Strategy: A View From the Top Chapter 5: Analyzing an Organization’s Strategic Resource Base

1. Strategy: A View From the TopChapter 5: Analyzing an Organization’s Strategic Resource Base Team 3 John Wise Jacob Weems Ethan Noble Amanda Barrientes Charles Hodges

2. 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.

3. 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. 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?

5. 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.

6. Analyzing a Company’s Financial Resource Base • There are four types of Financial Ratios • Profitability Ratios • Liquidity Ratios • Leverage Ratios • Activity Ratios

7. Financial Ratios • Gross Profit Margin • Quick Ratio • Debt-to-equity Ratio • Inventory Turnover • Sales – cost of goods sold Sales • Current Assets Current Liabilities • Total Debt Total Assets • Sales Inventory

8. DuPont Formula for ROA Cost of goods Sales Earnings Before Sold Minus Interest EBIT Earnings as a % Plus Costs Divided by of Sales Operating Sales Expenses Return Inventories Multiplied by On Asset Plus Accounts Receivable Sales Plus Asset Cash Current turnover assets Divided by Plus Total Assets Prepaid Plus Expenses Fixed assets

9. Human Capital: A Company’s most valuable strategic resource • The right people are a company’s greatest asset • Investing in people pays • FedEx & Motorola

10. Organizational Strategic Resources • Organizational Resources: • Knowledge and Intellectual Capital Base • Reputation • Competencies • Processes • Skill Sets • Corporate Culture

11. Knowledge and Intellectual Capital Base • Essential for sustainable competitive advantage • Intellectual Capital • Hard to quantify

12. 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”

13. Knowledge as an Asset • More knowledge = Ability to make better decision • Knowledge only an asset when it is managed properly • Caterpillar management plan

14. Knowledge as an Asset • Knowledge- Implicit vs. Explicit (Tacit) • Xerox repairmen • Caterpillar University

15. 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.

16. Business Week: Identifiable qualities of good brands • Do not fear public flops • Face your weaknesses • Protect your culture

17. 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.

18. 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

19. 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

20. 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

21. 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.

22. In Closing • Leverage resources for competitive advantage • Knowledge must be managed • Good brandingcreates loyalty • Growth leads to the need for strategic change