Slide strategic management 6e by harrison chapter 3 the internal environment and strategic direction

Chapter 3
Organizational Resources and
Competitive Advantage

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Learning Objectives
To understand:
• the characteristics of resources and capabilities that create a
foundation for sustainable competitive advantage
• how human resources, physical resources, financial resources,
knowledge and learning resources and general organizational
resources can lead to competitive advantage
• how resources are interconnected and the implications of
resource interconnectedness for competitive advantage
• the usefulness of the value chain in understanding sources of
competitive advantage
• traditional and stakeholder-based measures of firm performance

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Strategic Management Process
External and Internal
Analysis

Strategic
Direction

Strategy Formulation

(corporate and
business level)

Strategy Implementation
and Control

Strategic Restructuring
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Organizational Resources Leading to
Sustainable Competitive Advantage
Organizational
Resources and
Capabilities
Financial

Valuable?

Physical
Human
Knowledge &
Learning
Organizational

Unique?

Potential for
Competitive
Advantage

Appropriate
systems
in place?
Managers
taking
advantage
of potential?

Realized
Competitive
Advantage

Difficult or
costly to
imitate?
No readily
available
substitute?

Sustainable
Competitive
Advantage
4


Organizational Resource
Interconnectedness
Human Resources

Physical Resources

Financial Resources

Knowledge and
Learning Resources

General
Organizational
Resources

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Human Resources
• Employees – recruitment, training programs,
rewards system
• Managers – CEO and top management team
• Owners/board of directors – effective
corporate governance

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Physical Resources

• Tangible resources such as machinery, plants
and products – easy to imitate, but the
processes to create them are not
• Locations – competitive clusters can provide

advantages to companies and consumers
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Financial Resources

• Strong cash flow, low levels of debt, strong
credit rating, access to low interest capital and
reputation for creditworthiness can increase
strategic flexibility – more responsive to new
opportunities
8


Use of Financial Analysis in
Strategic Management
• Identify strengths and weaknesses
• Diagnose problems
•
•
•
•

Declining profitability
Insufficient liquidity
Leverage too high or too low
Internal mismanagement

• Essential comparisons
• Firm to competitors

• Firm to itself over time

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Some Commonly Used Ratios
•

Profitability
• Gross Profit Margin
• Net Profit Margin
• ROA
• ROE
• Liquidity
• Current
• Quick
• Leverage
• Debt to Equity
• Total Debt to Total Assets (Asset Ratio)
• Activity
• Asset Turnover
Average Collection Period
• Accounts Receivable Turnover
Inventory Turnover
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Knowledge and Learning Resources
Organizational learning leads to strengths in other
resource areas. It involves:

•Knowledge creation
•Knowledge retention
•Knowledge sharing
•Knowledge utilization
Two types of knowledge:
•Codified – can be communicated with precision
through written means. Typically not a good source of
sustainable competitive advantage
•Tacit – difficult to describe with words. Better source of
sustainable competitive advantage
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General Organizational Resources
Some general organizational resources are hard to
imitate and are therefore excellent sources of sustainable
competitive advantage:
•Organizational reputation
•Corporate brands
•Unique configurations of stakeholder relationships –
joint venture, long-term contracts and other types of
partnerships and alliances
•Organizational structure and internal systems
•Organizational culture

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Value Chain Activities
Basic Value Chain Activities

Supply Chain

Internal

Distribution

Marketing

Management

Management

Operations

and Location

Management

of Post-

Management

Management

Transaction
Contacts

Activities that Support the Basic Value Chain Activities
Product/service R&D

Human resources/compensation systems

Financial management/accounting
Information technology (IT)

Legal support

Strategic planning processes
Consumer research
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Firm Performance

• Traditionally performance measured as
financial performance (ROA, ROE,
shareholder returns)
› Short-term mentality
› Externalities

• Activities of the firm provide value to a broad
spectrum of stakeholders
› Need a more balanced and complete set of measures
› Reflect more of the value a firm creates for its stakeholders

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Examples of Stakeholder-Based
Performance Measures

• Employees
› Surveys of employee happiness
› Turnover
• Customers
› Growth in sales
› Surveys of customer satisfaction
• Suppliers
› Longevity of supplier relationships
› Existence or absence of supplier-led legal actions
• Shareholders
› Shareholder returns
› Risk associated with returns
• Community
› Inclusion on list of socially responsible firms
› Percent of income donated to community or social causes
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