Teece et al, (1997) define dynamic capabilities as “the ability to integrate, build, and reconfigure internal and external competencies to address rapidly-changing environments”.The shortcoming of the resource-based view of the firm has given rise to the concept of dynamic capabilities.Resource based view assumes that the factors surrounding resources simply exist.
It does not take into account how the resources are developed and integrated within the firm and how the resources are released. Dynamic capabilities attempt to bridge these gaps.
Dynamic resources act as a buffer between the firm resources and the changing business environment. Dynamic capabilities of O2 Telefonica have enlarged to newer heights through the company’s various acquisitions. The acquisition strategy has enabled the company to strengthen the company from the “shared learnings”. The company could consolidate itself through realigning the name and O2 has emerged as a powerful brand globally. The financial benefits resulting from the acquisitions have enabled the company to compete at top global levels and additionally the company could launch its business in Czech.
The company has planned investments of Euro 3. 5 billion between the years 2007 and 2010 in the German business. The launch of “Be” and broadband line in the UK are the additional advantages resulted from the dynamic capabilities of the company (Key, 2008). Telefonica through its dynamic capabilities has become leading distributor of iPhone in almost 16 countries. Global mobile advertising has resulted in revenue of Euro 6. 9 billion from the market, which is way ahead of the competitors in the market (Key, 2008). Value Chain
Value chain analysis allows the firm to understand the parts of its operations that create value and those that do not. Understanding these issues is important because the firm earns above-average returns only when the value it creates is greater than the costs incurred to create that value (Porter, 1985) Value chain of a firm is segmented into primary and support activities. Primary activities are involved with a product’s physical creation, its sale and distribution to buyers and its service after sale. Support activities provide the assistance necessary for the primary activities to take place.
Primary activities The primary activities include: Inbound Logistics – covering the receiving, storing and inventory control of materials that are needed as inputs. With an established system of procurement and supplier development, the company has been able to do well in inbound logistics activity. Operations – are the value creating activities, which are helpful in converting the inputs into finished products of the firm. In the year 2007, Telefonica introduced over 600 products and services. The company has established an innovation network to which each of the group companies contribute innovation programmes.
The company continuing its excellence in the network technology has brought fibre optic to the home and expanded its 3G and 3. 5G capacity (Annual Report, 2007). Outbound Logistics – encompass the activities involved in placing the finished goods at the hands of the customers including distribution systems and order processing. O2Telefonical has well established systems catering to 169 million telephony accesses, 42 million fixed telephony accesses, more than 10 million broadband accesses, with presence in about 24 countries (Annual Report, 2007).
Marketing and Sales – covers activities connected with enabling the customers to purchase the product including selection of channels of distribution, advertising and pricing. O2 Telefonica is the only operator in the market for deploying and monitoring advertising campaigns across all mobile channels. WAP, Games, Video, Messaging and other applications have identified O2 Telefonica as unique in providing varied customer experience. The operations of the company have set new standards to the advertisers to reach more than 170 million mobile users (Key, 2008).
Service – these activities include those that are necessary to maintain and enhance the value of the product like after sales service and other customer support activities. Support Activities On Firm infrastructure, O2 Telefonica works with three regional business divisions Telefonica Espana, Telefonica O2 Europe and Telefonica America Latina. The company has well established principles of business with strong professional management base and financial strength. On procurement activity, O2 Telefonica through its own management model has developed a coordinated procurement system.
“Telefonica divides its purchasing into six product lines” (Annual Report, 2007). The product lines are: (i) services and works, (ii) market products, (iii) network infrastructure, (iv) IT systems, (v) advertising and marketing and (vi) content. The human resources management of the company is well organized with more than248, 000 professionals employed by the company. The company has spent 59 million Euros during the year 2007 for the training of over 100,000 employees (Annual Report, 2007)
Tecnology development through R&D and innovation has been one of the core competencies of O2 Telefonica. The objective of the primary activities is to generate value that is in excess of the cost of producing the product or service and thereby to result in earnings to the organization. The other objective is to help the organization to identify its core competencies. By focusing on value creating activities, firms can remove the non-value adding activities from the purview. Value Chain and Future Strategy
By concentrating on improving the value chain strengths company O2 Telefonica has identified the following future strategies; (i) to become an integrated operator and exploit cross-selling and convergent services opportunities, (ii) an increase of 40% in the customer base between 2006 and 2010 and (iv) more than 25% growth in the UK and Germany mobile market (O2Telefonica, 2006) Balanced Scorecard The balanced scorecard focuses attention not only on the financial objectives of the company but also highlights the non-financial objectives that an organization must achieve in order to meet its financial objectives (Kaplan & Norton, 2001).
The balanced scorecard reduces the organisation’s emphasis on short-term financial performance like quarterly earnings, because the non-financial and operational indicators measure fundamental changes the organisation is making. The four key perspectives of performance of the balanced scorecard approach are; (i) Financial Perspective, (ii) customer perspective, (iii) internal business processes perspective and (iv) learning and growth perspective. Based on these key perspectives, the organization has to specify the objectives, measures, initiatives to achieve the objectives and target performances.
The target performance levels for non-financial measures are based on competitor benchmarks. They indicate the performance levels necessary to meet customer needs compete effectively and achieve desired financial goals. Financial perspective evaluates the profitability of the strategy. For instance, cost reduction relative to competitors and sales growth may be a key strategic initiative, since financial perspective focuses on how much of operating income and return on capital employed results from reducing costs and selling more units of production.
Customer perspective identifies the targeted market segments and measures the organisation’s success in these segments. Market share, number of new customers and customer satisfaction may be some of the key strategic initiatives. Internal business process perspective focuses on internal operations that further both the customer perspective by creating value for customers and the financial perspective by increasing shareholders wealth.
The internal business process perspective comprises of sub processes like (i) innovation process, (ii) operation process, and (iii) post-sales service. Learning and growth perspective identifies the capabilities in which the organization must excel in order to achieve superior internal processes that create value for customers and shareholders. Employee capabilities, information system capabilities and motivation, and empowerment may be some of the key strategic elements of learning and growth perspective (Kaplan & Norton, 1992). Benchmarking
“Benchmarking is the process of identifying best practices in relation to both products (including) and the processes by which those products are created and delivered” (Tutor2U, n. d. ) The search for best practices can be undertaken from both inside a particular industry and in other industries. The objective of benchmarking is not only to understand the current position of a business but also to evaluate them in relation to best practices. It also involves identifying the areas and means of performance improvement. The process of benchmarking involves four different steps.
These are; (i) understanding in detail the existing business processes, (ii) analyzing the business processes of others, (iii) comparing own business performance with that of others analyzed and (iv) implementing the steps necessary to close the performance gap (Tutor2U, n. d. ). Influence of Managers on the Development of Capabilities “Where Competence focuses on the acquisition of knowledge, skills and attributes, capability focuses on people’s confidence in applying those knowledge, skills and attributes in a range of contexts” (Stepehnson & Weil, 1992).
Capability development is considered as the development of the individual or team, through the deployment of resources that aim to accomplish current goals of the organisation, meet future challenges and enable the organisation to acquire strength for meeting the challenges of change. Capacity development placed the importance on people and their capacity to achieve in ever chaging business environments. This is due to the fact that managers are creative and are confident in applying their competencies. They are also capable of working well with team members in circumstances both familiar and unfamiliar to them.
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