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Strategy: A View From the Top
Chapter 5: Analyzing an Organization’s Strategic Resource Base
Team 3John Wise
Jacob WeemsEthan Noble
Amanda BarrientesCharles Hodges
Introduction
What strategies to pursue?
› Strategic resources
› Capabilities
Two Principal Strategies:
› A. Evaluate current resources and core competencies used for competitive advantage.
› B. Identify internal pressures and forces of resistance.
Strategic Resource Base
Physical Assets› i.e. facilities
Financial Strength› i.e. cash flow
Human Resources› i.e. Strong leadership
Organizational Assets› i.e. brand equity
4 Questions examining Worth of company resources
1. How valuable is a resource?
2. Is this a unique resource or do other companies have similar resources?
3. Is the strategic resource easy to imitate?
4. Is the company positioned to exploit the resource?
* Issue: Can a resource be leveraged for competitive advantage?
Physical Assets
Can materially affect company’s competitiveness.
Examples: Airline companies, Telecommunication
“Location, location, location”
Physical Assets not necessary to own. › i.e. outsourcing, leasing, etc.
Analyzing a Company’s Financial Resource Base
There are four types of Financial Ratios› Profitability Ratios
› Liquidity Ratios
› Leverage Ratios
› Activity Ratios
Financial Ratios
Gross Profit Margin
Quick Ratio
Debt-to-equity Ratio
Inventory Turnover
Sales – cost of goods soldSales
Current AssetsCurrent Liabilities
Total DebtTotal Assets
SalesInventory
DuPont Formula for ROACost of goods Sales Earnings Before Sold Minus Interest EBIT Earnings as
a % Plus Costs Divided by of Sales
Operating SalesExpenses
Return Inventories Multiplied by On Asset
Plus
Accounts Receivable Sales Plus Asset
Cash Current turnoverassets Divided by
Plus Total AssetsPrepaid Plus
Expenses Fixed assets
Human Capital: A Company’s most valuable strategic resource
The right people are a company’s greatest asset
Investing in people pays
FedEx & Motorola
Organizational Strategic Resources› Organizational Resources:
Knowledge and Intellectual Capital Base Reputation Competencies Processes Skill Sets Corporate Culture
Knowledge and Intellectual Capital Base
Essential for sustainable competitive advantage
Intellectual Capital
Hard to quantify
Patents as Assets Patents issued in the US have doubled
in the last decade
Areas of patentability are expanding
IP protection is crucial in sustaining a competitive advantage
“Strategic Patenting”
Knowledge as an Asset
More knowledge = Ability to make better decision
Knowledge only an asset when it is managed properly
Caterpillar management plan
Knowledge as an Asset
Knowledge- Implicit vs. Explicit (Tacit)
Xerox repairmen
Caterpillar University
The Importance of Brands
Physical distance between customers, distributors and manufactures created the need for brands.
Provide a guarantee of reliability and quality.
Build and retain customer loyalty.
Business Week: Identifiable qualities of good brands
Do not fear public flops
Face your weaknesses
Protect your culture
Core Competencies
Core Competencies is the key element in building long-term strategic advantage.
They are a set of skills or systems that create a uniquely high value for the customers.
Picking the right core competencies for your company is key.
Internal Forces for Change
Organizational Drivers For Strategic Change:› Poor financial performance› New owners/executives› Limited growth with current strategies› Scarcity of critical resources› Internal cultural changes
Resistance to change:› Structural/ organizational rigidities› Strong support for old business beliefs and strategies› Strong culture (Un-open to change) that sticks to traditional
values, behaviors, and skills› Counterproductive change momentum
The Company Life Cycle
Beginning characteristics of an organization:› Ambiguous structure, entrepreneur mindset, lack of
control
“Entrepreneurial- managerial” transition
Greater company growth brings potential for greater development issues
Strategic Forces for Change
7-S model: strategy, structure, systems, shared values, skills, staff, style
If one fails, they all fail
Caterpillar during the recession
Stakeholder Analysis
Assess key stakeholders inside and outside organization. › External Stakeholders – Key customers, suppliers, alliances› Internal Stakeholder – CEO, Board of directors, owners
Recognize legitimate rights of firm’s stakeholders› Stockholders, employees, customers, suppliers, general
public
General claims reflect specific demands i.e. high wages, pure air, safety, etc.
These claims must be assigned priority, in accordance with emphasis the firm will give them.
In Closing
Leverage resources for competitive advantage
Knowledge must be managed
Good branding creates loyalty
Growth leads to the need for strategic change