Chapter 5   Resources and Capabilities

Chapter 5 Resources and Capabilities PowerPoint PPT Presentation


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Internal Analysis. Strategists agree that industry can account for as much as 30% in profit variance.The other 70% explained by internal events.Thus, the resource based view of the firm (RBV) has become popular. It suggests that resource and capabilities are the primary sources of competitive advantage and that firms are heterogeneous in their resource and capability base..

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Chapter 5 Resources and Capabilities

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1. Chapter 5 – Resources and Capabilities We noted in previous chapters that profitability is derived from two sources: Location within an attractive industry and… Achieving a competitive advantage over rivals. Internationalization, deregulation, and other forces have increased competitive pressure, so few industries offer cozy refuge from vigorous competition. Thus, establishing SCA through the development & deployment of resources and capabilities has become the primary goal of strategy.

2. Internal Analysis Strategists agree that industry can account for as much as 30% in profit variance. The other 70% explained by internal events. Thus, the resource based view of the firm (RBV) has become popular. It suggests that resource and capabilities are the primary sources of competitive advantage and that firms are heterogeneous in their resource and capability base.

3. Resources, Capabilities and SCA

4. Resources and Capabilities Tangible resources (land, buildings, plants, equipment, etc.) Intangible resources (brand name, reputation, patents, technology) Human resources (skills, know-how, communication, collaboration, motivation) To contribute to competitive advantage, resources must be unique and valuable.

5. Resources and Capabilities Capabilities are firm skills in coordinating resources and putting them to productive use. Resources without capabilities are worthless, and visa versa. Distinctive competencies and capabilities are synonymous. Core competencies are capabilities fundamental to firm performance and strategy. We are interested in firm capabilities relative to the competition.

6. RBV A resource is any thing or quality that is useful. Firms have different starting points for resources (heterogeneity) and other firms cannot get them (immobility). These resources include creativity, uniqueness, vision, intuition, and initial conditions (history) under which the new venture is formed.

7. RBV So, firms usually begin with some strategically relevant resources and skills, then they… Buy (acquire) other resources/skills cheaply, Transform these resources into a product/service, Deploy and implement (strategy), Sell dearly (for a profit). This is possible only if undervalued resources exist…this depends on market imperfections and differences of opinion about prices and events.

8. RBV Thus, SCA is created when firms possess and employ resources that are: V ________________ R ________________ I ________________ N ________________ Firms that can protect these types of resources can withstand competitive pressure and enjoy SCA.

9. RBV – Valuable Resources Valuable resources help the firm implement its strategy efficiently and effectively. From a SWOT standpoint, valuable resources exploit opportunities and minimize threats in the firm’s environment. May include resources such as property, equipment, people and skills.

10. RBV – Rare Resources A resource can be considered rare if it is not widely available to competition. Thus, valuable resources that are available to a large number of firms are not rare. A good example is legal expertise. Rare resources may include a good location, good managers/leaders, or control of natural resources.

11. RBV – Inimitable Resources Inimitable means that a resource cannot be copied (at a price low enough to leave profit). Three factors enhance inimitability: Unique historical conditions – initial resources that accompany the firm’s origin (location, knowledge) Causal ambiguity – when the cause & effect relationship is not well understood Complex social relationships – those between ee’s, customers and suppliers Organizational culture

12. RBV – Non-substitutable Resources Strategic resources that cannot be replaced by common resources. Expert system for a manager Charismatic leader for a strategic plan Programmed learning for teachers Similar to substitutes in Porter’s 5 Forces model.

13. Resource Types -- PROFIT P – Physical R – Reputational O – Organizational F – Financial I – Intellectual and Human T – Technological

14. Physical Resources Tangible property the firm uses in production and administration. Includes equipment, land, natural resources. Because most physical things can be manufactured or purchased, they are probably V, but not usually RIN.

15. Reputational Resources Perceptions that people/stakeholders have of the firm. Relatively long-lived and includes things like the following (Fortune): Quality of management* Use of corporate assets Financial soundness* Value as an investment Quality of products/services* Innovativeness Employee recruitment, development, retention Community and environmental responsibility Casts a shadow on the future – outlives the current human resources

16. Organizational Resources Includes the firm’s structure, routines, and systems. Structure impacts speed, innovation, communication, and control. Routines and systems provide a set of rules, norms, policies and guides for current and future behavior. These resources are generally VRIN.

17. Financial Resources Includes the firm’s borrowing capacity, ability to raise new capital, and the amount of cash it generates from internal operations. When various resources/factors are ranked by E’s, financial resources generally do not rank at the top. Generally V, but generally not RIN.

18. Intellectual and Human Resources Includes knowledge, training and experience of the E and the team. Includes E’s values and beliefs Includes social capital (relationship) – not what you know, but who you know. Almost always VRIN.

19. Technological Resources Processes, systems or physical transformations. Includes labs, R&D facilities, testing, quality control, and proprietary knowledge. Always valuable, and can be RIN (but not always).

20. VRIN – PROFIT Summary

21. Competitive Advantage Four Building Blocks Efficiency Quality Innovation Customer Responsiveness Lead to Competitive Advantage through: Low Cost Strategy Differentiation Strategy

23. Building Blocks of C.A. Efficiency Generally measured as output/input Most important element is ee productivity Productivity determined by factors such as: knowledge patents processes technology

24. Building Blocks of C.A. Quality Increases value perceived by consumers (differentiation) Allows company to charge higher prices Lowers production costs (efficiency) through time, waste, etc.

25. Building Blocks of C.A. Innovation Products, processes, systems, structures, etc. Competition is a process driven by innovation. Porter and others suggest that innovation is the key building block of sustainable competitive advantage.

26. Building Blocks of C.A. Consumer Responsiveness Allows pricing flexibility Must understand consumer wants/needs Includes customization, response time, and service

27. Value Chain (Porter) Chain of activities that process inputs to outputs that customers value Consists of primary and support activities Every firm’s value chain is usually different Important concept - used for both internal analysis and diversification analysis

29. Sustaining Comp. Adv. Depends on three factors: Barriers to imitation Capabilities of competitors Dynamics of the industry

30. Sustaining Comp. Adv. Barriers to imitation Durability is critical - Causal ambiguity creates market share and brand loyalty Imitation: Easiest is tangible resources Next easiest is intangible resources Most difficult is human resources and capabilities (collective not individual) Replication is important also…and is different from imitation.

31. Sustaining Comp. Adv. Capability of Competitors Ability of competition to innovate or imitate Absorptive capacity Strategic commitment plays a large role Strong commitment = slow to respond Industry dynamism Most dynamic industries have high innovation Innovation makes sustainability difficult

32. Developing Organizational Capabilities

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