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SM0374 Strategic Management and LeadershipLecture 7: Strategic Capabilities 3
The strategy model
2
Context
ProcessContent
Analysing the Organisation
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• Strategic Capability 1:– The definition of strategic capabilities in terms of organisational resources and
competences
– How managers can develop strategic capabilities for their organisations.
• Strategic Capability 2: – Analysing how strategic capabilities might provide sustainable competitive
advantage on the basis of their value, rarity, inimitability and non-substitutability (VRIN).
– Diagnosing strategic capability
• Strategic Capability 3:– Value Chain Analysis
• Strategic Capability 4:– Dynamic Capabilities (Dr Gregory Ludwig)
Topics to be covered
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• Each activity adds value as perceived by the customer• Each activity incurs a cost to the company• Total value added minus total costs = profit margin
Adding Value
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Receive raw materials
Manufacture products
Distribute products
Market and sell products
Supp
liers
Cust
omer
s
Market research R & D
• Marketing mostly online• Customer places order online, individual specification• No retail outlets = low cost
Dell Computers 2006
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Market and sell
computer Cust
omer
• Order transmitted to factory• Assembly uses standard components• Low skill = low cost
Dell Computers 2006
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Market and sell
computer
Assemble computer
Cust
omer
• Computer delivered to customer by third parties (couriers, postal service…)
• Use their capabilities = higher efficiency
Dell Computers 2006
8
Market and sell
computer
Assemble computer
Transport computer to
customerCust
omer
Cust
omer
• After sales service online, or by telephone• Return to service centre if needed• Keeps Dell’s costs down
Dell Computers 2006
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Market and sell
computer
Assemble computer
Transport computer to
customer
After-sales service
Cust
omer
Cust
omer
• Dell uses standard components – huge economies of scale = low cost• Components delivered JIT to ensure no delays in assembly• No stock of components or finished goods = low cost
Dell Computers 2006
10
Market and sell
computer
Assemble computer
Transport computer to
customer
After-sales service
Cust
omer
Cust
omer
Receive components
Supp
liers
• The “special” activity – an information system to take online orders, transmit order to factory, arrange despatch, bill customer, order supplies so they arrive JIT and stores data that assists after-sales service
Dell Computers 2006
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Market and sell
computer
Assemble computer
Transport computer to
customer
After-sales service
Cust
omer
Cust
omer
Receive components
Supp
liers
Information management
• The value chain embodies Dell’s business model– Lowest industry costs so cheap prices– But customer can choose an individual
specification from a range of options– Semi-customised product at low price = a winning
combination• In 2006 Dell was the largest PC vendor in the
world with 32% of the US market
Dell Computers 2006
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• The value chain describes the categories of activities within an organisation which, together, create a product or service.
• The value chain invites the strategist to think of an organisation in terms of sets of activities – sources of competitive advantage can be analysed in any or all of these activities.
Value Chain Analysis
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The Generic Value ChainPorter (1985)
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• A generic description of activities– understanding the discrete activities and how they both contribute to
consumer benefit and how they add to cost.
• Identifying activities where the organisation has particular strengths (competencies) or weaknesses– Note that distinctive competencies may well be located within the
support activities and therefore less visible
• Analysing the competitive position of the organisation using the VRIN criteria – thus identifying sources of sustainable advantage.
• Looking for ways to enhance value or decrease cost in value activities (e.g. by outsourcing non-core activities)
Using the Value Chain
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• The value network comprises the set of inter-organisational links and relationships that are necessary to create a product or service.
• Competitive advantage can be derived from linkages within the value network.
• Compare to Supply Chain Management
The Value Network
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The Value NetworkPorter (1985)
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• Understanding cost/price structures across the value network – analysing the best area of focus and the best business model.
• Identifying ‘profit pools’ within the value network and seek to exploit these.
• The ‘make or buy’ decision: deciding which activities to do ‘in-house’ and which to outsource.
• Partnering and relationships – deciding who to work with and the nature of these relationships.
Using the Value Network
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• Identify ‘higher order strategic themes’ that is, how the organisation meets the critical success factors in the market.
• Identify the clusters of activities that underpin these themes and how they fit together.
• Map this in terms of how activity systems are interrelated.
Activity Mapping
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• A means of identifying strategic capabilities in terms of linkages of activities
• Internal and external links are identified (e.g. in terms of the needs of customers).
• Therefore helps identify bases of competitive advantage.
• And sustainable advantage for example, inimitability.
Using Activity Maps
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Cost Leadership
Rapid Delivery
Customisation
An example of an Activity Map
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Information management
Supplier interface
Low cost assembly
Online retailing
• Dell’s growth slowed significantly after 2006:– Almost all of Dell’s strategic capabilities were imitable – so
competitive advantage not sustainable– The lack of retail outlets put the company at a competitive
disadvantage in the growing retail market– Few sources of innovation within the company– Compare to Apple Corporation!
• But Dell still has some strategic capabilities:– Low cost operations due to huge economies of scale– A well-known brand name
Dell Computers 2012
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• Strategic capabilities comprise both resources and competences.• Organisational capabilities may be diagnosed by:
– Benchmarking as a means of understanding the relative performance of organisations.
– Analysing an organisation’s value chain and value network as a basis for understanding how value to a customer is created and can be developed.
– Activity mapping as a means of identifying more detailed activities which underpin strategic capabilities.
• Sustainability of competitive advantage is likely to depend on an organisation’s capabilities being of at least threshold value in a market but also being valuable, relatively rare, inimitable and non-substitutable.
• The concept of dynamic capabilities highlights that strategic capabilities need to change as the market and environmental context of an organisation changes.
Strategic Capabilities - Summary
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Next Lecture:
Strategic Capabilities 4Dynamic Capabilities
• Porter ME (1985) Competitive Advantage: Creating and Sustaining Superior Performance The Free Press
Reference List
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