Page 106 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes 5. Geographical location (for example, proximity to supplies reduces input costs)
6. Policy choices (such as the choices on the product mix, the number of suppliers used, wage
costs, skills requirements and other human resource policies affect costs)
7. Institutional factors (which include political and legal factors, each of which can have a
significant impact on costs).

Value Drivers

Value drivers are similar to cost drivers, but they relate to other features (other than low price)
valued by buyers. Identifying value derivers comes from understanding customer requirements,
which may include:

1. Policy choices (choices such as product features, quality of input materials, provision of
customer services and skills and experience of staff).
2. Linkages between activities (for example, between suppliers and buyers; sales and after-
sales staff).
The cost and value drivers vary between industries. The value chain concept shows that companies
can gain competitive advantage by controlling cost or value drivers and/or reconfiguring the
value chain, that is, a better way of designing, producing, distributing or marketing a product or
service. For example, Ryanair has become one of the most profitable airlines in Europe through
concentrating on the parts of its value chain, such as ticket transaction costs, no frills etc.

6.3 Organisational Capability Factors

Organisations capabilities lies in its resources. The resources are the means by which an
organisation generates value. It is this value that is then distributed for various purposes.
Resources and capabilities of a firm can be best explained with the help of Resource Based View
(RBV) of a firm which is popularized by Barney. RBV considers the firm as a bundle of
resources – tangible resources, intangible resources, and organisational capabilities. Competitive
advantage, according to this view, generally arises from the creation of bundles of distinctive
resources and capabilities.
6.3.1 Resources

A ‘resource’ can be an asset, skill, process or knowledge controlled by an organisation. From a
strategic perspective, an organisation’s resources include both those that are owned by the
organisation and those that can be accessed by the organisation to support its strategies. Some
strategically important resources may be outside the organisation’s ownership, such as its network
of contacts or customers.

Typically, resources can be grouped into four categories:
1. Physical resources include plant and machinery, land and buildings, production
capacity etc.
2. Financial resources include capital, cash, debtors, creditors etc.

3. Human resources include knowledge, skills and adaptability of human resources.
4. Intellectual capital is an intangible resource of an organisation. This includes the
knowledge that has been captured in patents, brands, business systems, customer databases
and relationships with partners. In a knowledge-based economy, intellectual capital is
likely to be the major asset of many organisations.

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