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Managing Capability - A Resourced Based View Analysis of Siemens
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DescriptionA resourced based view analysis beginning with an introduction to the assignment and information about the company. Then the assignment is split into 3 sections: The first is a description of strategic capability with an understanding of resources and capabilities and how they contribute to competitive advantage. The second section applies this information to Siemens with an analysis of its resources and capabilities using various frameworks and tools. The final section discusses the role of managers and how strategic capability is managed in Siemens. Finally, the assignment ends with a summary and conclusion of overall findings.
The aim of this report is to analyse the strategic capability of Siemens. It will first provide some information about Siemens as to who they are and what they do. Then in order to achieve the aim, the report will be split into three main sections. The first section will clearly define the meaning of strategic capability, then using a range of existing theories, it will explain and assess the importance of resources and capabilities and how they contribute to the competitive advantage of an organisation. The next section will relate this information to Siemens to identify and analyse their resources and capabilities in detail. To best do this the report will use a variety of tools and frameworks and recognise factual examples, using a range of data. The last section will show how managers contribute to the development and management of the company’s capabilities. Finally the report will conclude with a summary of the overall findings and an evaluation of Siemens’ strategic capability.
Siemens is a German conglomerate and global powerhouse in electronics and electrical engineering. The company operates in three main business sectors, Industry, Energy and Healthcare with a total of 15 divisions (Siemens A). It is the largest of its kind in Europe with a reported global revenue of €76.651 Billion in 2009 (Bloomberg A) and (Siemens B). Siemens has international headquarters located in Berlin and Munich and employs around 430,000 people worldwide in nearly 190 countries (Liked In 2011).
Siemens’ business practices focus on sustainability stating directly that their “wide range of products and solutions are designed with the environment in mind and engage with the subject of climate change” (Siemens C).
The company’s mission is to be the pioneers in energy efficiency, industrial productivity, affordable and personalised healthcare and intelligent infrastructure solutions. They aim to do so through support from forward-thinking IT technology and services and with the value of highest performance with the highest ethics including responsibility, excellence and innovation. This means the company is committed to ethical and responsible actions, achieving high performance and excellent results and being innovative to create sustainable value (Siemens C). This mission and related values resulted in Siemens being voted 6th place in the Global 100 most sustainable companies in the world in 2010(Global 100, 2010) and has allowed the company to create a 160-year legacy of technical achievement, innovation, quality, reliability and internationality (Liked In 2011).
This report will outline how Siemens’ strategic capability is designed and developed to achieve their mission and related success stated above. It will first begin with a general assessment of resources and capabilities, showing how they contribute to the competitive advantage of an organisation
Part One – Strategic Capability
An Understanding of Resources and Capabilities and How They Contribute to Competitive Advantage
The term strategic capability can be defined as “the resources and competences of an organisation needed for it to survive and prosper” (Johnson, Scholes, Whittington, 2008) creating competitive advantageand ultimately allowing for sustainable competitive advantage for an organisation. Porter  introduced two types of competitive positional advantages: cost-based and differentiation. The former is possessed when a firm offers the same benefits as the competitor, but at a lower cost. The latter refers to benefits that surpass those of rivals. Competitive advantage is technically defined as a firm that sustains profits that exceed the industry average, and a firm possesses a sustainable competitive advantage when it has “value-creating processes and positions that cannot be duplicated or imitated by other firms leading to the production of above normal profits” (FMCG Marketing). There are a number of developed theories involved in strategic capability and many factors leading to a competitive advantage.
The foundations for the resource-based view of a firm were initially proposed by Penrose (1959). The fundamental principle of the resource-based view now is that “the basis for a competitive advantage of a firm lies primarily in the application of the valuable resources and capabilities at the firm's disposal” (Wernerfelt 1984). A key concept involved in this theory is that all organizations are not identical and possess different resources and capabilities that are heterogeneous in nature (Barney 1991 and Peteraf 1993). This allows a firm to transform short-term success into long-term competitive advantage. Barney (1991) further added to this by suggesting that such resources need to be valuable, rare, imperfectly imitable and non substitutable (VRIN) in order to sustain competitive advantage and earn significant profit. Kay (1993) later added to the framework with the element of appropriability, stating that the organisation itself must gain benefit from the resource and not its rivals.
Resource based view and other strategic management literature was built upon and extended to form the knowledge-based view. This view puts knowledge as its key concept, not just as a generic resource but as a vital resource and something that is unique and special. It states that human resources are most important and lead the firm to innovation and profitability.
So at the core of strategic capability is a firm’s unique use and transformation of its resources and capabilities in order to create competitive advantage (as summarised in Appendix 1, with resource and capability examples in Appendices 3 and 4). It also includes the industry Key Success Factors (KSF’s), which refer to the external competitive factors that are most important in a particular industry and can mean the difference between success and failure. Appendix 2 shows the different types of capabilities necessary for a firm’s survival and creation of competitive advantage. At the most basic level a firm must possess threshold capabilities in order to survive in the industry. It must be noted that a firm’s threshold capabilities are directly linked to the industry KSF’s and will change in correlation with them and levels of competition with effects such as trade-off’s to achieve the threshold capability required for different sorts of customers (Johnson, Scholes, Whittington, 2008).These capabilities include tangible and intangible threshold resources which are resources that meet customers’ minimum requirements and threshold competences which are activities and processes that meet customers’ minimum requirements.
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