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Resource-Based View. IO vs. RBV. Business Level Strategy. How do we compete in a specific business arena? Four objectives of business-level strategy Generate sustainable competitive advantages Develop and nurture (potentially) valuable capabilities Respond to environmental changes

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business level strategy
Business Level Strategy
  • How do we compete in a specific business arena?
  • Four objectives of business-level strategy
    • Generate sustainable competitive advantages
    • Develop and nurture (potentially) valuable capabilities
    • Respond to environmental changes
    • Approval of functional level strategies
business level strategy4
Business-Level Strategy
  • The primary objective of business-level strategy is to create “sources of sustainable competitive advantage”.
  • What is sustainable competitive advantage?
    • There are many definitions, used by different people in different ways.
    • What follows is a practical description. But first, we need to back up a bit…
sustainable competitive advantage
Sustainable Competitive Advantage
  • An asset is anything the firm owns or controls.
    • Loosely, “Asset” is to Accounting as “Resource” is to Management.
  • Types of assets:
    • Physical: plant equipment, location, access to raw materials
    • Human: training, experience, judgment, decision-making skills, intelligence, relationships, knowledge
    • Organizational: Culture, formal reporting structures, control systems, coordinating systems, informal relationships
sustainable competitive advantage6
Sustainable Competitive Advantage
  • A capability is usually considered a “bundle” of assets or resources to perform a business process (which is composed of individual activities)
    • E.g. The product development process involves conceptualization, product design, pilot testing, new product launch in production, process debugging, etc.
  • All firms have capabilities. However, a firm will usually focus on certain capabilities consistent with its strategy.
    • For example, a firm pursuing a differentiation strategy would focus on new product development. A firm focusing on a low cost strategy would focus on improving manufacturing process efficiency.
  • The firm’s most important capabilities are called competencies.
competencies vs core competencies vs distinctive competencies
Competencies vs. Core Competencies vs. Distinctive Competencies
  • A competency is an internal capability that a company performs better than other internal capabilities.
  • A core competency is a well-performed internal capability that is central,not peripheral, to a company’s strategy, competitiveness, and profitability.
  • A distinctive competence is a competitively valuable capability that a company performs better than its rivals.
examples distinctive competencies
Examples: Distinctive Competencies
  • Toyota, Honda, Nissan
    • Low-cost, high-quality manufacturing capability and short design-to-market cycles
  • Intel
    • Ability to design and manufacture ever more powerful microprocessors for PCs
  • Motorola
    • Defect-free manufacture (six-sigma quality) of cell phones
where are we
Where are we?
  • We are discussing sustainable competitive advantage, and have defined Competencies:
    • AssetsCapabilitiesCompetenciesCompetitive Advantage
  • Next is competitive advantage.
    • A competitive advantage is simply an advantage you have over your competitors.
    • A competency will produce competitive advantage provided:

A) it produces value for the organization, and

B) it does this in a way that cannot easily be pursued by competitors.

sustainable competitive advantage10
Sustainable Competitive Advantage
  • However, we said the primary objective of business-level strategy was to create sources of sustainable competitive advantage (SCA).
  • How do we know SCA when we see it? What is it? When is it considered “sustainable”?
  • To produce SCA, the capability must:
    • Produce value
    • Be rare
    • Imperfectly imitable, i.e. not be easily imitated or substituted
    • Be exploitable by the organization
sustainable competitive advantage11
Sustainable Competitive Advantage
  • The Question of Value:
    • Capabilities are valuable when they enable a firm to conceive of or implement strategies that improve efficiency and effectiveness.
    • Value is dependent on type of strategy:
      • Low cost strategy: lower costs (Timex)
      • Differentiator: add enhancing features (Rolex)
    • To be valuable, the capability must either
      • Increase efficiency (outputs / inputs)
        • Information system reduces customer service agents required, or increases the number of calls the same number of agents can answer
      • Increase effectiveness (enable some new capability not previously held)
        • Opening a new regional campus enables outreach to a new market of students
sustainable competitive advantage12
Sustainable Competitive Advantage
  • The Question of Rareness:
    • Valuable resources or capabilities that are shared by large numbers of firms in an industry are therefore not rare, and cannot be a source of SCA.
    • Given the following, which are rare?
      • A web server
      • An MIS instructor
      • A state-of-the-art stamping press
    • None of these are rare. Some researchers think only organizational assets or resources are rare (such as culture). What do you think?
sustainable competitive advantage13
Sustainable Competitive Advantage
  • The Question of Imitability
    • Valuable, rare resources can only be sources of SCA if firms that do not possess them cannot obtain them. They must be “imperfectly imitable”, i.e. impossible to perfectly imitate them.
    • Ways imitation can be avoided:
      • Unique Historical Conditions (Caterpillar, e.g.)
      • Causal Ambiguity (why resources create SCA is not understood, even by the firm owning them)
        • Imitating firms cannot duplicate the strategy since they do not understand why it is successful in the first place.
      • Social Complexity (trust, teamwork, informal relationships, causal ambiguity where cause of effectiveness is uncertain)
        • E.g. A competitor steals all the scientists in an R&D lab and relocates them to a new facility. But, the “dynamics”, “culture” and “atmosphere” are not the same.
sustainable competitive advantage14
Sustainable Competitive Advantage
  • The Question of Substitutability
    • There must be no equivalent resources that can be exploited to implement the same strategies.
    • Forms of substitutability:
      • Duplication: Although no two management teams are the same, they can be strategically equivalent, produce the same results.
      • Substitution: Very different resources can be substitutes, e.g.
        • A charismatic leader with a clear vision vs. a strategic planning dept.
        • A superior marketing strategy for a recognized brand name.
        • A superior technical support group for an intelligent diagnostic software package
sustainable competitive advantage15
Sustainable Competitive Advantage
  • The Question of Exploitation:
    • Later research qualified this as another critieria for SCA. Is a firm organized to exploit the full competitive potential of its resources and capabilities?
    • Are systems in place to enable firms to support the execution of a particular strategy?
      • Xerox, e.g
notes on sustainable
Notes on “Sustainable”
  • Sustainable is not measured in calendar time.
  • Sustainable does not mean the advantage will last forever.
  • Sustainable suggests the advantage lasts long enough that competitors stop trying to duplicate the strategy that makes the advantage sustained.