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Chapter #3

Chapter #3. Evaluating a Firm’s Internal Capabilities. Learning Objectives. Describe the Critical assumptions of the resource-based view Describe four types of resources and capabilities Apply the value chain analysis to identify a firm’s critical resources and capabilities

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Chapter #3

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  1. Chapter #3 Evaluating a Firm’s Internal Capabilities

  2. Learning Objectives • Describe the Critical assumptions of the resource-based view • Describe four types of resources and capabilities • Apply the value chain analysis to identify a firm’s critical resources and capabilities • Apply the VRIO frame work to identify the competitive Implications of a firm’s resources and capabilities including…

  3. The conditions under which resources are likely to be valuable • The conditions under which resources are likely to be rare • Four reasons why a firm’s resources may be costly to imitate • How a firm uses its structure, control processes and compensation policy to exploit its resources

  4. Opening Case • EA • SEGA • Nintendo • Sony • Online games • Wizards of the Coast • Warhammer • war

  5. Resource-based View of the Firm • Resources • Are defined as the tangible and intangible assets that a firm controls • Factories, Products (tangible) • Reputation, Teamwork (intangible) • Capabilities • Subset of a firms resources that allows the firm to identify and implement strategies

  6. Types of resources • Financial Resources • $ Retained Earnings • Physical Resources • Plant, Access to raw materials, Geographic location • Human Resources • Leadership • Organizational Resources • Collections of individuals

  7. Assumptions of the resource-based view • Resource Heterogeneity • Firms, even in the same industry can develop different resources and capabilities • Resource Immobility • May be long lasting

  8. David Ricardo • Fertile Land Example • Gratuitous Economics cartoon

  9. The VRIO Framework • Value • Does a resource enable a firm to exploit an environmental opportunity and or neutralize an environmental threat? • Rarity • Is a resource currently controlled by only a small number of competing firms? • Imitability • Do firms without a resource face a cost disadvantage in obtaining or developing it? • Organization • Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resource

  10. Value for Yahoo • Yahoo • First mover • Superior Technology (237 million) • Sell Advertising • Charge Customers • Sell Data Base

  11. Value Chain Oil Industry • Exploring for crude oil • Drilling for crude oil • Pumping crude oil • Shipping crude oil • Buying crude oil • Refining crude oil • Selling refined products to distributors • Shipping refined products • Selling refined products to final customers

  12. Ethics and the nature of externalities • Pollution • Education

  13. Value Chain McKinsey and Company

  14. Value Chain Porter

  15. Rarity • ESPN X-games

  16. Imitability • Sustained competitive Advantage • Forms of imitation • Direct duplication • Substitution

  17. Why might it be costly • Unique historical conditions • Space and time dependent resources • ESPN X-Games • Path Dependence • Later advantages may be dependent on resources that were developed earlier • Casual Ambiguity • Take for granted • Multiple hypothesis • Not just a few

  18. More on costly to imitate • Casual Ambiguity • Take for granted • Multiple hypothesis • Not just a few • Whenever sources of competitive advantage are widely diffused across people, locations and processes, those sources of competitive advantage will be difficult to imitate

  19. Costly continued • Social Complexity • Socially complex phenomena, beyond the ability of firms to systematically manage and influence • Patents • Not as difficult to imitate (depending on industry) (Sony and reverse engineering)

  20. Research Box • MIT • 70 plants • 6 had both low costs and high quality • Modern technology necessary but not sufficient • Human resource practices • Participative decision-making, quality circles, team production • Loyalty, belief that managers would treat employees fairly

  21. Organization • Formal structure • Management control systems • Compensation policies • Complementary resources & Capabilities

  22. Xerox PARC (Palo Alto Research Center) Through the 1960s and early 70s • The personal Computer • The “mouse” • Widows-type software • Laser printer • Paperless office • Ethernet

  23. The VRIO Framework

  24. The VRIO Framework and Strengths and Weaknesses

  25. The responsiblity • Janitor

  26. Competitive Parity and Competitive Advantage • Bench marking not sufficient • Must develop proprietary valuable, rare and costly-to imitate resources and capabilities

  27. Difficult-to-Implement • Is the strategy easier for us to implement than it is for our competitors to implement? • Two errors • Overestimate the uniqueness of resources • Underestimate the uniqueness of resources

  28. Socially Complex Resources • Employee empowerment • Organizational culture • Teamwork

  29. The role of organization • Structure • Control Systems • Compensation Policies

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