Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Operations research or analysis
Reexamination Certificate
1998-10-29
2001-06-19
Millin, V. (Department: 2164)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Operations research or analysis
36
Reexamination Certificate
active
06249768
ABSTRACT:
BACKGROUND OF THE INVENTION
1. Field of the Invention
The present invention generally relates to strategic decision making, and in particular to the development of frameworks for modeling relationships between the core capabilities of a firm.
2. Background Description
A survey of business strategy research reveals a rich body of literature that describes various kinds of modeling and analyses that have been done to aid strategic decision making. These range from various micro economic models, to analyses of structural forces within an organization and an industry, from strategic clustering and categorization to identification of rare and valuable resources and core competencies, from theories of organizational learning to principles for knowledge management. Each of these analyses has proven to be valuable in gaining some particular kind of insight in developing strategies. However, there is no integrating framework that facilitates an appreciation of how they complement or contrast with one another towards the common objective of aiding strategic decisions.
Research discussions on business strategy may be broadly classified into three categories. Those that model the firm as a “black box” operating in an environment of opportunities and threats, those that model the internal capabilities of the firm but ignore the details of the changing environment, and those that start from one of the first two categories and incorporate parts of the other.
The first category of strategy research is typified by Porter's [Michael Porter,
Competitive Strategy
, The Free Press, 1980] analysis of the external forces that affect the success of a firm. Strategy follows from this analysis by identifying actions that would alter the strengths of these forces in favor of the firm: firms should perform actions that reduce the bargaining power of buyers and suppliers and reduce the threat from new entrants and substitutes. This prescription does not go far enough to take into account the kinds of activities the firm is good or bad at doing. In other words, while the external threats and opportunities are considered in coming up with a strategy, the internal strengths and weaknesses of the firm are not. Porter's subsequent research on value chain analysis [Michael Porter, “What is Strategy?”,
Harvard Business Review
, 32(1), 1996, pp. 10-20] addresses the importance of the primary and support activities performed by the firm. The differences in the strengths and weaknesses of these activities between competitors is used to explain the difference in performance of firms within an industry segment. These activities (and their relative strengths and weaknesses) are viewed solely as the target of strategy implementation and not as a source of strategy definition. The relationships between the activities along the value chain and the external opportunities and threats are not directly established.
The strategic alternatives offered by Porter's approach are cost leadership, product differentiation, or niche focus. The emphasis is not on the tailoring of an individual firm's strategy, but on being a member of one of these broad classifications and not being “stuck in the middle.” Miles and Snow [Raymond E. Miles and Charles C. Snow,
Fit, Failure and the Hall of Fame
, The Free Press, 1994] also suggest that organizations fall into one of three general strategic types: They classify organizations as Defenders, Prospectors, or Analyzers. Each of these strategic categories are associated with the appropriate organizational structure, processes, and technology usage that have been observed to be consistent. This knowledge is used to suggest what a firm must do to be aligned with the strategic category it belongs in. In order to perform this analysis, the details of a firm and its environment are defocused and generalized to fit one of the broad strategic categories. It is in this abstract, general level that the firm is analyzed and the misalignment of its structure and processes is identified. These findings have to be made actionable by focusing them back to the detailed, firm-specific level. The difficulty of the last step lies in the fact that there can be no prescribed methodology by which it could be done. The detailed understanding of the firm, and especially those aspects that make it differ from the typical member of the strategic category are not utilized while performing the general analysis and become hard to fold back into the recommendation phase.
The second category of business research consists of the work done on the resource-based view of the firm [Jay Barney, “Firm Resources and Sustained Competitive Advantage”,
Journal of Management
, 17(1), 1991, pp. 99-120; Ingemar Dierckx and Karel Cool, “Asset Stock Accumulation and Sustainability of Competitive Advantage”,
Management Science
, 35(12), December 1989, pp. 1504-1514; Margaret A. Peteraf, “The Cornerstones of Competitive Advantage: A Resource-Based View”,
Strategic Management Journal
, 14(3), 1993, pp.179-191] and core competencies [Prahalad and Hamel, 1990; Gary Hamel and C. K. Prahalad,
Competingfor the Future
, Harvard Business School Press, 1994]. They differentiate themselves from the first category by postulating that the central source of competitive advantage is driven by the resources and capabilities within the firm. To be strategically significant and sustainable, these resources and capabilities must be valuable, scarce, and non-tradable (difficult to imitate or substitute). Strategy, in this view, is the identification of and investment in these resources or capabilities. This framework leaves two key concepts implicit: The relationships between resources and the environment and the interrelationships between the resources.
The first relationship is the reason behind the value of a resource. The resource-based view states that the resources should be valuable, but does not explicitly model the conditions under which this is the case. The rapid environmental changes that are being brought about by globalization, deregulation, and technology make it unreasonable to assume that any resource will continue to remain valuable, independent of the scenario in which a firm finds itself operating. This makes it important to condition the value of a resource on the scenario. If this is only implicitly done at the time of the initial assessment of its resources, a firm may find itself investing in the wrong resources as the environment inevitably shifts into a new scenario. The explicit association of resources to scenarios allows the formulation of a strategic plan that dynamically controls investment in resources as new scenarios are forecast and visited.
The second form of relationship acknowledges the fact that resources and capabilities in a firm do not operate in isolation. They enable and improve each other as well as disable or detract from each other. These relations are important to capture because they are, when positive or enabling, often the key toward making a capability rare and hard to imitate. Alternatively, when these relationships are negative or disabling, they explain why some firms cannot capture the full potential value of a resource. Finally, in the absence of these relationships, one runs the risk of looking at a resource in isolation and discounting its value (perhaps because it is tradable) by ignoring the fact that it enables other “valuable” resources. The key breakthrough in core competencies is in identifying these core resources on which the entire firm depends, but this too does not model the explicit relationships in its framework.
The deficiencies identified above are being addressed by research approaches that either start from the internal view of strategy and move to the external side or take the reverse path. As an example of the former, Black and Boal [Janice A. Black and Kimberly B. Boal, “Strategic resources: Traits, configurations and paths to sustainable competitive advantage”,
Strategic Management Journal
, 1
Bagchi Sugato
Tulskie, Jr. William A.
Akers Geoffrey
International Business Machines - Corporation
Kaufman Stephen C.
McGuireWoods
Millin V.
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