Strategic Capability Analysis: of eBay - Case Study Example

Strategic Capability Analysis: eBay Introduction EBay is a globally recognized e-commerce firm. It is an online auction firm as well as shopping website where business and customers sell and purchase various services and goods globally. At present, eBay is valued in billions with operational infrastructure in almost 30 nations across the globe (eBay, 2013). The current paper will provide a critical analysis of the strategic capabilities of eBay and how they can be utilised to achieve sustainable competitive advantage. The study has aimed to propose as well as justify a structure which can maximise the strategic capabilities of eBay. The core strategic capability concepts will be discussed and an analytical framework will be provided. Further, the study will evaluate competitive advantage, core competencies as well. Based on eBay’s current capabilities and resources, various recommendations will be proposed in order to maximise the firm’s performance. Answer 1 Strategic capability of eBay using Analytical Framework Various research scholars have segregated resource capability into three portions such as tangible, intangible and human resources and also suggested that firms should use all three resources alternatively or simultaneously to achieve competitive advantage (Barney, 1991). In general, the resources in an organisation can be divided into the following categories. 1. Physical resources such as buildings machines or organisation’s production capacity. 2. Financial resources like cash, capital, creditors, debtors and money suppliers such as bankers and shareholders. 3. Human resources such as employee knowledge, skills and organisation’s network. 4. Another intangible resource is intellectual capital such as brands, patents, customer databases and business systems (Barney, Ketchen and Wright, 2011). Strategic capability can be further differentiated on the basis of their threshold level and unique abilities which provide sustainable differentiations. Threshold resources are fundamental or ground level resources needed by an organisation in order to meet basic requirements of customers. On the other hand, unique resources strengthen and stabilize the competitive advantage (Hamel and Prahalad, 1993). These resources are extremely difficult to imitate as well as obtain. Threshold competencies are processes and activities which satisfy the basic customer needs. Unique competencies, on the other hand provide competitive advantage. According to Johnson, Scholes and Whittington (2008, p.97), core competencies “are the skills and abilities by which resources are deployed through an organisation’s activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain.” On the basis of the above analytical frameworks, various strategic capabilities of eBay have been analysed. In order to maintain and promote its level of success, the firm boasts motivated human resources. The company provides a favourable environment to work by satisfying psychological needs such as safety, career growth prospects and flexible working environment. As a result, the workforce is oriented towards the objectives and goals of the organisation providing substantial benefits to eBay. The company also focuses on external customer satisfaction by the application of its strategies capabilities. The product and service range provided by eBay is huge and majority of its products are available online. As a result, the level of satisfaction among eBay customers is high helping the brand in fetching a high market share (Priem and Butler, 2001). Open communication strategies as well as channels adopted by eBay have reduced e-commerce trading risks in a significant amount. The customer care services of eBay are technically skilled and well conversant. Also, the company follows stringent policies during online payment process. SWOT Analysis A Swot analysis summarises Business environment analysis (Opportunities and threats) as well as strategic capabilities (Strengths and weaknesses) (Hill and Westbrook, 1997). Strengths: 1. The organisation is known for implementing technologically advanced software in its operational processes. 2. EBay boasts huge number of stakeholders and clients. These include customers, financial investors as well as joint venture partners of the firm. This has also increased the financial capability of the firm (Peteraf, 1993). 3. A strong customer base ensures high level of confidence among eBay clients and investors 4. EBay was one of the first online auction companies. Subsequently, the firm has gained high brand value and brand recognition. Weakness 1. The company has been facing challenges while communicating with its clients. This is mainly due to high number of clients and weak organisational structure. 2. Geographical constraints are another weakness as eBay cannot serve customers residing in acute locations. 3. The company has failed to establish itself in many regions such as Japan, mainly due to wide difference in culture. Threats 1. Increasing number of online trading websites which are eating away market share is becoming a serious threat for the organisation. 2. Various companies have forayed into the online trading market catering to niche segments. As a result, many product and service segments of eBay are under constant threat of shutting down. Opportunities 1. Huge opportunities lie in terms of technological advancements for enhancing customer service. 2. Enhancing the supplier service will boost overall operational performance for the firm. Answer 2 In order to attain sustainable competitive advantage, capabilities need to fulfil various criteria. 1. Value: Organisations should be able to create capabilities that are valuable 2. Rare: the capabilities possessed by an organisation should be unique for achieving sustainable competitive advantage. Rarity of the capabilities is also dependent on the company’s own competence (Clegg, et al., 2011). 3. Inimitable: Inimitability of the resources is their ability to stay in the market or provide competitive advantage to the company for a long time. They are also difficult to copy or imitate. Various factors which can provide inimitability to a firm are internal linkages and external connectedness making the resources complex, history and culture which for core competencies of the organisation. Similarly, casual ambiguity or the effects and causes behind an organisations competitive advantage are difficult to analyse (Hoopes, Madison and Walker, 2003). 4. Non-substitutable: Providing and adding customer value by creating complex services and offering products which are difficult to substitute. Capabilities providing sustainable competitive advantage to eBay Physical resources for eBay will include technology and its usage. Financial resources are its capital reserves, internal funds and burrowing capacities. Other strategic resources of eBay include its human resource, brand value such as reputation with suppliers and other associated parties. The capabilities of eBay include management, research and development, marketing, sales as well as information management. Organisational Business Model: The business model of eBay enables millions of user transactions. Thus, the business model is valuable. Use of advanced software enables minimum inventory. Revenue generation is both through business clients as well as customers. However, this process can easily be imitated by other companies. The business model of eBay ensures that its customers are satisfied from the start of the purchase process till the end. For this, the company has established a rare and unique marketplace model for internet business performing tasks such as continuous network and server maintenance (Porter, 1988). Financial portfolio: The financial portfolio of eBay can be considered as strong. The net revenues of the company are more than 2 billion dollars at present and it has been showing steady growth rates over the years. However, rising competition and expenditure might put a burden on the company. Many other online retail companies have started following the financial strategy of eBay questioning the strategic planning process of the firm (Mintzberg, 1994). Human resource: Managing human resource involves utilising the skills and experience of the employers and workers. EBay boasts a strong human management. The company frequently recruits experienced and known individuals to run their higher management. Thus, the human resource is valuable as well as rare. The human resource of the firm is awake and flexible. There is a sense of brand loyalty among eBay employees which in un-substitutable. Services: Being an online retail enterprise, the company is 24x7 available to its customers and ensures that their needs are met regardless of time and situation. The service management system is equipped with unique software programmed making them valuable as well as rare. Another unique service management system offered by eBay is by inviting ten buyers and sellers from across the nation to the firm’s head office and in dept discussion with them. The firm organises regular teleconferencing with customers for policy amendments and addition of new features. Apart from that, the company also conducts online classes and workshops so that customers are able to fully utilise the site (Collis and Montgomry, 2008). Brand Value: EBay has a unique system where sellers and buyers rate each other on every transaction, establishing rules and norms. This practice is rare and the firm has mastered it over a period of time. The online trader has gained un-substitutable reputation from its suppliers and buyers for good behaviour and ethical practice (Hall, 1992). As a result, it has also been able to successfully control its supplier management process. The overall brand image of eBay can be considered as valuable and un-imitable and rare. The company was among first to introduce online trading and has gained significant reputation among its customers. Even though many new companies are trying to enter the market, achieving the level of recognition and image as eBay will be extremely difficult (Hamel and Prahalad, 1990). Strategic control: The Company is powered with strong brand value and financial reserves. Using this power, the company has been implementing strategic control though various mergers and acquisitions. The company forayed into various related markets with the objective of gaining market share and control over niche segments. This strategy is unique and difficult to imitate because of the high amount of capital expenditure. VRIN Analysis The strategic capabilities of eBay have been summarised in the VRIN analysis below: Resources and competencies Valuable Rare Difficult To Imitate Non-Substitutable Core Competency Financial           Internal funds yes no yes yes Competitive advantage Physical           Technology  yes no  no  yes  Temporary advantage Human           Skills, expertise  yes  yes  yes  yes  Sustainable competitive advantage Adaptability of employees  yes  yes  yes  yes  Sustainable competitive advantage Commitment and loyalty of employees  yes  yes  yes  yes  Sustainable competitive advantage Brand Value           Brand ownership  yes  No  Yes  yes  Competitive Advantage Relationship with customers  yes  No  yes  yes  Competitive Advantage services yes  yes  no  yes  Competitive Advantage community  yes  yes  yes  yes  Sustainable competitive advantage suppliers  yes no  yes  no  temporary advantage Management           Financial control   yes  No  yes  No  Temporary Advantage Strategic control   yes  No   yes   yes  Competitive advantage Marketing           Market competitiveness  Yes  Yes no  no  Temporary Advantage Answer 3 Managing Dynamic capabilities Strategic capabilities that can provide competitive advantage in above dynamic environments are considered as dynamic capabilities. This means that company should be able to recreate and renew the strategic capabilities in order to meet the changing environmental needs (Henry, 2008). Dynamic capabilities can take place in different forms. For instance, it can be development of new products or capital expenditure strategies. Dynamic capabilities can also take place in forms of alliances or acquisitions. Information dynamic capabilities include increasing organisational knowledge and enhancing the overall organisational culture. In summary dynamic capabilities are not confined to implementation of one strategy alone. Rather, they are a complicated mix of various strategies, processes and stages which have been formalised for a step by step implementation and overall improvement in the firm’s competitive advantage (Wernerfelt, 1984). New entrants in the marketplace With the increasing competitiveness in the internet world and interconnectedness among various online channels, various new firms have forayed into this online trading market. However, eBay has been able to successfully capture the online retail market with the help of its first mover advantage. The company faced competition from various firms such as Yahoo. However, the company has been extensively implementing mergers and acquisitions strategy in order gain market share, increase market penetration as well as create a dynamic environment which is difficult for new entrants to compete. The company went for many acquisitions and ventures. In the year 2005, eBay purchased Skype with the objective of creating unparalleled engine for e-commerce. The three most important benefits from the above acquisition were access to more customers as well as significant increase in the brand value of the firm. In a similar deal, eBay established a joint venture with Google in 2006. While eBay became the biggest customer of Google, the later gained from eBay’s Skype customers for advertisements. In summary, it can be concluded that being in an interconnected world, it is impossible to achieve a competitive space with exclusive customers and exclusive services. However, by forming partnerships as well as co-branding strategies, brands can utilise their resources as well as create differentiation without generating intense competition (Kraaijenbrink, Spender and Groen, 2010). Changing nature of eBay With the increasing popularity of online retailing and trading, the pressure on the firm is mounting. At present, the firm lacks a proper re-order system. As a result any product having a high demand might create stock issues, which might force customers to opt for other channels for shopping. Also, sudden surge in demand might create panic in the departments as the operations are mostly on just in time basis. The firm suffered various outbreaks and losses due to sudden technology and software failures during the 1990s. As a result, the company is shifting its priorities from being a technologically driven company to a service driven company. Many competitors such as GM have been able to attract and retail customers though their unique offering and effective utilisation of resources. In order to remain profitable and achieve sustainable competitive advantage in future, the company should establish a dynamic organisational structure which is presently missing in eBay (Christensen, 2001). Conclusion and Recommendations The objective of the current study was to understand the linkage between resource capabilities and competitive advantage which is applicable in the practical business world. Based on the analysis of strategic and dynamic capabilities of eBay as well as extensive review of the resource based view of firms, various recommendations have been suggested for eBay. 1. Dynamic organisational structure: Being an internet driven organisation, eBay should focus on developing a virtual organisational structure. The online presence of the firm is much more compared to its presence in brick and mortar form. As a result, a virtual organisational structure will result in better connectivity and performance. The company should conduct frequent interviews and surveys with the internal employees in order to pin-point management issues. 2. Investing in technology and research: The present class of customers are dynamic and well-informed. As a result, it is extremely crucial to understand as well as keep track of the changing perceptions and demands in the market as well as among target customers. This can be implemented by conducting online interviews and feedback sessions with customers. Continuous up gradation of technology is also essential for quick resolution of queries and issues as well as better management of operational processes. 3. Creating intangible resources: EBay has been a service-oriented company. As a result building a dynamic community can enhance the overall reputation of the online firm in a significant amount (Hall, 1993). Communities can be established on various online and offline platforms. While online platforms include social media sites, online games and web campaigns; offline community building is essentially bringing customers from across the globe in one platform. Reference List Barney, J. B., Ketchen, D. J and Wright, M., 2011. The Future of Resource-Based Theory: Revitalization or Decline. Journal of Management, 31, p. 1299. Barney, J., 1991. Firm Resources and Sustained Competitive Advantage, Journal of Management, 17, pp. 99-120. 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