4/04/2017 1 Dynamic capabilities Week 8 Workshop MBA501 Dynamic Strategy and Disruptive Innovation • Do you agree with American businessman Bill Gates when he says: Small Group Discussion Success is a lousy teacher. Small Group Challenge Ontario, Canada 2013 In groups, advise Jim and Mike what potential issues they should perhaps be contemplating at this point. Jim Balsillie and Mike Lazaridis, co-CEOs of telecommunications company BlackBerry Ltd feel as though their problems are far behind them. Their company has been named by Fortune magazine as the fastest growing company in the world, with earnings exploding by 84% a year. The BlackBerry phone, with its full keyboard and push email, is the premier mobile gadget on the market and a “must have” for email obsessed business customers. It is such a popular and addictive device it has been nicknamed the ‘Crackberry’. Although the iPhone is growing in popularity, Apple is specifically targeting the consumer market and Jim and Mike sense the BlackBerry’s dominance of the corporate market will remain unchallenged well into the foreseeable future. 4/04/2017 2 Resource based strategies • Many organisations follow a resource based strategy of accumulating valuable technology assets and guarding them aggressively • However, this strategy is not enough to support a significant competitive advantage Organisational capabilities • Resources are not productive by themselves • To achieve a result, a team of resources must work together • An organisational capability is an organisation’s capacity to deploy resources for a desired result Competitive advantage • Of primary interest are those capabilities that can provide the basis for competitive advantage • A core competency is a capability fundamental to an organisation’s strategy and performance • They are the capabilities that an organisation performs particularly well relative to its competitors 4/04/2017 3 Core competencies • Core competencies or fundamental organisational capacities are those that: o make a disproportionate contribution to ultimate customer value, or to the efficiency with which that value is delivered o provide a basis for entering new markets Dynamic capability • Rapid and unpredictable environmental changes require organisations to accumulate competitive advantage through knowledge creation processes • Dynamic capability is an organisation’s ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments Sense, seize, and transform • Dynamic capabilities belong to three clusters of activities and adjustments: 1. identification and assessment of an opportunity (sensing) 2. mobilisation of resources to address the opportunity (seizing) 3. continued renewal (transforming) In groups, discuss what Blackberry did not sense, did not seize, and therefore did not transform. 4/04/2017 4 BlackBerry • In 2013 BlackBerry was one of the most prominent smartphone vendors in the world with 85 million subscribers • The company’s share price has since fallen in value by over 90% • BlackBerry now holds a miniscule 3% of the smartphone market • What went wrong? Raspberry • BlackBerry’s decline has become a case study about what happens when a tech giant fails to cultivate dynamic capabilities in a consumer-technology market evolving at breakneck speed • The company failed to sense that consumers – not business customers – would drive the smartphone revolution • Do you agree with English philosopher Francis Bacon when he says: Small Group Discussion A prudent question is one-half of wisdom. 4/04/2017 5 Small Group Challenge Toyohashi, Japan 1899 Sakichi Toyoda, founder of Toyoda Loom Works, is working at home when his five year old son, Kiichiro, asks him what he is doing. ‘I’m trying to develop a useful learning tool,’ Sakichi replies. ‘Why?’ Kiichiro asks. ‘Because I want my company to learn more,’ Sakichi replies. ‘Why?’ Kiichiro asks. ‘Because the more we learn the more we grow,’ Sakichi replies. ‘Why?’ Kiichiro asks. ‘Because we can change, we must change,’ Sakichi replies. ‘Why?’ Kiichiro asks. ‘Because if we do not change we will not survive,’ Sakichi replies. Kiichiro pauses for a moment. Then asks, ‘Why?’ In groups, help Sakichi find the answer. Three dynamic processes 1. Organisations and their employees need the capability to learn quickly and to build strategic assets 2. New strategic assets such as capability, technology, and customer feedback have to be integrated within the organisation 3. Existing strategic assets have to be transformed or reconfigured Learning quickly • Learning is a process by which repetition and experimentation enable tasks to be performed better and quicker • Learning processes are social and collective and therefore require common codes of communication and coordinated search procedures 4/04/2017 6 Toyota • Toyota is often described as one of the world’s greatest learning organisations • One of several learning management principles used at Toyota is a method called the “five why’s” • This simply means asking the question “why” as many times as possible to determine the root cause of a problem Five why’s Boss, there’s a puddle of oil on the shop floor. Ok, you better clean it up. Why is it there? Because the machine is leaking oil. Please fix the machine. Why is it leaking? Because the gasket has deteriorated. Let’s replace the gasket. Why has it deteriorated? Because we bought inferior gaskets. Let’s upgrade specifications. Why did we buy them? Because we got a good price. Let’s change our purchasing policies. Why the good price? Because our purchasing agent is evaluated on short term cost savings. Let’s change the evaluation policy for our purchasing agents. Individual Challenge Consider a subject that you recently studied in which you did not achieve a high distinction. Apply the 5 Why’s to reach a conclusion as to why that was your result. 4/04/2017 7 Routines • The organisational knowledge created by learning resides in new patterns of activity to solve problems or routines • Collaborations and partnerships can be a source for new organisational learning, which helps companies to recognise dysfunctional routines and prevent strategic blind spots General Electric • The GE Work-Out process initiated by CEO Jack Welch is a series of structured and facilitated forums, bringing people together across levels, functions, and geographies to solve problems and make decisions in real time Building strategic assets • Similar to learning, building strategic assets is another dynamic capability • Strategic assets are those assets needed by an organisation – technological, structural, financial – for it to maintain its ability to achieve future outcomes 4/04/2017 8 • Do you agree with American writer Mark Twain when he says: Small Group Discussion Continuous improvement is better than delayed perfection. Small Group Challenge Boston, US 1885 Frank Gilbreth, 17 year old bricklayer’s helper, has a problem. The survival of his employer, the Widden Construction Company, is entirely dependent on the speed with which the bricklayers he helps ply their trade. The men indeed work very hard, bending over many hundreds of times a day to pick up bricks before buttering each one with mortar and gently tapping it into place with a trowel. Although the bricks themselves are not individually heavy - weighing in at only 2.3 kg each - Frank notices they can be cumbersome and difficult for the bricklayers to initially grasp with their hands. He is aware that brick masonry is a proud trade with long held practices and traditions but he wonders if there may just be a better way to lay bricks. In groups, suggest an improvement Frank could make to the process of bricklaying. Integration • The effective and efficient internal coordination or integration of strategic assets may also determine an organisation’s performance • The way production is organised inside an organisation can be a source of differences in the organisation’s capabilities 4/04/2017 9 Lean production model • Lean production or lean manufacturing is a systematic method for the elimination of waste within a manufacturing system • Lean also takes into account waste created through overburden and waste created through unevenness in work loads Intel • Five years ago the world’s largest computer chip maker took 14 weeks to introduce a new chip to their factory • Since incorporating lean principles into their production processes the company has reduced the chip introduction timeframe to 10 days Kaizen • Kaizen is Japanese for improvement • It is an approach to production that systematically seeks to achieve small, incremental changes in processes in order to improve efficiency and quality • By improving standardised programs and processes, kaizen aims to eliminate waste 4/04/2017 10 Toyota • The Toyota Production System incorporates kaizen • All line personnel are expected to stop their moving production line in case of any abnormality and, along with their supervisor, suggest an improvement to resolve the abnormality which may initiate a kaizen Six Sigma • Six Sigma is a set of techniques and tools for process improvement • It seeks to improve the quality of the output of a process by identifying and removing the causes of defects and minimising variability in manufacturing and business processes Amazon • Amazon has an operational excellence program that incorporates lean production, kaizen, and Six Sigma • Amazon has adopted a number of Six Sigma concepts, including a deliberate effort to recruit the finest thought leaders from an exclusive selection of top business schools 4/04/2017 11 • Do you agree with German philosopher Friedrich Nietzsche when he says: Small Group Discussion A thought, even a possibility, can shatter and transform us. Small Group Challenge New Jersey, US 2000 William Weldon, CEO of pharmaceutical and medical device manufacturer Johnson & Johnson, has a problem. The company is losing market share in the increasingly competitive cardio-vascular disease market. Johnson & Johnson produces two different kinds of remedies for treating cardio-vascular disease. The first is a stent, a product manufactured by the Medical Device & Diagnostics Group that is inserted into clogged arteries to hold them open and help blood flow more freely. The second is a series of drug therapies produced by the pharmaceutical businesses that include medicines used to reduce arterial narrowing and anti-clotting agents. Sales are falling steadily in both stents and cardio-vascular drug treatments. In groups, recommend a course of action William could take to regain market share. Transformation of assets • Fast-changing markets require the ability to reconfigure the organisation’s asset structure and accomplish the necessary internal and external transformation • Change is costly, and so organisations must develop processes to find highpayoff changes at low costs 4/04/2017 12 Transformation capability • The capability to change depends on the ability to scan the environment, evaluate markets, and quickly accomplish reconfiguration and transformation ahead of the competition • This can be supported by decentralisation, local autonomy, and strategic alliances Decentralisation • In a centralised organisational structure, the company typically has a headquarters where key managers make most of the important company decisions • Decentralisation is the process of redistributing or dispersing functions, powers, people or things away from a central location or authority Illinois Tool Works • Fortune 500 company Illinois Tool Works is made up of 400 decentralised business units • There are no company wide, preset benchmark profit goals • Instead, senior management imposes performance standards on the general managers of each unit based on the particular unit’s competition 4/04/2017 13 Local autonomy • Local autonomy means an organisation’s front line and local managers have important decisionmaking authority versus reserving all critical decisions at the top • This allows local managers to adapt more readily to changes in the local market General Electric • General Electric establishes research and development teams to create products in countries like China and India then distribute them globally • The teams are given a high degree of autonomy and report directly to GE headquarters in the US rather than the local company office Strategic alliances • Organisational units can increase their capacity for innovation by entering internal and external strategic alliances • Strategic alliances promote innovation by allowing different people with different skills to bring together different products and technologies to satisfy the unmet needs of customers 4/04/2017 14 Johnson & Johnson • The multinational medical devices, pharmaceutical and consumer packaged goods manufacturer brought together teams from its medical products and drug business units • The strategic alliance developed a breakthrough technology for better managing cardio-vascular disease called a drug-eluting stent