Chapter 3

Resources

-resources are combined to form capabilities -the internet is a resource for Amazon.com -can be tangible or intangible

Example of Firms Capabilities

1)Distribution -Effective use of logistics management techniques -Walmart 2)Human Resources -Motivating, empowering, and retaining employees -Microsoft 3)Management Information Systems -Effective and efficient control of inventories through point-of-purchase data collection methods -Walmart 4)Marketing -Effective promotion of brand-name products -Effective customer service -Innovative merchandising -Nordstrom, Proctor and Gamble 5)Management -Design and production skills yielding reliable products -Product and design quality -Miniaturization of components and products -Sony 6)Research + Development -Innovative technology -Development of sophisticated elevator control solutions -Rapid transformation of technology into new products and processes -Digital technology -Chaparrel Steel

What are the four primary categories of tangible resources?

1)Financial -The firm's capacity to borrow -The firm's ability to generate funds through internal operations 2)Organizational -Formal reporting structures 3)Physical -The sophistication of a firm's plant and equipment and the attractiveness of its location -Distribution facilities -Product inventory 4)Technological -Availability of technology-related resources such as copyrights, patents, trademarks, and trade secrets

What are the three primary categories of intangible resources?

1)Human -Knowledge -Trust -Skills -Abilities to collaborate with others 2)Innovation -Ideas -Scientific Capabilities -capacity to innovate 3)Reputational -brand name -perceptions of quality, durability, and reliability of product -positive reputation with stakeholders such as suppliers and customers

To become a core competence and a source of competitive advantage, a capability must allow the firm to either:

1)Perform an activity in a manner that provides value superior to that provided by competitors. OR 2)Perform a value-creating activity that competitors cannot perform. Only under these conditions does a firm create value for customers and have opportunities to capture that value.

conditions that affect managerial decisions about resources, capabilities, and core competencies.

1)Uncertainty -Uncertainty exists about the characteristics of the firm's general and industry environments and customers' needs. 2)Complexity -Complexity results from the interrelationships among conditions shaping a firm. 3)Organizational conflict -Intraorganizational conflicts may exist among managers making decisions as well as among those affected by the decisions.

The Four Criteria of Sustainable Competitive Advantage

1)Valuable capabilities -Help a firm neutralize threats or exploit opportunities 2)Rare Capabilities -Are not possessed by many others 3)Costly to imitate capabilities -Historical: A unique and a valuable organizational culture or brand name -Ambiguous cause: The causes and uses of a competence are unclear -Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers 4)Nonsubstitutable capabilities. -No strategic equivalent

Two tools to help firms identify their core competencies

1)four specific criteria of sustainable competitive advantage that can be used to determine which capabilities are core competencies. 2)value chain analysis

two concerns with outsourcing

1)potential loss in a firm's ability to innovate -When evaluating the possibility of outsourcing, firms should anticipate possible effects on their ability to innovate in the future as well as the impact of losing some of their human capital. -On the other hand, firms are sometimes able to enhance their own innovation capabilities by studying how the companies to which they've outsourced complete those activities 2)the loss of jobs within the focal firm.

what percentage of organizational decisions fail?

50%

Which of the following capabilities meets the criteria for being a core competency, in that it is rare, valuable, costly to imitate, and nonsubstitutable?

A company history and brand

value chain analysis

Allows the firm to understand the parts of its operations that create value and those that do not. understanding these issues is important because the firm earns above-average returns only when the value it creates is greater than the costs incurred to create that value.

offshoring

Deciding to outsource to a foreign supplier

Value is measured by:

Product performance characteristics Product attributes for which customers will pay

By nurturing a smaller number of capabilities, a firm increases the probability of developing core competencies and achieving a competitive advantage because it does not become overextended.

T

Firms use their resources as the foundation for producing goods or services that will create value for customers

T

Firms with a competitive advantage create more value for customers than do competitors.

T

by outsourcing activities in which it lacks competence, the firm can fully concentrate on those areas in which it has the potential to create value.

T

social capital

When firms have strong positive relationships with suppliers and customers To build social capital whereby resources such as knowledge are transferred across organizations requires trust between partners.

value chain activiies

activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers.

Valuable capabilities

allow the firm to exploit opportunities or neutralize threats in its external environment

tangible resources

are assets that can be observed and quantified. eg: production equipment, distribution centers, etc... -the value of many tangible things can be established through finances, but these statements are not entirely accurate because they disregard some intangible assets -it is difficult to derive additional business or value from a tangible resource. For example, an airplane is a tangible resource, but "you can't use the same airplane on five different routes at the same time. You can't put the same crew on five different routes at the same time. And the same goes for the financial investment you've made in the airplane.

what are "right" resources?

are those with the potential to be formed into core competencies as the foundation for creating value for customers and developing competitive advantages as a result of doing so.

Intangible resources

assets the are rooted deeply in the firm's history, accumulate over time, and are relatively difficult for competitors to analyze. Because they are embedded in unique patterns of routines, intangible resources are difficult for competitors to analyze and imitate eg: Knowledge, trust between managers and employees, managerial capabilities, organizational routines,etc... -Intangible resources require nurturing to maintain their ability to help firms engage in competitive battles.

Nonsubstitutable capabilities

capabilities that do not have strategic equivalents. This final criterion "is that there must be no strategically equivalent valuable resources that are themselves either not rare or imitable. the strategic value of capabilities increases as they become more difficult to substitute. The more intangible, and hence invisible, capabilities are, the more difficult it is for firms to find substitutes and the greater the challenge is to competitors trying to imitate a firm's value-creating strategy.

Rare capabilties

capabilities that few, if any, competitors possess. A key question to be answered when evaluating this criterion is "how many rival firms possess these valuable capabilities?" Capabilities possessed by many rivals are unlikely to become core competencies for any of the involved firms.

Costly-to-imitate capabilities

capabilities that other firms cannot easily develop Capabilities that are costly to imitate are created because of one reason or a combination of three reasons 1)unique historical conditions -A firm with a unique and valuable organizational culture that emerged in the early stages of the company's history "may have an imperfectly imitable advantage over firms founded in another historical period 2)Casually ambiguous -competitors aren't able to clearly understand how a firm uses its capabilities that are core competencies as the foundation for competitive advantage. As a result, firms are uncertain about the capabilities they should develop to duplicate the benefits of a competitor's value-creating strategy. 3)Social complexity -means that at least some, and frequently many, of the firm's capabilities are the product of complex social phenomena. Interpersonal relationships, trust, friendships among managers and between managers and employees, and a firm's reputation with suppliers and customers are examples of socially complex capabilities.

core competencies

capabilities that serve as a source of competitive advantage for a firm over its rivals. they distinguish a company competitively and reflect its personality. -CC emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities.

Resources, capabilities, and core competencies are the foundation of

competitive advantage.

the firm's most important sources of competitive advantage are

core competencies, in combination with product-market positions

A sustainable competitive advantage exists only when competitors are unable to

duplicate the benefits of a firm's strategy or when they lack the resources to attempt imitation.

A business-level strategy is effective only when it is grounded in

exploiting the firm's capabilities and core competencies

Outsourcing can be effective because

few, if any, organizations possess the resources and capabilities required to achieve competitive superiority in each value chain activity and support function

capabilities

firm's ability to use tangible and intangible resources -are used to complete organization tasks required to produce, distribute, and service the goods or services the firm provides to customers. -capabilities are often based on developing, carrying, and exchanging information and knowledge through the firm's human capital

core rigidities

former core competencies that now generate inertia and stifle innovation

support functions

include the activities or tasks the firm completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing.

strategic leaders

individuals who can make the most successful decisions about using the organization's resources

A capability is nonsubstitutable when:

it does not have strategic equivalents.

A capability can be considered costly to imitate when:

it is developed because of unique historical conditions.

A firm should study its internal organization as part of the strategic management process because:

it provides the insights the firm requires to match what the firm can do with what the firm might do when formulating strategies.

value is created by a product's

low cost, differentiated features, or by a combination of these things

creating value

measured by a product's performance characteristics and by its attributes for which customers are willing to pay.

a firm can improve by studying its

mistakes. Like knowing when to quit.

Identifying internal strengths and weaknesses is important because:

strategies are more successful when they are aligned with a company's resources, capabilities, and core competencies.

global mind set

the ability to analyze, understand, and manage an internal organization in ways that are not dependent on the assumptions of a single country, culture, or context this can help firms outperform rivals

judegement

the capability of making successful decisions when no obviously correct model or rule is available or when relevant data are unreliable or incomplete. In such situations, decision makers must be aware of possible cognitive biases, such as overconfidence.

outsourcing

the purchase of a value-creating activity or a support function activity from an external supplier. -nonprofits do this -increases flexibility, mitigates risks, and reduces capital investments.