Identifying Organisational
Competencies
Resource Audit & Value Systems
The Aims of this Session
• Identify the importance of auditing a Business’
resources
• Determine what are Business Resources
• Consider methods of classifying resources
• Introduce the idea of value systems
• Explore the Value Chain model
• Consider extensions to how value is determined in
modern business
Activity
• What steps would you consider to undertake a resource
audit?
Resource audit
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Competences
In separate activities
Through linking activities
Some are ...
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Rigidities
Preventing change
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Core competences
To outperform competition
To create new opportunities
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Comparisons
Historical
Industry norms
Benchmarking
Assessing balance
Resources
Competences
Business units
Identifying key issues
SWOT analysis
Critical success factors
Understanding strategic
capability
Analysing strategic capability
Johnson, Scholes & Whittington, 2005
Category of Resource
• Tangible
– Often refers to physical aspects of the organisation
– Equipment, buildings, etc.
• Intangible
– Concerned more with perception of value.
• Organisational Capability
– Considers the way in which an organisation performs
its activities
What are Business Resources?
Physical
?
Human
Financial
Intangibles
Prior or
Acquired
Resources
Innovative
Capability
Imitability
Sustainable
Competitve
Truly
Competitive
Advantage
Substitutability
Durability
Appropriability
Resource Based View – Seven Elements
Lynch, R. (2006)
Resource Audit : Functional Areas
Finance
Production
Corporate/
HRM
Environmental
inputs
Environmental
outputs
Logistics
Marketing
R&D
MIS
Resource Audit
Technological
Capabilities
Organisational
Systems
Finance
Production
Corporate/
HRM
Environmental
outputs
Environmental
inputs
Logistics
Physical
Resources
Marketing
R&D
Financial
Resources
MIS
Human
Resources
Intangible
Resources
PRODUCTS
&
SERVICES
Same as competitors’
or
easy to imitate
RESOURCES
COMPETENCES
*
Better than competitors’
and
difficult to imitate*
Necessary
resources
Unique resources
Threshold
competences
Core competences
Provides the basis to outperform competitors or
demonstrably provide better value for money
Resources, competences and competitive advantage
Johnson, Scholes & Whittington, 2005
Functional Area Profile
R&D /
ENGINEERING
FINANCIAL
RESOURCES
PHYSICAL
RESOURCES
HUMAN
RESOURCES
ORG.
SYSTEMS
TECH.
CAPABILITIES
INTANGIBLE
RESOURCES
Products
MANUFACTURING
MARKETING
LOGISTICS
FINANCE
CORPORATE/
PERSONNEL/ MIS
RESOURCE AUDIT
PROFORMA
FINANCIAL
RES OURCES
PHYS ICAL
RES OURCES
HUMAN
RES OURCES
Capital Structure
Working Capital
Cashflow
Costing System s
Natu re of Shareho lders
Relations with Bankers
INTANGIBLE
RES OURCES
£ for basic research
£ for new product dev.
£ for product
improvements
£ for process
improvements
Location & Plant
Size, age and locat ion of
Capital Equipmen t
R&D facilities
Plan ning & Manu facturing Size, age and locat ion of
System s
development facilit ies
Quality Control
Num bers
Qualifications & Skills
Experien ce & Age Pro file
Turn over & Absen teeism
Flexibility & Training
Motivation & Culture
Age
Flexibility
ORGANIS ATIONAL Spend
SYS TEMS
Sophistication
Integration
TECHNOLOGICAL
CAPABILITIES
R&D /
ENGINEERING
Patents
Skills
Equipment
System s
Brands
Experien ce &Know-How
Goodwill
Motivation
Entrepreneurship
Intrapreneurship
Inno vation
MANUFACTURING
MARKETING
£
£
£
£
£ for sales and
promotion
£ for service
£ for market research
for plant
for equipment
for inv entory
for labour
LOGIS TICS
£ for purchasing
£ for distribution
No., locat ion, size and
age of plants
Degree o f automation
Degree o f integrat ion
T ype of equipmen t
No. & lo cation of sales No. & lo cation of
offices
warehouses
No. & lo cation of
service facilities
Nos., types an d ages of
key scient ist s and
engineers
T urnover of k ey
personnel
No., t ypes and ages of
key st aff personnel and
foremen
T urnover of k ey
personnel
Nos., types & ages of
key salespeople
Market ing st aff
T urnover of k ey
personnel
System t o monit or
technolo gical
developments
Systems to control
conceptual/design/
development process
Nature of sophisticat ion
of purchasing syst em;
production scheduling
and cont rol sy stem;
quality control system
Nos., types & ages of
key logistics staff
T urnover of k ey
personnel
Manufacturing
experience
Informal net works
Inno vation
CORPORATE
£ for short-t erm cash £ for planning system
£ for raising long-term£ for cont rol system
funds
£ for management
£ for management
development
development
Locat ion of financial
and accounting staff Locat ion & condition of
No. of major lenders corporat e headquarters
Dispersion of stock
ownership
No. & types o f
computers
Nos., types & ages of Nos., types & ages of
key financial &
key managers and
accounting staff
corporat e staff
T urnover of k ey
T urnover of k ey
personnel
personnel
T ype and sophisticat ionNature of organisation al
of cash management culture and values
Nature & sophisticat ion Nature & sophisticat ion
system; financial
Sophist ication of planning
of purchasing and
of service syst em,
market s forecast ing and cont rol sy stems
pricing and credit st aff; distribution systems
system; corporat e
Delegation of authorit y
market research st aff
financial models;
Measurement of reward
accounting syst em
systems
Raw mat erials availability T rends in total const ant £Purchasing &
T rends in total const ant £ per-unit cost s for sales & distribution systems
No. of patents
per-unit cost s for raw
promotion; and service St ock control syst ems
No. of new products
materials and purchased parts;% retail outlet coverage
% of sales from new
direct labour and equipmen t. Key account advantages
products
Productivit y
Price competitiveness
Relative product qualit y Capacity ut ilisation
Breadth of product line
Unionisation
Bran d loyalty
Formal & informal R&D
experience/activit y
Levels of innovation
Informal net works &
connections
FINANCE
Bran ds
Networks &
connections
Inno vation
Informal net works &
connections
Goodwill
Inno vation
Credit rating
Credit availability
Leverage
PE ratio
St ock price
Cash flow
Dividend payout
Relationships with
bank ers; shareholders;
creditors; debt ors.
Informal connections
Inno vation
Corporate image
Influence of regulat ory
and governmental
agencies
Qualit y of corporat e staff
Organisational synergies
Goodwill
Corporate image
Entrepreneurship
Inno vation
Informal net works
Resource Audit: Remember!
• Access Everything
• Do not take things for granted
• Uniqueness is the Key
• Do you have the resources to support strategic
intent?
Activity
• What are the Resources that Tesco would
need to analyse?
• What questions should the company be
asking?
Balance of Resources
• Assessing the balance of resources
– Balance of resources between different parts of an
organisation
– Balance of resources between products with
different market potentials
– Balance of skills and personalities
– Balance of resources to cope with uncertainty
(flexibility analysis)
Balance of Resources
• Assessing resource flexibility:
– no single organisation operates in a perfectly static
environment
– the fast changing environment often requires firms to
adapt. The question is: are all firms capable of doing
so?
– an important task in strategic analysis is therefore to
assess if a firm has balanced resources to cope with
sudden change in its environment
Balance of Resources
• Assessing resource flexibility - the procedure:
– list and rank all areas with marked uncertainty, e.g.
products, processes, demand, competition
– examine whether or not and to what extent a firm’s
available resources can cope with these prospective
situations, e.g. a sudden increase or drop in demand by
30%, a new and powerful supplier entering the market
Value Systems
What is meant by ‘Strategic Value’?
• “the degree to which a particular action or planned action is
important or useful in relation to something that it wants to
achieve”
Cambridge Dictionary
• The perspective of value is inevitably shaped by the philosophy
of the business, i.e. is it ‘low-cost’, ‘differentiation’
• This starting point defines how value is achieved
• Value systems are simply ways in which activities may enable
the value to be realised
Value Chain Analysis
Purpose:
• To identify the key activities in an organisation where the organisation gains value added
• To identify the linkages between activities that add
value
• To identify the key activities outside the organisation
The original value chain
Firm infrastructure
Human resource management
Support
activities
Technology development
Procurement
Inbound
logistics
Operations
Outbound
logistics
Marketing
Service
and sales
Primary activities
Source: Adapted from M. E. Porter, Competitive Strategy, Free Press, 1985.
Used with permission of The Free Press, a division of Macmillan, Inc. Copyright 1985
Michael E. Porter
21
Value Chain Analysis
• Primary activities
– Inbound logistics - receiving, storing, disseminating and
distributing inputs to the conversion process
– Operations - transforming inputs into outputs (differ
from one industry to the next)
– Outbound logistics - collecting, storing and physically
distributing products to buyers
– Marketing & sales - providing a means by which buyers
can purchase the products and inducing them to do so
– Service - activities provided to enhance or maintain the
value of products
Value Chain Analysis
• Support activities
– Procurement - acquiring resource inputs to the primary
activities
– Technology development - product, process, resourcing
– HRM - recruiting, training, developing and rewarding
– Infrastructure- general management & organisational
structure, accounting, quality control ,etc.
Value Chain Analysis
Value Creation vs Process Facilitation
Primary activities
- create value by transforming inputs into outputs
Support activities
- facilitate and influence the processes whereby
primary activities are performed
- can create value too
Traditional Supply Chain approach
Value Chain: Resource Utilisation
• Identify : Value Activities
- Assign costs and added value
- identify critical activities
• Identify : Cost or Value Drivers
- Factors which determine cost or value of each activity
• Identify : Linkages
- Which reduce cost or add value
- Which discourage imitation
Value Chain: Sources of Cost Efficiency
Economies
of Scale
Experience
COST
EFFICIENCY
Supply Cost
Product/process
design
Value Systems
• A danger with the Value Chain is that a linear process
can be overly simplistic
• The idea of more fluid structures has emerged in
recent years with different labels:
– Value Webs
– Value Networks
– Value ecologies
• All build on the Value Chain but emphasis a need to
reconsider the relationships involved
Value Networks
Value Chain Analysis
• Linkages between value activities
– information systems form part of a firm’s infrastructure
which integrate and coordinate all activities to ensure the
creation of value for the company
– better linkages between activities can often lead to
reduced costs and improved corporate performance
Examples of Types of Linkage
Type of linkage
Type of activity
Example
Internal linkage
Primary-primary
Interdepartmental co-ordination
Primary-support
Computer-based operational systems
Support-support
Managing innovation through people
Vertical integration
Extend ownership of activities in
supply / distribution chain
Specification and checking
... of supplier / distributor performance
Total quality management
Merchandising activities
Working with suppliers /distributors to improve
their performance
Reconfigure value chain
... by deleting activities
External linkage
Strategic alliances
Johnson, Scholes & Whittington, 2011
31
Activity
• Develop a Value System for Tesco
• Consider:
– The activities that add or detract value
– Linkages between activities
– External links that are important to achieving value
Value Chain Analysis
• Key steps:
– study each type of activity in turn
– examine whether it creates value for the company or
simply adds to its costs
– compare the value created by each type of activity against
the costs of the resources it consumes
– identify key activities that add value to the company
– identify key activities that add only costs to the company
Value Chain Analysis
• Guide to practical application:
– nature of organisation differs from one to the next
– focus on important activities
– identify where possible the contributions each support
activity makes to the primary activities
– link the analysis of activities to the prospect of
increasing the perceived value (external measure)
– examine the possibility of cost reduction (internal
measure)
– evaluate ways to increase value/reduce cost by
forward/backward integration along the value system
(to be considered in greater depth when discussing
strategic options)