Final

Lecture: 4
Resource Strength & Organizational Capabilities

Components of building a capable organization

• Staffing the organization
• Building core competencies and competitive capabilities
• Structuring the organization and work effort

Staffing The Organization

Putting Together a Strong Management Team : Assembling a capable management
team is one of the first cornerstone of the organization building tasks. Determination
of core management team and finding the right people for different positions is
extremely important.

Recruiting and Retaining Talented Employees A good management team is not

enough. Staffing the organization with talented people must go much deeper than
managerial jobs in order to assemble the human resources and knowledge base needed
for effective strategy execution. Companies like General Electric, Procter & Gamble,
PepsiCo, Hewlett-Packard, Nike, Microsoft make a concerted effort to recruit the
best and brightest talent they can find and then retain them with excellent
compensation packages, opportunities for rapid advancement and professional
growth, and challenging and interesting assignments.

The best companies use a variety of practices to develop their knowledge base and
build intellectual capital:
1. Spend considerable effort in screening and evaluating job applicants, selecting
only, those with suitable skill sets, energy, initiative, judgment, and aptitudes
for learning and adaptability to the company’s work environment and culture.
Many companies take extraordinary pains to seek out the right people to fill
job openings- in 1997, Southwest Airlines got 150,000 resumes but hired only
5,000 people.
2. Put employees through training programs that continue throughout their
careers.
3. Give them challenging, interesting, and skills-stretching assignments.
4. Rotate them through jobs that have great content and wider span functional
and geographic boundary.
5. Encourages employees to be creative and innovative and to submit ideas for
new products or businesses. Progressive companies work hard at creating a
work environment where work ideas and suggestions bubble up from below
rather than proceed from the top down. Employees are made to feel their
opinions count.
6. Foster a stimulating and engaging work environment, such that employees will
consider the company “a great place to work”.
 7. Exert efforts to retain high-potential, high performing employees with salary
increases, performance bonuses, stock options and equity ownership, and other
long-term incentives.
8. Average performers are coached to do better, while under performers and
benchwarmers are weeded out.

Building Core Competencies and Competitive Capabilities

High among the organization-building concerns in the strategy
implementing/executing process is the need to build competitively valuable core
competencies and organizational capabilities that give the firm a competitive edge
over rival’s in performing one of more critical value chain activities.

Developing and Strengthening Core Competencies

Core competencies can relate to any strategically relevant factor. Honda’s core
competence is its depth of experience in gasoline engine technology and small engine
design. Intel’s is in the design of complex chips for personal computers. Proctor &
Gamble’s core competencies reside in its superb marketing distribution Skills and its
R&D capabilities.
Four traits concerning core competencies and competitive capabilities are important to
organization building:
• Core competencies rarely consist of narrow skills or the work efforts of a
single department. More often, they are bundles of skills and know-how
growing out of the combined efforts of cross-functional departments.

• Because core competencies typically reside in the combined efforts of

different work groups and departments, individual supervisors and department
heads can’t be expected to see building the overall corporation’s core
competencies as their responsibility.

• The company’s core competencies concentrates in efforts and talent than rivals
on deepening and strengthening these competencies.
• A company’s selected bases of competences need to be broad enough and
flexible enough to respond to an unknown future as customers’ expectation
gradually changes from time to time.

Developing and Strengthening Organizational Capabilities

Good execution of strategy is needed for which we need to enhance company’s
competencies and capabilities.
• First, the organization must develop the ability to do something, however
imperfectly or inefficiently. It includes selecting people with the requisite
skills and experience, upgrading or expanding individual abilities as needed,
and then molding the efforts and work products of individuals into a
cooperative group effort to create organizational ability.

• Then as experience builds, the organizational ability now begins to translate

into a competence or a capability.
 • Now the organization get so good to accomplish the activity better than the
rivals; the capability has the potential for competitive advantage.

Updating and Reshaping Competencies and Capabilities as External Conditions

and Company Strategy Change
Even after core competencies and competitive capabilities are in place and
functioning, company managers can’t relax. Competencies and capabilities that grow
stale cam impair competitiveness unless they are refreshed and modified, with some
even being phased out and replaced with altogether new ones.

The Strategic Role of Employee Training Training and retraining are important when
a company shifts to a strategy requiring different skills. competitive capabilities,
managerial approaches, and operating methods. Training is also strategically
important in organizational efforts to build skills-based competencies.

Matching Organization Structure to Strategy

There are few hard-and-fast rules for organizing the work effort to support strategy.
Every firm’s organization chart is idiosyncratic, reflecting prior organizational
patterns, varying internal circumstances, executive judgments about reporting
relationships, and the politics of who gets which assignments.

Identifying Strategy-Critical Activities In any business, some activities in the value

chain are always more critical to strategic success and competitive advantage than
others. For instance, hotel/motel enterprises have to be good at fast
check-in/check-out room maintenance, food service, and creating a pleasant
ambience.

Reasons to Consider Outsourcing, “Non critical” Value Chain Activities

There are strong reasons to consider outsourcing besides lower costs and less internal
hassle. Outsourcing certain activities can decrease internal bureaucracies, flatten the
organization structure, speed decision making, heighten the company’s strategic
focus, improve its innovative capacity (through interaction with “best in world”
suppliers), and increase competitive responsiveness.

Reasons to Consider Partnering with Others to Gain Added Competitive

Capabilities Partnerships can add capabilities and contribute to better strategy
execution. Automobile manufacturers work closely with their suppliers to advance the
design and functioning of components, to incorporate new technology, to better
integrate individual parts and components to form engine cooling systems,
transmission systems, electrical systems and so on.

Making Strategy-Critical Activities the Main Building Blocks

Activities crucial to strategic success should be prioritized with necessary
adjustments which can open the door to successful execution and better
performance .
Determining the Degree of Authority and Independence to Give Each Unit and
Each Employee
Companies must decide how much authority to give managers of each organization
unit and how much decision-making latitude to give individual employees in
performing their jobs..

Providing for Cross-Unit Coordination

The chief executive officer, chief operating officer, and business-level managers acts
as a central points of coordination among different departments which contribute to
enhanced performance and thus reduces the time and energy to accomplish different
tasks.
Assigning Responsibility for Collaboration with Outsiders
Authorized persons should communicate with major stake holders involved in
strategy execution. Cooperative relationship presents immediate opportunities and
opens the door to future possibilities.

Strategic Business Unit

A strategic business unit (SBU) is a grouping of business subsidiaries based on
important strategic elements common to all.
Closely related value chain activities is common to different SBU, offering same kind
of competitive advantage
Ex: At General Electric, a pioneer in the concept of SBUs, 190 businesses were
grouped into 43 SBUs and then aggregated further into six “sectors”.

Cash hog businesses.

Different businesses have different cash flow and investment characteristics. Business
units with rapid growth industries are often called cash hogs because the annual cash
flows they generate from operations falls short of their annual capital requirements.
Thus rapid-growth business frequently takes a huge capital investments for some
years to acquire new facilities and equipment to support the business.