Organizational Strategies and Resources

machines were

exchanges as on their formaI training. What was thought

to be a

process based on explicit knowledge was,

in fact, based on tacit

knowledge, experience, and collaboration.9

together, and while eating,

revealed that

about what

as much

on their

actually

based

Charter 5 Analyzing an Organization's Strategie Resource Base

107

The Importance o~ Brands

and manufacturers

A firm's reputation with customers, partners, suppliers, and regula-

strategie asset. Physieal distance

tory agencies caTIbe a powerful

created the

between customers, distributors,

need for brands.They provided a guarantee of reliability and quality.

ln a global and Internet-based economy, they build trust and rein-

to use their credit cards

force value. Consumers might be reluctant

to purchase products over the Internet

if it were not for the trust

they accord to companies such as Amazon, Dell, and eBay. Because

consumer trust is the basis of all brand values, comparues that own

the brands have an immense incentive to work to retain that trust.

customer

Thus, brands are strategie assets that assist companies in build-

loyalty. A strong brand caTI help

ing and retaining

to entry. Because a

maintain profit margins and erect barriers

brand is so valuable to a company,

it must constantly be no ur-

ished, sustained, and protected. Doing so is becoming harder and

more expensive. Consumers

are busier, more dis tracte d, and

have more media options than ever before. Coca-Cola, Gillette,

and Nike struggle to increase volumes,

raise priees, and boost

margins.

fa~lure in support of a brand caTIbe cata-

strophie. A mistargeted advertising campaign, a drap-off in qual-

ity, or a corporate scandaI caTIquiekly reduce the value of a brand

and the reputation of the company that owns it.

ln addition,

Every year, Business Week, in cooperation with Interbrand, a

leading brand consultancy, publishes

a ranking of the 100 Best

Global Brands by dollar value. Brand value is calculated as the

the brand is expected to

net present value of the earnings

generate and secure in the future. Brands are selected according

to two criteria: (1) The brands have to be global, generating sig-

nifieant earnings in the main global markets, and (2) there must

be sufficient marketing and financial data publicly available for

preparing a reasonable valuation.

that

Although every company wants to grow its brand, executives

to

rankings of

that succeed in this task as the

must find a way to produce growth while remaining faithful

the company mission. The BusinessWeek/Interbrand

global firms recognize companies

best global brands.lO

108

Strategy: A View from the Top

The Business Week/lnterbrand

study found that companies

their mis-

that succeed in growing their brands while pursuing

sions build customer

loyalty that enables the company to attempt

risky expansions. Such companies tend to exhibit certain identifi-

for

able qualities, whieh include three strong recommendations

executives:

1. Do not lear public flops.

biggest year-over-year

ln 2006, Google gained 46 percent

in

rise of any company

brand value-the

ever. The company has succeeded in leveraging

its uni ver-

sally recognizable brand to launch a variety of new products,

is

even though its target success rate for these new ventures

lower than 40 percent.

2. Face your weaknesses. From 1998 to 2003, McDonald's mar-

Its nearly 100 percent

fell by $12.2 billion.

ket capitalization

in global markets was associated with tired

brand awareness

junk food, and obe-

or troubled images: Ronald Mc Donald,

showed a growing dis trust by

sity. Worse, opinion studies

ln

mothers

salads,

response,

chie ken meals, and fruit offerings.

ln 2006, McDonald's

global brand increased by 6 percent, and its market capital-

ization grew by $2 billion.

ta king their

company

to McDonald's.

premium-prieed

about

the

children

added

3. Protect

found

prohibiting

while parlaying

music CDs, books, and films.

your culture. The BusinessWeek/lnterbrand

vigorously

that Starbucks

study

image by

from being sold in its retail stores,

a series of

its brand value by coproducing

other brands

protects

its

Core Competencies

Corecompetenciesrepresent world class capabilities that enable a

company to build a competitive advantage. 3M has developed a

core competency

in

imaging, and mieroprocessor con troIs. Procter & Gamble's

orties,

marketing prowess allows it to adapt more quiekly than its rivaIs

to changing opportunities. The development of core competencies

a long-term strategie

has become a key element

in coatings. Canon has core competencies

in building

Charter 5 Analyzing an Organization's Strategie Resource Base

109

of the core competencies

evolve as a firm develops

advantage. An evaluation of strategie resources and capabilities,

therefore, must

a

include assessments

company has or is developing, how they are nurtured,

and how

they can be leveraged.

its business

Core competencies

processes and incorporates

its intellectual assets. Core competen-

cies are not just things a company does particularly well; rather,

they are sets of skills or systems that create a uniquely high value

for customers at best-in-class levels. To qualify, such skills or sys-

to perceived customer benefits, be diffi-

tems should contribute

across

cult for competitors

markets. Honda's use of small-engine

technology in a variety of

products-including

a good example.

to imitate, and allow for leverage

jet skis, and lawn mowers-is

motorcycles,

leveraged

to include

for example,

they should help differentiate

successfully

services by expanding

the Internet,

should be focused on creating value and

change. Targeting a care-

also benefits innovation.

its core

its client com-

the telephone,

Core competencies

be adapted as customer

requirements

fully selected set of core competencies

Charles' Schwab,

competency in brokerage

munication methods

branch offices, and financial advisors.

Hamel and Prahalad suggest

competencies. First, core competencies

broad array of markets. Second,

should be

core products and services. Third, core competencies

hard to imitate because they represent multiple skills, technolo-

gies, and organizational elements.l1 .

shows

three tests for identifying core

should provide access to a

the

resources to develop more than a handful of core competencies.

Picking the right ones, therefore,

is the key. "Which resources or

capabilities should we keep in-house and develop into core com-

is a key ques-

petencies and which ones should we outsource?"

tion to ask. Pharmaceutical

increasingly

companies,

outsource clinical testing in an effort to focus their resource base

of core com-

on drug development. Generally,

petencies should focus on long-ferro platforms capable of adapt-

ing to new market circumstances; on unique sources of leverage

on

in the value chain where the firm thinks

that only a few companies

it can dominate;

the development

for example,

Experience

have

110

Strategy: A View from the Top

elements that are important

key skills and knowledge,-not on products.

to customers

in the long fun; and on

FORCES

FOR CHANGE

Internai Forces for Change

ln Charter 3, we discussed change forces that emanate froID a com-

pany' s external strategie environment. A second set of drivers for

or froID its

strategie change cornes froID within the organization

immediate stakeholders. Disappointing finandal performance, new

owners or executives, limitations on growth with current strategies,

scardty of critieal resources, and internaI cultural changes are exam-

pIes of drivers that give fige to pressures for change.

it deserves a strategist's

Because internaI resistance can reduce a company's capadty to

careful

resistance to change can take four basie

rigidities; (2) closed mind-sets

for obsolete business beliefs and strategies;

and skills

adapt and chart a new course,

attention. Organizational

forfis: (1) structural, organizational

reflecting support

cultures

(3) entrenched

that are not conducive

change momentum that

requirements.12

reflecting values, behaviors,

to change; and (4) counterproductive

in tune with current

is not

strategie

InternaI

relatively

structures

and systems,

The four forfis of resistance represent very different strategie

including technol-

companies.

challenges.

ogy, can be changed

Converting closed minds to the need for change, or changing a

corporate

it typically

change is especially

and

involves altering aIl three forfis of resistance-structures

systems have to be rethought, mind-sets must change, and new

behaviors and skills have to be learned.

is considerably

diffieult

harder. Counterproductive

to remedy because

quiekly in most

culture,

Company Life Cycle Forces for Change

The forfis

that

develop highly depend on a company' s history, performance,

and strengths of organizational

resistance

Charter 5 Analyzing an Organization's Strategie Resource Base

111

some patterns

can be anticipated.

and culture. Nevertheless,

Companies

go through

founder or founding te am organizes

vision or purpose

company

to transform this vision into reality.

the

identities of the founders and that of their company are diffieult

to separate.

IHe cycles. A cycle begins when a

a start-up. At this time, a

for the

resources

ln these early stages,

is set, and the necessary

the initial direction

are marshaled

is established,

systems

are needed

As companies

grow, more-formaI

to

handle a widening variety of functions. The transition froID infor-

structure can stimulate or

mality to a more-formaI organizational

hinder strategie change. This passage to organizational maturity,

often described as the" entrepreneurial-managerial"

transition,

to many companies: how to maintain

poses a dilemma familiar

an entrepreneurial

spirit while moving toward an organizational

structure increasingly focused on contraI.

Growth makes organizationallearning

for con-

tinued success. The evolution of management pro cesses, such as

delegation of authority, coordination of effort, and collaboration

among organizational units, can have an increasing influence on

and

a company's

to environmental

the internaI operating

internaI challenges.

by greater ambiguity

environment

that

than in established

encouraged

in a

and innovation

lack of contrai

in a rapidly growing company, whieh can cause

the firm to loge Hs strategie focus.

the ambiguity

also results

ln younger comparues,

organizations. Often,

entrepreneurship

in responding

a requirement

characterized

effectiveness

is frequently

.

Evolving and established companies

share the pervasive chal-

lenge of finding strategies to manage growth. For some evolving

companies, uncontrolled growth is a major concern. As they try to

they find that success masks a hast of

cape with rapid growth,

development problems. Dilemmas of leadership can develop,

loss

of focus becomes an issue, communieation becomes harder, skill

ln estab-

development

the pressure to grow faster can skew strategie

lished companies,

forays

thinking. Ill-considered acquisitions or market expansions,

into unproven

core

froID developing

skills,

falls behind, and stress becomes evident.

entrepreneurial

and frequent

technologies,

exhortations

deviations

for more

112

Strategy: A View from the Top

thinking are indicative

mature companies.

of the challenges

experienced

in more

Strategie Forces for Change

The increased importance of a firm's capacity to effectively de al

with change has made a strategie perspective on this issue essen-

tial. As we have seen, a host of internaI factors can reduce a com-

pany' s capacity for change. Sometimes structural

rigidities, a lack

of adequate resources, or an adherence to dysfunctional processes

inhibit change. Most often, however,

resistance to change can be

traced to cultural factors.

One of the early arguments

in favor of analyzing the interac-

tive nature of organizational

systems,

and style with strategy is the so-called 7-S model, developed at

McKinsey & Company.13 Its central

effectiveness

of which strategy is just one.

stems from the interaction of a number of factors,

idea is that organizational

factors such as structure,

that

solutions

The model

to effect meaningful

includes seven different variables: strategy, struc-

ture, systems, shared values, skills, staff, and style. Intentionally,

it depicts a situation in which it is

its design is not hierarchical;

not clear which factor

is the driving force for change or the

biggest obstacle to change. The different variables are intercon-

in one will force change in another, or, put dif-

nected-change

in one area must be accompanied by progress

ferently, progress

in another

the

change. As a consequence,

problems

model holds

that

are doomed to fail.

invoke just one or a few of these variables

Therefore, an emphasis on "structural"

("Let's reorga-

attention to strategy, systems, and all the other

nize") without

Style, skills, and superordi-

variables, can be counterproductive.

is built-

nate goals-the main values around which a business

as

and can be at

even measurable,

are observable,

least

in bringing

as strategy and structure

important

funda-

The key to orchestrating

in an organization.

mental change

change, therefore,

align the different variables

tion, and then act decisively on all dimensions.

is to assess the potential

in the model

impact of each factor,

in the desired direc-

to organizational

solutions

about

Charter 5 Analyzing an Organization's

Strategie Resource Base

113

STAKEHOLDER

ANALYSIS

they bring to the process. External

it is important

inside and outside the organization,

to

ln assessing a company' s strategie position,

identify key stakeholders

the

yoles they play in fulfilling the organization's mission, and the

values

customers, suppliers, alliance partners, and regulatory agencies-

have a major

internaI

executives, managers,

implementers of strategy.

strategie options. A firm's

of directors, CEO,

board

and

and employees-are

influence on a firm's

owners,

stakeholders-key

stakeholders-its

the shapers

recognize

objectives

the legitimate

the company's

often for demanding-that

Each of these interested

and strategies,

rights of the firm's

parties has justifiable

ln determining

executives must

stakeholders.

reasons for expecting-and

pany satisfy its daim.

returns on their

customers want what

buyers; governments want adherence to legislation; unions seek

local com-

member benefits; competitors want fair competition;

munities want

citizen; and the gen-

eral public expects the firm's existence to improve their nation's

quality of life.

the com-

ln general, stockholders daim competitive

seek job satisfaction;

seek dependable

the firm to be a responsible

for; suppliers

investment;

employees

the y par

equ~l employment

The general daims of stakeholders

are reflected in thousands

of specifie demands

wages, pure air, job

on every firm-high

security, product quality, community serviee, taxes, occupational

opportunity

health and safety regulations,

regulations, product variety, wide markets, career opportunities,

company

many more. Although most, perhaps

sent desirable ends,

sis. They must be assigned priorities

relative emphasis

a consequence

decision making.

security, high ROI, and many,

repre-

all, of these daims

they cannot be pursued with equal empha-

in accordance with the

is

the firm uses in its strategie

that the firm will give them. That emphasis

of the criteria that

investment

growth,

114

Strategy: A View from the Top