firm’s Resources Capabilities and Strategy

alignment between firm’s Resources and Capabilities and their Strategy

Instructions/Descriptions

alignment between firm’s Resources and Capabilities and their Strategy

[Order Now]

EXTERNAL ANALYSIS TEMPLATE

In this stage of our analysis, our objective is to understand the major trends and forces that characterize the product-market in which our focal firms competes. This stage is all about the external environment – the context – and has NOTHING to do with our firm or any specific firm. Don’t let your thinking/focus fall back to the firm here…stay at the INDUSTRY level.

One aspect of assessing the quality of a firm’s strategy is to test if it aligns, or fits, with the nature of their market. To assess this, we need to know the most critical things that firms operating in this industry (who we call “producers” since the produce the good or service that defines the industry) must have or do to be successful (i.e. achieve a superior level of performance). We also need to know what factors are or may change the nature of what it takes to succeed in this industry.

[Order Now]

FIRST we must get clear on what industry we are analyzing. Defining the industry is critical. Consider the primary products or services your focal firm and its main competitors offer. That often gets you to a good industry definition. If needed, look up the firm’s NAICS classification. Once you are clear on the industry, be sure you are clear on the basic characteristics of Producers, Buyers, and Suppliers.

Producers – the firms that offer the primary industry good/service. Don’t name them but describe their common characteristics (a few large ones? Many small mom-and-pops? Local firms vs international? Manufacturers or just resellers? etc.)

Buyers – describe in broad terms the people (or organizations) that are the primary purchasers of the goods/services the producers offer.

Suppliers – describe in broad terms the major suppliers the producers need for the raw inputs they need to produce their goods/services.

Example: For the Movie Theatre industry: Movie Theatre firms (mostly large national chains, but some local specialty operators) are the producers; Film studios (major and independent) and their distributors are the suppliers as are concession product distributors; Individuals or all types are the buyers.

** Don’t confuse these actors or your analysis will go off track.

What are some important characteristics of this industry? Is it large or small? Growing or declining? Concentrated among only a few firms or fragmented across many?

With our industry defined and generally characterized, we need to develop conclusions about competitive forces, drivers of change, and key success factors.

Competitive Forces

The objective here is understand the competitive forces that make it difficult for producers to earn higher profits. The five forces framework is very useful here as it helps identify the forces competing over ‘value’ and how they shape overall industry profitability levels. Specifically, the five forces framework helps us identify the factors determining producer profitability…and since our focal firm is one of the producers, this analysis is going to tell us about the challenges our firm faces in the quest to achieve superior performance.

[Order Now]

As before, this is NOT about the firm…this analysis is about the INDUSTRY. You must be clear on the industry and the actors (Producers, Buyers, and Suppliers). You also must get clear on what potential SUBSTITUTES are available. Don’t confuse RIVALS (competing producers) with SUBSTITUTES! Substitutes are goods/services from A DIFFERENT industry that can to some extent meet the same need that buyers are filling by purchasing from this industry’s producers. So – think about the central “need” being filled by the producers, then think about how else buyers might be able to fill that need. Again…NOT by switching to a different producer (rival). Be sure you describe any possible substitutes you identify.

Use the Five Forces worksheet to evaluate each of the five forces using the most common indicator variables. BE CAREFUL and thoughtful in your analysis (remember – garbage in- garbage out!). Using the indicator analysis, make a conclusion as to the strength of each of the five forces. STRONG means the force inhibits producer profitability whereas a weak does little to challenge producers. Our focus will be on STONG forces as these must be minimized and overcome if a firm is to achieve superior performance (weak forces are easy to handle and all rivals are most likely already taking advantage of those). So, identify your strong force and use the indicators to explain why this is a strong force.

Drivers of Change

Next we must understand any broad (not industry-specific) environmental issues that are causing, or are likely to cause, change in how our focal industry performs. We call these change drivers…or drivers of change. These are trends and developments that are or may change the level or way the buyers buy or how the producers produce. That is, these are issues with significant implications for industry DEMAND or producer OPERATIONS (costs). There are always MANY such changes going on in most industries, so we need a framework to identify and focus on those that are most critical. This is where the PEST analysis comes in handy.

Remember that this is not about the firm or even the specific industry – you are looking for BROAD issues that are certainly relevant to this industry but that also are broad in the effects across multiple industry. A ‘shortage of trained pilots’ is specific to the airline industry so is WRONG. A correct example: ‘Advances in technology for extracting oil’ affects multiple industries in which oil/fuel is a key issue…thus, it is important for airlines as it affects the cost of fuel (a major cost issue!)

Think through each category (Political, Economic, Socio-cultural, and Technological) and use your general knowledge and your research to identify (and list) all the factors and issues you can. *Some categories may not have anything to list!! For example, there probably isn’t a broad technological development that is affecting demand or producer operations in the dog grooming industry. Try to build a good inventory of issues that are causing or potentially causing change in the near future. Don’t purely speculate and think about all the “what ifs”, though…focus on factors where there is at least evidence that change may occur soon.

Now rank these issues for the focal industry. Evaluate your listed items based on their implications for industry demand and/or producer operations. Which issues are, or are most likely to, really shake things up….good or bad. We’re looking for threats and opportunities. Remember – this is not about how these might affect a specific firm….these should be issues that affect ALL producers in the industry.

When you have a prioritized list…where you can make your argument for the most important 3-5 broad drivers of change , you now must fully develop them. Clearly describe the issue. Don’t generalize! For example, it is not acceptable to say “ technological change” or even “technological advances will change the way people shop and buy”. You must identify and describe a specific issue AND its implications on demand and/or producer operations. Examples: “the pervasive use of social media is changing where and how people access and consume journalism content” or “the social trend toward delaying marriage and having babies will affect negatively demand for disposable diapers”.

Key Success Factors

Key success factors (KSFs) are the things that producers need to have or do in order to succeed in this external environment (i.e. to achieve superior performance). There are two major categories:

(1) Battling the strongest competitive forces. What competitive forces and underlying indicator factors must producers avoid, minimize, or overcome in order to achieve superior performance? (Take a strong force and the indictor factors that support/explain this as strong. Now, what must firms have or do to combat this performance inhibitor?)

(2) Adapting to major change. If one or more of your Drivers of Change has significant and highly probable implications for success in the next few years, you might need to argue that adapting to this change will be a critical factors in which producers do well and which do not in the coming years.

[Order Now]

With a list of KSFs in these two areas, prioritize them by considering the magnitude of the factor’s implications on producer profitability going forward. You should strive to have a list of 4-5 KSFs. Remember – this is not about the firm. Don’t assess and describe the implications of forces or KSFs for firm XYZ….we are still at the industry-level. KSFs are the same for ALL producers because these are determined by the nature of the external environment.

In summary, this analysis results in the following conclusions and items to be described:

• Industry definition
• Identification of industry Producers, Suppliers, and Buyers and characterization of the industry structure, growth, profitability, etc.
• FIVE FORCES analysis toward the identification and explanation of the strongest forces that challenge producers in their quest for superior profitability PEST analysis toward the identification and analysis of broad trends and developments with final conclusions on the primary Drivers of Change for this industry over the next 3-5 years.
• Also consider the life cycle stage implications for the industry.
• and most importantly…..
• Key Success Factors – The things any producer needs to do or have in order to achieve superior performance in this industry over the next 3-5 years.

DIAGNOSIS/FORMULATION TEMPLATE

DIAGNOSING ROOT CAUSE

Using your prior analysis of each part of the basic strategic alignment model, you now must analyze how the quality of alignment is related to and affecting the firm’s performance. You are seeking to understand what misalignments are contributing to areas of undesirable performance. That is, you want to connect causes (the underlying misalignment issues) with effects

(areas of performance that are not as we would like). In real-world scenarios, firms often are aware of multiple misalignment issues and are trying to address multiple performance issues. But

remember that strategic change is difficult, risky, and resource intensive. So, in complex situations, in can be valuable to employ some method to focus the on the most critical issues. For our

purposes within our time-constrained course, the goal is to get down to just one issue to address.

Following is one approach to working through the diagnosis in a way that is systematic and logical and that will help you build up a strong argument for your recommended change.

Tip : Constantly remind yourself that you are seeking the CAUSES of performance OUTCOMES (Effects). Don’t name outcome issues as the ‘problem’…the problems are the underlying causes; performance and any other outcome are the results. You don’t fix outcomes – you fix causes/problems to improve the outcomes.

Tip : Avoid slipping into ‘conclusions and recommendations’ too soon. Do the full analysis first. Identify misalignments, evaluate all misalignments, then – and only then – start thinking about ‘solutions’.

Step 1. Specify the primary effect you wish to address – seek the ‘root cause’

Review your analysis of the firm’s performance. What is the nature of how you think performance should be improved? NOT ‘what needs to be fixed, but what aspect of performance is least

desirable? Look at your assessments of their ability to create value and capture value. Is the company’s major problem related to weak or weakening growth (i.e. a problem with weak value

creation)? Is their major problem related to weak or weakening profitability (i.e. poor ability to capture value)? If profitability, is the issue related to gross margin (which points to pricing and

cost of goods sold), operating margin (which points to the operating ‘system’), or efficiency (ROA) (which points to resource allocation, investment efficiency, etc)? Be careful. Be thoughtful.

Remember that all the profitability metrics are related as you move down the income statement. For example, the root cause of operating margin or ROA weakness could be because there is

not enough value creation (revenue) to cover costs or that the cause of poor ROA could be that gross margins are too low because of excessive discounting (low pricing).

Your objective in this first step is to develop a conclusion that focuses your attention on improving performance in one specific way. Example final statements:

• XYZ’s revenue growth rate is declining and is below industry. To improve performance their ability to create value must be improved.
• XYZ’s growth is okay but their profitability is below industry average. Specifically, their operating efficiency is subpar as indicated by their below average Operating Margin performance. This is the primary are to focus on improving their performance.

Again, you are NOT specifying what is wrong. Don’t make a recommendation here. You are specifying the ‘target’ of improvement efforts, that is you are narrowing down from ‘improve

performance’ to ‘improve X aspect of performance’.

Step 2. Assess the alignment between the firm’s Strategy and their Environment (S – E).

The clearest way to approach this step is to build a simple two-column table. In the left column, list the core components and descriptors of the firm’s strategy (see your strategy template and analysis). In the right column, list Key Success Factors and Drivers of Change for this industry (see your external analysis and analysis). Stop and think about each column. First, how is the firm trying to compete and succeed? Next, what are the most important things required of a strategy to be successful in this industry over the coming years? Now see if the two columns of items (go through each item) are well-aligned. That is, see if there are aspects of the firm’s strategy that DO NOT align well with what it takes to be successful. Here you are assessing the quality of their strategy, broken down into the clear and most critical component parts of their approach, with respect to the most critical requirements of the environment. List all the relationships that you deem not aligned – remember to think ahead over the next 3-5 years based on your Drivers of Change. Your statements on the misalignments should clearly specify what aspect of strategy is not well aligned with what specific KSF or DOC. Examples:

• XYZ’s value proposition of trendy, fashionable designs does not fit well with the key success factor of long product lifespans.
• XYZ’s market focus on households with high levels of discretionary income does not fit well with the fact that the higher-income segment is declining in size.
• XYZ’s product focus on a limited range of high-quality items is not well aligned with the KSF that retailers and shoppers prefer a broad selection of good-better-best quality and pricing levels.

Note: It is quite possible that all aspects of strategy are just fine, that is that S-E alignment is good! If you find this, double check that you are fully considering the 3-5 year outlook. Is there

something that might change that would disrupt the current alignment? What part of the well-aligned strategy is most at risk? In other words, if all is good now, you should consider if

defending/maintaining that valuable alignment is something that needs attention with adjustments in the future. (This does NOT mean a conclusion of ‘keep doing X’ or ‘improve Y’; a better

(albeit simple) example would be “…likely will need to adjust business model to account for the influence of autonomous delivery vehicles…”.

DON’T:

• get sidetracked and bring up anything about resources and capabilities here
• address tactical issues
• address outcomes/performance issues
• try to solve the problem

Step 3. Assess the alignment between firm’s Resources and Capabilities and their Strategy. (R/C – S)

Again, make a simple table (or do a combined table as you lay out your data for both steps 2 and 3). In one column, have your components of Strategy again. In the other, list the firm’s most valuable resources and capabilities – the primary ones you analyzed with the VRIN method. Think about each. First, reconsider how the firm is trying to compete and succeed. Next evaluate if

they have the resources and capabilities that seem necessary to be able to execute that strategy in a way for success and competitive advantage. In other words, assess if their most valuable

resources and/or capabilities you identified in your earlier template and analysis (i.e. their sources of competitive advantage) are aligned with what is needed to effectively execute their

strategy. The most effective strategies are built on (or with) strengths, so if the strategy they have seems like it would require a specific resource or capability, but you don’t find it when analyzing the firm – red flag alert: that is a misalignment!

List any misalignments you find. Your statements on the misalignments here should again specify what specific type of resources or capability is not aligned (i.e. weak or missing) with what

specific need of the strategy. Note, although it is again possible you may not find anything misaligned here, it is far less likely than finding, in step 2, that all parts of a firm’s strategy are well

aligned. Why? Because strategy is just a set of choices whereas resources and capabilities involve humans, trade-offs caused by limited time or funds, investment choices, complexity, etc. In

other words, no firm is perfect! There is always room for improving the quality of resources/capabilities to execute a strategy. Example statements:

• XYZ does not have adequate forecasting capabilities to effectively manage inventory and deliver on their promise of reliable supply.
• XYZ does not have the financial capital to build a factory to achieve the economies of scale necessary to compete with prices of market leaders.
• XYZ does not have the adequate people or processes in their customer service department to deliver on their promise of highest levels of customer service.

Step 4. Link causes to the target effect.

From steps 2 and 3 you should have a list of S-E misalignments and/or a list of R/C-S misalignments. Think about each misalignment with respect to your answer in step 1 (the performance area you define as the priority thing to address for improving performance). To what degree does each misalignment seem to explain your top priority performance issue? That is, what misalignments appear to be the most critical CAUSES of the EFFECT? You may have just one relevant cause or you may find several. If you don’t have any, you need to dig deeper in steps 2 and 3. You can always identify the cause of performance in the quality of our strategic alignment model. The outcome of this step is one or more statements describing the cause-effect diagnosis. Examples of misalignment descriptions:

• XYZ’s declining ability to create value stems from the misalignment between their customer service capabilities and their strategy of high service appears as well as from the declining relevance of their store locations in shopping malls (resources).
• XYZ’s weak capabilities for forecasting and inventory control result in excessive markdowns and write offs, thus explaining their inferior gross margins.
• XYZ’s lagging sales growth is best explained by their inadequate capabilities for designing and launching new products.

[Order Now]

Tip : Wording – a misalignment statement must clearly specify the cause as an inappropriate or missing component of strategy, a weak or missing resource, or a weak or missing capability. These are the three areas of ‘variables’ we can address.

Step 5. Identify just ONE misalignment issue as the MOST IMPORTANT thing to address toward improving long-term performance. (this step is for this course…in the real world you’d likely work to address ALL or at least several causal factors simultaneously)

If you have multiple cause-effect statements from Step 4, now you need to prioritize them. You are seeking the one issue that, if addressed, should have the greatest positive impact on long-term performance.

Think of it this way: If you could only repair one misalignment issue, which would make the greatest positive change in overall performance?

The criteria for your decision, and thus the argument to support your conclusion, should focus on the impact to operating profit and the ability to sustain performance.

That is, you don’t want to just grow sales, you want to do so in a way that drives sustainable ‘bottom line’ results. Nor do you want to specify something this is a quick fix or one-time boost….you want durable, long-lasting improvement.

• REMEMBER – we are working ABOVE the level of tactical moves and operational effectiveness here. Don’t fall into thinking about cost cutting as an issue – go back and revisit my last “ Tip ”!

Also, avoid hedging!! Don’t chicken out and try to argue that you must really address multiple issues…or that there are issues that are interrelated and you can’t just do one. Make a decision. Force your thinking to make an argument for one, specific misalignment to address . **Note that this is a conclusion of DIAGNOSIS and not a specific recommendation of a plan to change. That comes next, after you evaluate various options on how to fix things. For now – just specify the most important cause (i.e. alignment issue) that needs to be improved.

FORMULATING STRATEGIC CHANGE

Now that you have clarity on the primary cause-effect relationship you want to address you must evaluate alternatives on how you might address it. Remember the level we are working at here – STRATEGIC MANAGEMENT, not tactical. We want to pursue long-term competitive advantage…a sustainable superior performance. Don’t fall into thinking about tactics or short-term gains.

A strong argument (recommendation) is built on a consideration of relevant alternatives so that you can support your recommendation as the ‘best’ of the available options. So, the first step in this phase is to think about all the different ways you might address the cause (your #1 issue from the diagnosis phase). Here is where creativity can be useful. Think (brainstorm) ‘expansively’…deeply understand what you are trying to accomplish and then write brief notes on all the different (yet realistic) ways the firm might achieve it. Just as a simple example, let’s say you identify that a women’s fashion retailing firm needs to alter their strategy by expanding their Product Focus to include men’s clothing. How might they do this? Here are a few ways…

• Create their own proprietary line of menswear
• Negotiate to buy/stock leading name brand men’s apparel
• Do a mix of proprietary and name brand
• Buy a menswear retailer
• Partner with a menswear firm to operate a ‘store within the store’ concept

TIP – remember that this must stay consistent with your earlier analysis.

If the main issue you identified is with strategy, you must be thinking about actions that are changes to elements of strategy.

If you determined that strategy is okay but new capabilities are needed, then your alternative solutions must be about how to create that new capability. STAY CONSISTENT throughout your analysis.

Now evaluate the list of possible directions to achieve the change to identify the recommended method.

Recall that it is preferable to formulate strategy based on existing strengths/current sources of competitive advantage. Revisit your earlier analysis of what the firm already does well and consider how your alternative proposals either build on those strengths or will require the creation of all new sources of competitive advantage.

[Order Now]

Consider, at minimum, these criteria when evaluating alternatives:

• Does this alternative exploit an existing strength? Or, does it require fixing a weakness or adding all new resources/capabilities?
• How much time will it take to implement?
• How much funding will it take?
• How complex is the path?
• How risky is this – is it an ‘all in’ bet? What are the implications of failure?
• How disruptive will this be to ongoing operations? (Remember that you can’t stop business to implement change…you have to “fly the plane AND change the engines” simultaneously)

You can evaluate each relevant alternative method with these criteria subjectively and ‘in your head’ or you might try using a rate-rank method similar to how you evaluated

resources/capabilities with the VRIN criteria. Or…you might get creative with some other analytical method.

Regardless, you will want to arrive at your final recommendation with an argument as to how the specific change you propose appears to offer the most attractive way forward to address the key issue you identified.

In summary – to diagnose and formulate your recommendation to improve long-term performance and competitive advantage:

1. In what area/way does performance need to be improved?
2. What are the misalignments between the firm’s strategy and the demands of their environment?
3. What are the misalignments between the firm’s resources and capabilities and the demands of their strategy?
4. Which misalignments appear to be the causes of the performance issue to be improved?
5. Which one misalignment, if repaired, would have the greatest impact on long-term firm performance?
6. Identify possible, relevant alternative means of repairing that misalignment issue.
7. Evaluate alternative means with relevant criteria
8. Select, and argue for, the most attractive alternative as your final recommendation to address the underlying cause of the most pressing performance issue.

FIVE FORCES INDICATOR SHEET

2. Overall Assessment
3. Assess indicatorsof Each FORCE

YesNO*(Strong, Weak, or Moderate)

THREAT OF NEW ENTRANTS

1Is it easy for small firms to compete with the prices of larger firms?

2Are producer goods commodity-like?

3Are the fixed costs of entering low?

4Are legal and regulatory barriers nonexistent?

5Is it easy for buyers to switch to alternative producers?

6Is distribution easily available to any new firm?

~Is it easy for new entrants to come in and compete?~

THREAT OF SUBSTITUTES

7Are substitutes easy to identify and readily available?

8Can buyers easily switch to and learn to use substitutes?

9Do substitutes offer a similar or superior cost/benefit solution?

10Have buyers shown a propensity to switch to substitutes?

~If producers try to charge more, will buyers go to substitutes?~

BARGAINING POWER OF BUYERS

[Order Now]

11Are there only a few large buyers for the producers?

12Are purchases relatively large, infrequent, and important?

13Are producers’ goods commodity-like or somewhat undifferentiated?

14Can buyers easily switch between producers?

15Do buyers have easy access to information about producers’ goods?

16Is it easy for buyers to produce the goods themselves?

~Are buyers largely captive to the pricing decisions of producers?”

BARGAINING POWER OF SUPPLIERS

17Are there a limited number of key suppliers?

18Are suppliers’ goods unique and differentiated?

19Would it be difficult for producers to backward integrate?

20Is it difficult or costly for producers to switch suppliers?

~How easily can suppliers increase price of supplies?~

RIVALRY AMONG PRODUCERS

21Are there a limited number of producers of about the same size?

22Is industry growth limited or slow?

23Are producers’ goods commodity-like or somewhat undifferentiated?

24Do producers have high fixed costs?

25Is it difficult for producers to adjust capacity and scale?

~Are producers forced into intense battles for buyers?~

Q: How does each force affect the ability of a firm to charge a higher price and capture premium profit levels?

STRONG means the force INHIBITS producer profitability.

* Indicator questions are worded such that a “NO” indicates a weak force, i.e. that the force does not have a substantial

negative influence on industry profitability. SO – a “YES” is an indicator of a STRONG Force.

alignment between firm’s Resources and Capabilities and their Strategy

PLACE THE ORDER WITH US TODAY AND GET A PERFECT SCORE!!!