Strategic Management Assignment 1

Question three, Part a:

o      What is a strategic gap and how can it be identified?

o      Explain the concept of unique resources, give examples, justify your choice and explain why these are important.

o      Explain how critical success factors are identified? What role they contribute to the analysis of strategic gaps?.

o      Explain the concept of core competencies, give examples, justify your choice and explain why these are important.

Part b.

o      Assess the resources and competencies of Dyson, noting which are threshold and which are distinctive.

Question Three: Part A:

o       Strategic Gap

A strategic gap is defined by Johnson, Whittington and Scholes as:

“Opportunities in the environment that are not being fully exploited by competitors” (2011, p. 73)

Interest in identification of the “strategic gap” gained prominence in literature in the 1940s, peaked in the 1990s, but has since started to decline (Ngram, 2011). As the intensity of competition has increased markets have become unwilling to accept and pay a premium for homogenous products and services. This has created market fragmentation, increased the pace of innovation, and as products in each segment have become homogenised, forced companies to identify and compete for smaller niches. The resulting reduction in profitability in the larger markets has meant new and existing players need to evolve products and services or create new markets to remain viable.

The purpose of the tools of strategic gap identification is a systematic way to allow manager to “think outside the box”. It is used to identify evolutionary and disruptive strategies to retain competitive advantage by identifying as yet unfulfilled consumer needs (Mang, 2000). Identifying strategic gaps was popularised by academics such as Ansoff who created the Ansoff product-market matrix (refer Appendix A). Ansoff matrix identifies gaps using a demand side view and includes:

Product development; new product development

Market penetration; such as growing market share or increasing product usage

Market development; creating new markets for existing products

New product development; this may include brand extensions and creating original products for existing markets (Watts, Cope & Hulme, 1998).

Porter advanced the theory by creating the five forces model (refer Appendix B) which identifies supply side, demand side, alternatives, overall industry attractiveness and their relationship. These assist planners in identifying strategic gaps. Porter’s five forces include:

Threat of new entry; looking at the industry broadly, the greater the availability of capacity, the lower the ease of entry. The higher the competition intensity the lower the ability to make profits, which makes the industry less attractive.

Suppliers; a lack of intense competition, high switching costs and low availability allow the supply side to dictate terms making the industry less attractive.

Buyers: low switching costs, low differentiation, few purchasers and low marginal costs allow buyers to be more prices sensitive, giving the demand side more power and making the industry less attractive.

Substitutes: similar outcomes, achieved by different means, these keep a dampener on profitability and make an industry less attractive (Porter, 2008).

The current idea created by Kim and Mauborgne is called”blue oceans thinking” (refer Appendix C) looks at the demand side and tries to identify customer expectation and demands that haven’t currently been exploited. They use a grid format similar to Porters, it identifies:

Eliminate: which areas can the task not be completed without?

Reduce: which areas can be achieved at below industry standard?

Raise: which areas can be achieved at above industry standard?

Create: what has the industry never invented before? (Sheehan, Vaidyanathan, 2009).

The strategic gap assessment has moved from identifying performance gaps to exposing aspects such as consumer perception and expectations of organisational performance (Saunders, Yusuf, 2004). Strategic gap research continues to evolve and identify incremental aspects of the strategic gap to be exploited. While important, the lack of discovery of new ways to exploit potential profit centres mean academic interest in the area seems to be waning.

o       Unique Resources

A unique or strategic resource is one that allows ongoing competitive advantage and enhanced outcomes. They are product or project dependent and can be tangible or intangible. A unique tangible resource by itself is unlikely to give an ongoing competitive advantage, it is normally the combination of the resource and its deployment that gives it value. These aspects are underpinned by the VRIN model which identifies the strategic capability of the resources (Smith, 2008). The VRIN model (refer Appendix D) includes:

Value: This is the unique resources that can unlock value and competitive advantage.

Rarity: These are the resources that possessed by few other organisations.

Imitability: The resources that a difficult to copy.

Non substitutability: These are the ‘pinch points’, the resources that can’t be replaced.

Rolls Royce cars are an example of using reputation as a unique resource. There are many car manufacturers that produce high quality vehicles but Roll Royce is still the best known aspirational car in the market place. This reputation is important because a Rolls Royce is still a large expensive chunk of metal to which the same laws of physics apply as other cars, and for which there is no need only desire. Wine is an example of a product that in combination with reputation achieves a competitive advantage. The product is unique because there are many so many variables that can’t be controlled and each time it is made the result is slightly different. Every person who tries the product has a slightly different palate and so their tastes are slightly different making each brand a unique experience. If this is marketed and distributed successfully to the consumer, then the manufacturer can achieve a sustainable competitive advantage.

o       Critical Success Factors

Critical success factors (CSFs) can be considered the critical “pinch” points, which are the areas, products, costs, quality etc. that must be achieved for the project to work and compete in the market place successfully (Dexter, 2010). Identifying CSFs allows planners to recognise if the company has the capacity to move from analysis to exploitation of the potential strategic gap. Planners can more realistically assess possible opportunities and threats when they understand more closely the problem areas that any new direction may expose (Johnson, Whittington, Scholes, 2011). The current ongoing financial crisis is an example of the fluid nature of CSFs. Until recently the ability to borrow money was relatively easy. In South Australia there are many mining projects that are ready to proceed that either will not go ahead or proceed in a reduced form because of their inability to raise capital. When these projects were initiated the planners would have considered raising the funds as an issue but not the CSF that it has become.

o       Core Competencies

Core competencies are the bundle of skills and resources that allow a company to compete successfully, achieve profitability and be the foundation of competitive advantage. (Johnson, Whittington, Scholes, 2011).Business in the past would have considered core competencies something that was to be held in house and closely guarded. The increasing complexity of businesses means that what a core competency is and how it should be controlled has become less obvious. The ability to keep these competencies in house is almost impossible (Shreefal, 2007). At Holden, for example, a core competency would be the design of cars. Even within this core competency there are many aspects that would be outsourced. For example: they wouldn’t write the software that is used to draw the car and they probably use outside design houses, engineers and mathematicians to look at certain aspects of a new design. Dell for example looks like it has computer manufacturer as a core competency, but doesn’t make anything just assembles the parts. The complexity, high level of dynamism (rate of change) and number of manufacturers with in the computer market mean the power of suppliers is low enough that it doesn’t need to keep these competencies in house. In the past the outsourcing of core competencies has been cyclical in nature. Companies have been prepared to outsource more in good times and as times get tough or there is a problem they are brought back in-house again. With the rise of better communications, complexity of projects and efficiency of transport infrastructure many companies will be forced to outsource core competencies to compete (Merrifield, 2006). Taking this to its logical conclusion is outsourcing everything. This leads to the issues that are demonstrated by the local tool “manufacturer” GMC, who did none of their manufacture in house, which made outsourcing a core competency. The problem created was that large retailers such as Bunning’s also have manufacturers that they can buy the same product from direct, save money and just bypass GMC. In 2008 this left GMC in receivership and the issue of controlling core competencies unresolved and even less clear (ABC, 2008).

Part B

o       Resources and Competencies of Dyson

Threshold and distinctive are the two types of resource or competency. Threshold are the things a company needs to compete in a given market and distinctive are those attributes that allow the company to thrive and prosper (Johnson, Whittington, Scholes, 2011). Dyson’s threshold resources include 100 million pound profit which allows it to compete on an equal footing with its competitors even though it is not the largest manufacturer. They also have a robust well presented product that has an international distribution network. The distinctive resources include manufacturing plants that manufacture in countries with low labour costs and are close to suppliers. This is in contrast to Miele for example who mainly manufacture in Germany and have much higher production costs and other well known designers such as Apple who outsource their manufacture. Threshold competencies at Dyson include the skills that 350 engineers and scientists bring with them. What makes Dyson competencies distinctive is the quadrupling of research investment in five years and the links between other local and international research centres. This investment is backed up by the type of employees that they seek out which include people that are “creative and courageous-unconditioned fresh-thinkers” (Johnson, Whittington, Scholes, 2011, p. 116). These people then have their creativity reinforced by the companies mantra of “thinking, testing, breaking, questioning” (Johnson, Whittington, Scholes, 2011, p. 116) and through this the understanding of why the project did not work and how to improve it. This tolerance of failure comparative to competitors allows Dyson employees to take greater risks that will hopefully give the company a greater competitive advantage. Sir James Dyson’s road to success is also a distinctive competency. Because his business was started from nothing and had resistance from other product manufacturers it meant that he was forced to have a high tolerance, and willingness to take on personal risk. At every step of the way he was financially accountable for his actions which are in contrast to most corporations where at best managers have a small stake in the organisation. This has lead the company to another competency which is its high level of secrecy, this high level of secrecy allows the company to surprise the market with new products, protect them with patents and have a longer and larger first mover advantage. This is demonstrated by the Dyson bladeless fan and hand dryer that are both unique.

“The flutter of a butterfly’s wings in Brazil may set off a chain of events that, over time, leads to a tornado in Texas” (Riley, 2006)

Trying to asses competencies is a case of causal ambiguity. As the “Butterfly effect” and chaos theory suggests, threshold capabilities completed slightly differently may in fact be distinctive. If these capabilities were clearly understood then they would be copied and wouldn’t be distinctive. The danger of defining the competencies in this way is missing how the Dyson company works as an organism. The competitive advantages the organisation has are often created by the synergies that are created from interaction between threshold and distinctive resources and competencies.

Conclusion

Whilst this type of analysis is important to understand yourself and competitors, but as chaos theory suggests even small changes can create significant differences in the outcomes. The strategic gap and its analysis are important in understanding the creation of competitive advantage but is only one aspect on the road to their successful exploitation.

Result: 8/10

Bibliography

Abc.net.au, 2008, “GMC goes into receivership”, viewed 19 August 2011, <http://www.abc.net.au/news/2008-12-01/gmc-goes-into-receivership/225140&gt;

Dexter, B, 2010, “Critical success factors for developmental team projects”. Team performance management, vol.16, no 7-8, pp. 343, viewed 18 August 2011, (Emerald Management Plus).

Hussey, D, 1999, “Igor Ansoff’s continuing contribution to strategic management” Strategic Change, vol. 8, pp. 375-392, viewed 14 August 2011, (EBSCO Host).

Johnson, G, Whittington, R, Scholes, K, 2011, Exploring Strategy (Ninth Edition), Peason Education Limited, Essex England.

Mang, P, 2000, “Strategic innovation: Constantinos Markides on strategy and management”.  The Academy of Management executive, vol. 14, no. 3, pp. 43, viewed 18 August 2011, (Business Source Complete).

Merrifield, B, 2006, “Make Outsourcing a Core Competency”. Research technology management, vol. 49, no. 3, pp. 10, viewed 18 August 2011, (Business Source Complete).

Ngram viewer, 2011, Strategic gap, viewed 13 August 2011, Ngram Viewer,.

Porter, M, 2008, “The five Competitive Forces that Shape Strategy”, Harvard Business Review, Vol. 86, no. 1, pp. 78-93, viewed 14 August 2011, (EBSCO Host).

Saunders, M, Yusuf, A, 2004, “An Investigation of Strategic Gaps between Projected and Target Student Recruitment in a Regional College of Technology: A Managerial Perspective”, International Journal of Management, vol. 21 no. 4, pp. 464-470, viewed 14 August 2011, (Business Source Complete).

Sheehan, N, Vaidyanathan, G, 2009, “Using a value creation compass to

discover ‘‘Blue Oceans’’”, Strategy & Leadership, vol. 37, no. 2, pp. 13-20, viewed 18 August 2011, (Emerald Insight).

Shreefal, M, 2007, “Outsourcing a Core Competency”. Research technology management, vol. 50, no. 3, pp. 28, viewed 19 August 2011, (Business Source Complete).

Smith, A, 2008, “Resource Based View of the Firm: Measures of Reputation Among Health Service-Sector Businesses”, Health Marketing Quarterly, Vol. 25 no.4, pp. 361-382, (EBSCO Host).

Watts, G, Cope, J and Hulme, M, 1998, “Ansoff’s Matrix, pain and gain Growth strategies and adaptive learning among small food producers” International Journal of Entrepreneurial Behaviour & Research, vol. 4 no. 2, pp. 101-111, viewed 14 August 2011, (EBSCO Host).

Appendix A

Ansoff’s Product Matrix

(Hussey, 1999).

Appendix B

Porters Five Forces

(Porter, 2008)

Appendix C

Kim and Mauborgne’s ‘blue oceans thinking’

(Sheehan, Vaidyanathan, 2009)

Appendix D

The VRIN model includes:

Value: This is the unique resources that can unlock value and competitive advantage.

Rarity: These are the resources that possessed by few other organisations.

Imitability: The resources that a difficult to copy.

Non substitutability: These are the pinch points, the resources that can’t be replaced. (Johnson,  Whittington, Scholes, 2011)

Result: 8/10

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