New Balance Case Study: Capabilities and Resources

Appendix 3 – Internal Analysis Resources: a) Tangible resources: i) Physical: plants and equipment * H-D invests continuously in plants and equipment. * H-D plants are located in different states in the US, very far from each other, which causes very high transportation costs. i) Technological: * H-D is known for its technological backwardness in terms of engines, suspension systems, braking systems, and transmissions. iii) Financial * Steady increase in profit for 20 years (until 2007) * Downturn in the last year (2008) Limited ability to invest in technology and new products due to smaller corporate sizes and inability to share research expenditure across cars and bikes iv) Organisational * Flatter and more team-based organisational structure, which provides better flexibility and effectiveness b) Intangible resources: ii) Human: * High level of employees’ loyalty and commitment to the company * Good management-employee relationship, characterised by open communication, employee support (e. g. education program) iii) Innovation: lack of significant innovation activities iv) Reputation: * Extremely strong brand name * Very high customers loyalty * Strong relationship with the customers through HOG * Close relationship with the suppliers through SAC v) Distribution network: * Very well developed distribution network * Close relationship with the dealers – dealer development program vi) Strategic alliances: * Alliances with Porsche AG, Ford, and Gemini Racing Technologies – provide access to automotive technology * Recently has formed an alliance with Shell

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Capabilities * Vision * Offering a unique/personalised product * Product support/customer service * Successful implementation of acquisitions * Developing a ‘Learning Organisation’ VRIO/VRINE test Potential strategic capability| Valuable for customers? | Rare? | Difficult to imitate/substitute/replicate? | Specific for the organisation/organisation actually delivers it? | Physical resources| Yes| No| | | Financial resources| Yes| Yes| Yes| Not specific for the organisation| Technological resources| Yes| No| | | Organisational resources| Yes| Yes| No| |

Human resources| Yes| Yes| Yes| Not specific for the organisation| Innovation| Yes| Yes| Yes| Organisation doesn’t actually deliver it| Reputation| Yes| Yes| Yes| Yes| Distribution network| Yes| Yes| Yes| Not specific for the organisation| Strategic alliances| Yes| Yes| No| | Vision| Yes| Yes| No| | Offering a unique/personalised product| Yes| Yes| No| | Product support/customer service| Yes| Yes| No| | Successful implementation of acquisitions| Yes| No| | | Developing a ‘Learning Organisation’| Yes| Yes| No| | APPENDIX 3: Internal Analysis RESOURCES| TANGIBLE| INTANGIBLE|

Financial: * Strong return on equity 31% in 2005 (Grant, 2008:162) * Strong return on assets of 28% in 2005 (Grant, 2008:162) * Large cash flow * Strong borrowing capacity * Growing profits| Reputational: * Strong brand identity and value in the US * Consistency with quality assurance, reliability, delivery and customer expectations| Physical: * Plants facilities in US, Brazil and European headquarters in England| Human Resources: * Open communications, self management and health benefits * Dealer Development Program * Training for dealers to improve customer relations * | Organisational: * Non-hierarchical management teams * Work teams:Natural work teamsProcess operating groupsPlant leadership groups| Innovation: * Trademarks * Licensing * Research and development: new engines and models * Buell range to target younger market * Intellectual property * JIT production| Technological: * Agreement with Porsche * Traditional design * Creating the Prototyping Lab| FUNCTIONAL AREAS| CAPABILITIES|

Distribution| * Strong distribution relationships and support| Human Resources| * Strategic Leadership Council to empower employees| Marketing| * Strong lifestyle/culture identity associated with HD owners * Selling an experience * Merchandising * No Harley should be the same – customization option – individualism * Customer service and support * Customer loyalty| Management| * Effective organisational structure| Manufacturing| * Just In Time production * Reputation for quality| Research and Development| * Relationship with Porsche * Money spent is miniscule compared to Honda, Yamaha, Suzuki etc * Introduction of Buell to target new market * Customised design| CORE COMPETENCIES Capability| Valuable? | Rare? | Costly to imitate? | Non substitutability? | Is it a core competency? Efficient organisation structure| YES| NO| NO| NO| NO| Strong lifestyle identity/culture| YES| YES| YES| YES| YES| JIT manufacturing| YES| NO| NO| NO| NO| Customer relations and support| YES| YES| YES| YES| YES| Product differentiation through customization| YES| YES| YES| YES| YES| Strong brand| YES| NO| YES| YES| NO| Strong dealership support and standards| YES| YES| YES| YES| YES| Empowering and motivating employees| YES| NO| NO| NO| NO| | | | | | | appendix 3 Functions and strategic capabilities, strengths and weaknesses) – New Balance Ratings = Weak, Medium, Strong Not applicable = N/A Adapted from Hubbard, Rice and Beamish (2008, Table 4. 3, p. 123)

Function| Strategic capability| Resource orSystem| Rating (Weak, Medium, Strong)| Operations| Operational flexibilitySpeed of responseReliability of on-time, on-budget deliveryReputation for qualityLow-cost productionProduct line breadth| ResourceResourceSystemResourceSystemResource| MediumStrongStrongStrongMediumWeak| Marketing| Effective brand creation and promotionLinks with a global customerComplete product rangeUnderstanding of customers’ real needsCustomer service/product supportInstalled base of satisfied customersEffective sales forceEffective advertising and image creationCustomer loyalty| SystemSystemResourceResourceSystemResourceResourceResourceRe ource| MediumStrongMediumMediumStrongStrongStrongMediumMedium| Information Technology| Use of the customer information system| System| Strong| Human Resources| Selection processesPerformance evaluation and motivation system| SystemSystem| StrongMedium| Research and Development| Speed of new product developmentAbility to find and link with leading-edge research in other organizationsContinuing product innovationTechnical superiorityCustomised design| SystemSystemResourceResourceResource| MediumMediumMediumStrongStrong| Distribution| Size and location of distributionGood relations with distributors| ResourceResource| StrongStrong| Purchasing| Raw material origination and sourcing| System| Strong| Finance and Accounting| Integrated financial information systemTrading and risk managementPrivately owned company| SystemSystemResource| MediumMediumStrong| Head Office| Effective financial control systemsStrategic insight into development of the industryDecision-making systemAbility to transfer technology, know-how and management systems to acquired companiesBusiness-level incentive systemsAbility to retain good management| SystemSystemSystemResourceSystemResource| StrongMediumStrongStrongMediumStrong| General| Reputation for qualityShared vision and cultureEntrepreneurial spiritCoordination skillsSuccessful implementation of acquisitionsWell-known, powerful parentPioneer/early entrant into industry| ResourceResourceResourceSystemSystemResourceResource| StrongStrongStrongMediumWeakN/AStrong| RESOURCES Tangible and Intangible (DETAILED BREAKDOWN) – NEW BALANCE Tangible Resources | Financial| Privately owned company$1,500 mil worldwide sales (2004)$1,550 mil worldwide sales (2007) (Ryan, 2008)Large cash flowGrowing profitsAcquisition in 2007 of Vital Apparel (Ryan, 2008)| Operations| 5 major manufacturing plants (United States)Manufacturing plants in UK for European marketComponent shoe sections made and other materials sourced from AsiaTimely inventory – order taken, manufactured and aimed to be delivered ithin 24 hrs, on budgetIndependent, dedicated sales agenciesOperational flexibility| Head Office| Ability to retain good management – key employees have stayed with the company long-termIncentive systems in place for employees and associated entities| Technological| 3-D Computer Aided Design (CAD), (Smock, 2009) Component parts of shoes used to cut production time and costState of the art distribution centresDigital manufacturingAdvancement in materials technology| Research and Design| Rejuvenation of apparel range – fibre experts hired to explore options such as recycling of polyesters (Ryan, 2008)Cocona – natural fibre technology made from coconuts for new apparel range (Ryan, 2008)Low cost molds and dies development| Information Technology| B2B inventory information system| Intangible Resources |

General| Long established and trusted company – pioneer/early entrant into industryPodiatry ethos, historicallyBrand synonymous with quality footwear – fit, comfort, performanceCustomer satisfaction through timely delivery and specificity in fitCommitment to corporate social responsibility (2004 Tsunami relief)| Human Resources| Realisation in 2007 that a new CEO (new leadership) was needed to advance the organisation and to maintain sustainable competitive advantage Entrepreneurial, innovative cultureIntellectual propertyGood corporate relations with distributors and sales outlet staff Employees feel empoweredEmployees made to feel they are ‘the celebrities of the brand’Employees at all levels encouraged to embrace change| Innovation| Patents – construction methods/materials of soles of shoes have been patentedTrademarksNB2E – process innovationResearch and developmentRetro styles of shoes – to target Generation Y Increased width range in women’s footwear – to increase market share| CAPABILITIES (DETAILED BREAKDOWN) – NEW BALANCE

Management| Efficient/effective organisational structure| Human Resources| Careful selection of employeesConcentrated effort put into employee performance evaluation and motivation| Marketing| Customer loyalty – return to brand for fit and comfort‘No frills’, no celebrity endorsement advertisingBrand known as reliable, well-fitting range of performance shoes – cover all shoe widthsWord of mouth advertising (huge savings on celebrity sponsorships)| Distribution| Effective distribution methodsDistributors and sellers treated well by NB organisation – given training, support and incentives| Research and Development| Just in Time productionNB2B – lean production method – process innovationHuge savings with use of less expensive molds and dies as compared to their competitors, Nike, Adidas/Reebok, Puma. | CORE COMPETENCIES – NEW BALANCE The VRIO framework

Adapted from Hubbard, Rice and Beamish (2008, Table 4. 4, p. 128) Capability| Valuable for customers? | Rare? | Difficult to imitate/substitute/replicate? | NonSubstitutability? | Is it a core competency? | General – Pioneering company with reputation for quality/shared vision, culture/entrepreneurial spirit| Yes| Yes| Yes| No| YES| Strong brand identity/culture| Yes| No| Yes| No| NO| Research and Development NB2B| Yes| Yes| Yes| Yes| YES| Innovation – Patents| Yes| Yes| Yes| Yes| YES| Product differentiation through customization| Yes| Yes| Yes| No| YES| Strong distribution processes| Yes| No| Yes| No| YES| Empowering and motivating employees| Yes| Yes| Yes| Yes| YES|

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