Chapter 4

Value

A resource is valuable if it allows a firm to exploit an opportunity, or neutralize a threat. Valuable resources/capabilities equals strenths. Attractive features.

Under what circumstances is a resource/capability considered a strength? A weakness?

A strength is a resource or capability that enables a firm to do one of the following. 1. expliot an opportunity 2. neutralize a threat It is a weakness when a competitor has a resource that adds to their competitive advantage and you don't have that same resource. It's only a weakness if it leaves us venerable to a particular threat we have identified.

Imitability

Barriers exist that make imitation undesirable or unfeasable for rivals. You must consider substituting resources/capabilities.

What is the resource-based view (RBV) of the firm?

Combines internal and external analysis. Resources are key to superior performance. USE VRIO, Tangible and Intangible resources, and organizational capabilities.

Weakness Threat

Defensive alternative, minimize weaknesses to avoid threats

What are dynamic capabilities?

Dynamic capabilites: Describe a firm's ability to create, deploy, modify, reconfigure, upgrade or leverage its resources in its quest for compettitve advantage Intangible resource!

Imitability Example

EX: Apple's user friendly product design, integration and marketing competencies..costly for Sony to imitate. another ex: Croc vs. Nike (Croc was a "one trick pony" wheras Nike was able to continuosly innovate AND build tremendous brand recognition)

Value example

Ex: Honda's competency in designing and producing efficient engines increases the perceived value of its product to consumers. That competency, supported by lean manufacturing enables quality to be designed and build directly into the product...helping Honda lower costs.

What is the relevance of dynamic capabilities to generating a sustainable competitive advantage?

Ex: Vanguard *Not only do dynamic capabilities allow firms to adopt to changing mkt conditions, they also enable firms to CREATE market changes ex: Apple's dynamic cap.'s allowed it to REDEFINE the market for portable music thru iPOd, generating environmental change to which Sony and other had to respond. ALso with iPhone. Dynamic Capabilities perspective: A model that emphasizes a firm's abilty to modify and leverage its resorue base in a way that enables it to gain and sustain competive advantage in a constantly changing environment.

Intangible: Generally you can't just go and buy Lack physical properties Can't just go out in the open market and purchase a brand

Human assets and Intellectual property Brand, image, reputational assets Relationships Company Culture

How can value chain activities contribute to firms' ability to gain and sustain a competitive advantage?

In the value chain perspective, R & C's are needed to perform the firm's activities. While the resource based view model helps to identify the integrated set of resources and capabilities that r the building blocks of core competencies, the value chain perspective helps managers to see how competitve advantage FLOWS from the firm's SYSTEM of ACTIVITIES.

What are capabilities?

Intangible, firm's ability to perform a critical activity proficiently using a related combination of resources. Our ability to effectively utilize and employ our resources to create a competitive advantage Employ them in a way to carry out our strategy The ability to bundle all your resources to develop products that are superior.

Resource Immobility

It may be costly for firms without certain resources or capabilities to aquire them. You would hope that the resources that are most important to achieve your competitive advantage are also the resources that are immobile. Social Complexity.

How does internal analysis relate to external analysis?

Linking these insights from a firm's internal analysis to the ones derived in external analysis allows managers to determine their strategic options. The firm's internal strengths should change with its external environment in a dynamic fashion. We dont know if its a strenth or weakness unless we know whats going on outside. Must do our external analysis to identify our strengths.

Core Competency Criteria

Must meet VRIO criteria-necessary but insufficient to be considered a core competency. Provide a bass for entering new markets. Efficiency with which the value is delivered.

Rarity: Knowledge diffusion

No, or very few other firms possess this resource/capability. A resource/capbility is rare if only one or few firms possess the resource or can perform the capability in the same unique way.

What are the underlying assumptions of RBV?

Note, by the way, that the critical assumptions of the resource-based model are fundamentally different from the way in which a firm is viewed in the perfectly competitive industry structure introduced in Chapter 3.

Strength opportunity

Offensive alternative, utilize a strength to address an opportunity

Tangible: Can you go and access this? YES

Physical Financial Technological organizational

What are the barriers to imitation that increase firms' ability to sustain a competitive advantage?

Physical uniqueness, path dependency, causal ambiguity, social complexity

What are the differences between primary and support activities?

Primary: raw materials, intermediate goods/components, final assembly/manufacturing (operations), marketing & sales, customer service Support activities: R&D, IS, HR, FIN, ACCTG, Operations mgmt, and general mgmt

Resource Heterogeneity

Resources and Capabilities differ across firms. Valuable and different in some way.

Value Chain example

SWA uses activities such as frequent and reliable departures, limited in-flight passenger service, low ticke prices, short-haul point2point flights using secondary airports, flying only one type of aircraft, highly productive motivated ground/gate crew.Each core activity is supporteed by a number of other activities..consistent and complement and reinforce one another = interconnected system

How can managers use the SWOT matrix to develop strategic alternatives?

SWOT organizes your analyses that you have already completed

What are the four categories of strategic alternatives managers can generate utilizing the SWOT matrix?

Strength Opportunity Weakness Threat Opportunity Weakness Threat Strength

What does the internal analysis tell us that we need to know in order to formulate effective strategies?

Strengths and Weaknesses

Opportunity Weakness

Take advantage of opportunities by overcoming weaknesses

What are the different types of resources a firm may possess?

Tangible and Intangible

How are capabilities similar to/different from resources?

The capability might be what you are doing with the relationship, its more of a skill. Apple has a capacity to develop relationships. The relationship is a resource as a result of their capability.

Understand value chain analysis

The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value. Primary activities directly add value; support activites add value indirectly.

Organization

To fully exploit the competitive potential of its Resources & Capabilities a firm must have in place an effective organizational structure coordinating systems

What are the underlying assumptions of RBV?

Two assumptions are critical in the resource-based model: (1) resource heterogeneity and (2) resource immobility. Without these two things there would be no competitive advantage. If every firm had the exact same resources, firms would have no opportunity to achieve a competitive advantage

Threat Strength

Use strengths to avoid threats

What is the VRIO framework?

V Value R Rare to immitate I Costly to immitate O Organize

Why do we (as strategic managers) perform internal analyses?

determine a firms strengths and weaknesses, determine which resources and capabilities are likely sources of competitive advantage, formulate strategies to exploit any sources of competitive advantage.

Rarity example

ex: Toyota's lean manufacturing was a valuable and rare rsource, allowing it to lower production cost and maintain high quality of "mass-customized" cars. Toyota was able to gain TEMPRORY comepetitive advantage. HOwever, KNOWLEDGE DIFFUSION can occur thru benchmarking studies, new methods taught or consultants...lean manufacturing became an industry standard so Toyota and other firms achieve competitve parity as lean manufacturing became a common resource.

What are core competencies?

unique strengths embedded deep w/in the firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost. *VERY important to continuosly nourish. W/out upgrading or ongoing improvement, competitors are more likely to develop equivalent or superior skills ex: Best Buy did with Circuit city