chapter 4

value chain

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

casual ambiguity

A situation in which the cause and effect of a phenomenon are not readily apparent. Examples: link between cause and effect of Apple's success not super apparent

SWOT Matrix

S-O quadrant—derive "offensive" alternatives by using an internal strength to exploit and external opportunity. W-T column—derive "defensive" alternatives by eliminating or minimizing an internal weakness in order to mitigate and external threat. S-T quadrant—use an internal strength to minimize the the effect of an external threat. W-O column—focus here in shoring up and internal weakness to improve ability to take advantage of an external opportunity.

dynamic capabilities

(think bath tub example) How fast the tub fills, also depends on how much water leaks out. The outflows represent a reduction in the firm's intangible resource stocks. Resource leakage might occur through employee turnover. According to the DC perspective, the manager's task is to decide which investments to make over time (i.e., which faucets to open and how far) in order to best position the firm for competitive advantage in a changing environment. Moreover, managers also need to monitor the existing intangible resource stocks and their attrition rates due to leakage and forgetting

dynamic capabilities perspective

-A model that emphasizes a firm's ability to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage. -essence of this perspective is that competitive advantage is not derived from static resources or market advantages, but from a dynamic reconfiguration of a firm's resource base.

VRIO Framework

-Theoretical framework that explains and predicts firm-level competitive advantage. Implied in the RBV framework and shows how a resource can help lead firm to competitive advantage -can be applied to any asset the firm has like capabilities or competencies - only if manager answers yes to VRIO then the resource is a core competency -You can use this decision tree to decide if the resource, capability, or competency under consideration fulfills the VRIO requirements

dynamic capabilities

-adds time element. -The firm must be able to change its internal resource base as its external environment changes. -The goal should be to develop resources, capabilities, and competencies that create a strategic fit with the firm's environment. -Rather than creating a static fit, the firm's internal strengths should change with its external environment in a dynamic fashion. -Not only allow firms to adapt to changing market conditions, but they also enable firms to create market changes that can strengthen their strategic position.

3 steps of swot analysis

1) gather information for a SWOT analysis 2) complete swot matric to develop strategic alternatives 3) evaluate alternatives

dynamic capabilities

A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources over time in its quest for competitive advantage. DCs are essential to move beyond a short-lived advantage and create a sustained competitive advantage. For a firm to sustain its advantage, any fit between internal strengths and the external environment must be dynamic.

how is a firm's core competency found

A firm's core competency is generally found in a network linking different but distinct activities, each contributing to the firm's strategic position as either a low-cost leader or differentiator.

core rigidity

A former core competency that turned into a liability because the firm failed to hone, refine, and upgrade the competency as the environment changed.

resource based view of the firm

A model that sees certain types of resources as key to superior firm performance visible and invisible resources uses resources more broadly

social complexity

A situation in which different social and business systems interact with one another. Example: The number of relationships (r) in a group with n members doubles, where r = n(n - 1).

path dependence

A situation in which the options one faces in the current situation are limited by decisions made in the past. Example: Roughly 85 percent of all carpets sold in the United States and almost one-half sold worldwide come from carpet mills located 65 miles from Dalton, GA Note: Trying to achieve the same outcome in less time, even with higher investments, tends to lead to inferior results, due to time compression diseconomies.

isolating mechanisms

Barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy. Examples: Better expectations of future resource value. Path dependence. Causal ambiguity. Social complexity. Intellectual property (IP) protection. If one, or any combination of these isolating mechanisms is present, a firm may strengthen its basis for competitive advantage, increasing its chance to sustain it over time

how firms can try to imitate a resource

Competitors will try direct imitation and/or substitution which is often accomplished through strategic equivalence (has same risk-reward/payoff)

SWOT analysis

Framework allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses (S and W) with those from analysis of external opportunities and threats (O and T) to derive strategic implications.

dynamic strategic fit

If a firm achieves a dynamic strategic fit, it is likely to be able to sustain its advantage over time (as opposed to just strategic fit)

resource heterogeneity and resource immobility

RH: Assumption in the RBV that a firm is a bundle of resources and capabilities that differ across firms. RI: Assumption in the RBV that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm.

resources vs capabilities vs activities

Resources Any assets that a firm can draw in when formulating and implementing strategy. (can be tangible or intangible) Capabilities Organizational and managerial skills needed to orchestrate a diverse set of resources and deploy them strategically. (intangible) Activities Distinct and fine-grained business processes that enable the firm to add incremental value by transforming inputs into goods and services.

core competencies

Unique strengths, embedded deep within a firm, that are critical to gaining and sustaining competitive advantage. 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

VRIO vs Porter's five forces vs PESTEL

VRIO used to determine firm's internal strengths and weaknesses and Five Forces and PESTEL used to determine external opportunities and threats

better expectations of future resource value

firms acquire a resource at a low cost which lays the foundation for competitive advantage and more a greater resource future value. Example: real estate development

resource stocks and resource flows

resource stocks: The firm's current level of intangible resources. These are built through investments over time resource flows: The firm's level of investments to maintain or build a resource.

linking core competencies, resources, and activities to competitive advantage

resources reinforce core competencies while capabilities allow managers to orchestrate core competencies. Strategic choices find their expression in specific firm activities, which leverage core competencies for competitive advantage. more important to understand invisible part of core competencies and not just visible part like the actual product or service

support activities vs primary activities

support: R&D, accounting and finance, info systems, HR, firm infrastructure including processes, policies, and procedures -add value indirectly, but are necessary to sustain primary activities. primary: SC Mgmt, operations, distribution, marketing and sales, after sales service -add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along an internal value chain.

tangible vs intangible resources

tangible: physical attribute. Example like PPE, land, capital, labor, intangible : not physical. Example include intellectual property (patents, designs, copyrights, trademarks, trade secrets) , brand equity, culture, knowledge,

SWOT matrix

used to develop strategic alternatives

when a resource is rare, valuable, costly to imitate, and organized to capture value

valuable : It enables the firm to exploit an external opportunity. It enables the firm to offset an external threat. It enables a firm to increase its economic value creation (V - C). Example: Beats' ability to design and markets premium headphones that have a coolness factor is a valuable resource and profit margins are very high rare: Only one or a few firms possess it. The number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition. Example: Beats' product placement and celebrity endorsements are rare costly to imitate: Firms that do not possess the resource are unable to develop or buy the resource at a reasonable price. If the resource is valuable, rare, and costly to imitate, then it is an internal strength and a core competency and can enjoy comp. advantage. Example: social capital of Dr. Dre. Linked directly to barriers of entry organized to capture value: An effective strategy/structure relation exists. The characteristic of having in place an effective organizational structure, processes, and systems to fully exploit the competitive potential of the firm's resources, capabilities, and competencies.