modified? • What efforts will be necessary to make the required changes happen? • A strong culture can be a two-edged sword. • Sometimes very successful corporations so firmly attach themselves to their successful business practices that they exaggerate the features of the successful culture and strategy, and fail to adapt them to changing industry conditions. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  47. Different Types of Cultures • Craftsmen type culture. • Quality is the primary driver of the corporate culture. • However a culture that is focused on quality and detail can evolve to an extreme where craftsmen become tinkerers. • Builder-type culture. • Growth is the primary goal in the organization. • Managers are rewarded for taking risks that result in growth, new acquisitions, and new market niches. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  48. Different Types of Cultures (Contd.) • Pioneer-type culture. • It emphasis on new product & new technology development. • The strengths of these organizations lie in their design teams and flexible structures, which promote idea sharing. • Salesman-type culture. • These firms are excellent marketers who create successful brand names and distribution channels, and pursue aggressive advertising and innovative packaging. • They become so confident in their marketing abilities that they ignore product capability and quality, and began to market imitative, low quality products that customers do not value. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)

  49. General Organizational Resources • General organizational resources are a varied collection of organizational possessions that can have a tremendous impact on financial success and survival. • Patents • Brand names & trademarks • Organizational reputation and • Superior relationships with external stakeholders have been found to be very powerful sources of competitive advantage Chamara Bandara F CA,ACMA,MBA (USQ - AUS)

  50. General Organizational Resources (Contd.) • Patents • Patents are the tangible result of knowledge creation. • It is the legal protection that prevents other companies from making use of a firm’s innovation • Brands &Trademarks • Brands and their associated trademarks offer a higher level of protection. • Trademark is a legal protection that prevents other companies from making use of a firm’s symbol or brand name . • In a recent ranking, Coca-Cola was ranked first, Microsoft second, IBM third, GE fourth, and Nokia fifth with regard to value. Chamara Bandara FCA,ACMA,MBA (USQ - AUS)