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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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:
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
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
Value as an investment
Quality of products/services*
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
Lead to Competitive Advantage through:
Low Cost 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:
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
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
Strategic commitment plays a large role
Strong commitment = slow to respond
Most dynamic industries have high innovation
Innovation makes sustainability difficult
32. Developing Organizational Capabilities