Ch. 3: Resources and Capabilities

Cristian Marsico - Larry Griffin - Beau Gould

Teresita Pinon

Opening ThoughtsIn this chapter, our focus shifts from the external environment from Ch. 2 to the internal environment

We’ll look within the firm and concentrate our attention on the resources and capabilities that firm possesses

Examples being used:Hyundai case analysis (from FS book)Realogy Holdings Corp.

Role of Resources and Capabilities in Strategy FormulationReasons for shift to internal focus:1. Firms’ industry environments are unstable ->

Firms see resources and capabilities as a secure base in strategy formulation

2. It’s apparent that competitive advantage rather than industry attractiveness is the primary source of profitability

THE FIRM● Goals and Values● Resources and Capabilities● Structure and Systems

StrategyTHE INDUSTRY ENVIRONMENT● Competitors● Customers● Suppliers

The Firm-Strategy Interface

The Environment-

Strategy Interface

Interface between strategy and firm

Resource-Based ViewRule of thumb: The greater the rate of change in a firm’s external environment, the more likely the “resource-based view” strategy will be used

Important to Note: Resources - are the productive assets owned by

the firm Capabilities - are what the firm can do

Hyundai Case AnalysisMain Points:• Started producing cars in

1967; relatively late in car industry

• In 2009 Hyundai double its net profit; increased sales by 11% and became a world-class car producer

• Created a series of phased developments; 2 main phases “Knowledge Generation” and “Knowledge Application”

• Chung, the chairman, faced two main challenges: Building production/research capabilities abroad and enhancing the company’s market knowledge and skills

• His solution: Entering a joint-venture with a domestic firm and recruiting talented individuals

• Hyundai overcame perceptions of poor quality with its 10yr/100,000 mile warranty

Realogy Holdings Corp.

Realogy Holdings Corp. (NYSE: RLGY) is a global leader in residential real estate franchising and brokerage with many of the best-known industry brands

Realogy Holdings Corp.https://youtu.be/oHszZ9UqEoQ

Principle FactorsRealogy’s business model is structured around their unique "Value Circle" approach. The integration of their company’s services provides their “business units” with excellent cross-selling opportunities while enabling customers to enjoy the convenience of a single-source solution for all their real estate needs.

Your Real Estate One Stop Shop!

Identifying the Organization’s ResourcesTangible Resources

Intangible Resources

Human Resources

Identifying the Organization’s Capabilities

Organizational Capability - a firm’s capacity to deploy resources for a desired end result

•Distinctive Competency

•Core competences

Classifying Capabilities

1.Functional Analysis

2.Value Chain Analysis

Developing Resources and Capabilities

•The resources/capabilities linkage•Path dependency in capability

development

Approaches to Capability Development

•Mergers, acquisitions, and alliances▫Relational capability

•Internal Development▫Best strategy is to develop capabilities

sequentially

Hyundai’s Capability Development

•Assembly and manufacturing

•Global logistics and lifecycle engineering

Realogy - Development of Capabilities

•Vertical Integration•Strategic Leadership•Ethical Responsibility

Appraising Resources and CapabilitiesEstablishing a Competitive Advantage

• Scarcity• Relevance

Sustaining a Competitive Advantage

• Durability• Replicability• Transferability

▫ Geography▫ Imperfect Information▫ Complementarity▫ Organizational

Capabilities

Incumbency Advantage• Strong initial position in

technology, distribution channels, reputation, etc.

• Diseconomy of compressed time strategic moves

Book Example, HyundaiEarly Issues

• Easy to acquire capital, technology, equipment, etc. • Developing capabilities in product design and quality assurance• Incumbency advantage

Creating and Sustaining their Competitive Advantage• Chaebol system

Continuing Issues• Damaged brand due to early issues• Had to commit additional funds to marketing and quality

assurance

Realogy HoldingsIndustry Obstacles

• Fragmented Market• General Economic Trends• Low Barrier to Entry• Franchise model• Seasonal Buying• Current Model Expected

to Die

Competitive Advantages• Strategic Leadership

▫ Richard Smith• Vertical/Horizontal Integration

▫ Title company▫ Mortgage brokerage▫ Technology company▫ Brand Prestige

• Industry Diversification▫ CBRE- Commercial focus▫ JLL- Copr./Investor focus▫ Stewart- Services focus

Putting Capability Analysis to Work1. Identify key resources/capabilities2. Appraise resources/capabilities

a.Assess importanceb.Assess relative strengthsc.Bring it together

3. Develop Strategy Implicationsa.Exploiting strengthsb.Managing weaknessesc.Superfluous strengths?

Book Example, HyundaiResources Importance Strength

R. Finance 6 6

R. Technology 7 4

R. Plant/Equipment 8 9

R. Location 4 5

R. Distribution 8 7

R. Brands 6 4

C. Product Dev 8 9

C. Strategy 7 9

C. Supply Chain 7 8

C. Engineering 7 5

C. Manufacturing 8 8

C. Financial 6 5

C. R&D 5 4

C. Sales/Mktng 9 7

C. Govt. 4 8

Realogy HoldingsResources Importance Relative Strngth

R. Finance 8 6

R. Technology 7 7

R. Plant/Equipment 2 5

R. Location 3 5

R. Distribution 9 8

R. Brands 8 8

C. Product Dev 5 5

C. Strategy 7 9

C. Supply Chain 7 5

C. Engineering 2 5

C. Manufacturing 2 5

C. Financial 7 9

C. R&D 3 5

C. Sales/Mktng 9 9

C. Govt. 2 5

Take Aways from AnalysisStrengths

• Distribution• Brands• Strategic Management• Financial Management• Sales/Marketing• Technology

Contributing Reasons• Richard Smith, CEO• Diversified Company

Holdings• Company Acquisitions

▫ Zip Realty▫ Better Homes & Garden

• Size▫ 13,500 offices▫ 255,00 sales associates▫ 27% of home

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