Chapter 4: Internal Analysis: Resources, Capabilities, and Core Competencies

Dynamic Capabilities

A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage. Dynamic capabilities are essential to moving from short-lived competitive advantage to sustainable competitive advantage. Dynamic capabilities allow for firms to adapt to changing market conditions, but they also enable firms to create market changes that can strengthen their strategic position.

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. (asset -> liability)

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 in a constantly changing environment.

Social Complexity

A situation in which different social and business systems interact with one another.

Causal Ambiguity

A situation in which the cause and the effect of a phenomenon are not readily apparent.

How is competitive advantage likely to form?

Competitive advantage is more likely to develop from intangible resources.

Activities

Distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services.

What is the Resource Based View (RBV)?

Suggested by Jay Barney Resources are key to superior firm performance. Resources fall broadly into two categories: tangible and intangible.

What is the value of Apple's resources?

Tangible: $15 Billion Intangible: $180 Billion

Organized to Capture Value

The characteristics 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. Exploit competitive potential

Core Competencies

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

What is the value of Google's resources?

Tangible: $8 Billion Intangible: $110 Billion

What are some conditions that can offer protection to a successful firm by making it more difficult for competitors to the resources, capabilities, or competencies? (5)

1. Better expectation of the future resource value 2. Path dependence 3. Casual ambiguity 4. Social complexity 5. Intellectual property (IP) protection

What does a SWOT analysis allow?

A SWOT analysis allows the strategist to evaluate a firm's current situation and future prospects by simultaneously considering internal and external factors. It also encourages managers to scan the internal and external environments looking for any relevant factors that might affect the firm's current or future competitive advantage.

Intellectual Property (IP) Protection

A critical intangible resource that can provide a strong isolating mechanism, and this help to sustain a competitive advantage. Patents, designs, copyrights, trademarks, and trade secrets.

SWOT Analysis

A framework that allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses (S and W) with those from an analysis of external opportunities and threats (O and T) to derive strategic implications. The VRIO framework can help figure out whether it is a strength or a weakness. A resource is a weakness if it's not valuable -> does not create opportunity or increase threat External opportunities (O) and threats (T) are the firm's general environment and can be captured by PESTEL and Porter's Five Forces analysis. SWOT = VRIO + PESTEL + Porter's Five Forces

What is a problem with the SWOT analysis?

A problem with the SWOT analysis is that a strength can be a weakness and an opportunity could be a threat.

Rare Resource

A resource is rare if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition. Beats have a large amount of celebrity endorsements. Corporate culture: Google Only a few firms possess it - Toyota lean manufacturing

VRIO Framework

A theoretical framework that explains and predicts firm-level competitive advantage. Valuable resource Rare resource Costly to imitate resource Organized to capture value A firm must have all four to have sustainable competitive advantage.

Resources

Any assets that a firm can draw on when formulating and implementing a strategy. Cash, buildings, machinery, or intellectual property

Isolating Mechanism

Barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy.

What are intangible resources?

Culture, knowledge, brand equity, reputation, intellectual property, etc.

What are tangible resources?

Labor, capital, land, buildings, plant, equipment, suppliers, etc.

What are two critical assumptions?

Resource heterogeneity and resource immobility

Value Chain

The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value.

Costly to Imitate Resource

A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost. Direct imitation is bad for companies if they can't protect IP like how Crocs were easily imitated. Substitution is accomplished through strategic equivalence. Unable to develop or buy at a reasonable price Apple's IOS software

Valuable Resource

A resource is valuable if it helps a firm exploit an external opportunity or offset an external threat. Revenues rise if a firm is able to increase the perceived value of its product or service in the eyes of consumers by offering superior design and adding attractive features. Wearing Beats make you feel cool, but it cost less than $20 to make beats. Branding: Steve Jobs & Apple Attractive features, low costs and price - Honda engines

Path Dependence

A situation in which the options one faces in the current situation are limited by decisions made in the past. Dalton, Georgia makes a lot of carpet. Companies not clustered near Dalton are suffering because lack of access to resources. Time compression diseconomies means that time cannot be compressed even if there is higher investments, the results tend to be inferior.

Resource immobility

Assumption in the resource-based view that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm.

Resource heterogeneity

Assumption in the resource-based view that a firm is a bundle of resources and capabilities that differ across firms. Southwest and Alaska Airlines both compete in the same strategic group, but they draw on different resource bundles. Southwest employees tend to be more productive because they differ along the lines of human and organizational resources.

What are some intangible resource stocks?

Dynamic capabilities, new product development, engineering expertise, innovation capability, reputation for quality, supplier relationships, employee loyalty, corporate culture, customer goodwill, know-how patents, trademarks (THESE THINGS FILL THE BATHTUB)

Primary Activities

Firm activities that add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain. Supply chain management, operations, distribution, marketing and sales, after-sales service.

Support Activities

Firm activities that add value indirectly, but are necessary to sustain primary activities. R&D, information systems, HR, accounting, finance, and firm infrastructure including processes, policies, and procedures.

Better expectations of the future resource value

It is like trying to decide where to buy land and if the land will have a highway built by it in the future causes the popularity of the area to increase which causes the land value to increase.

Capabilities

Organizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically. Capabilities are intangible. Structures, routines, and culture

Resource Stocks

The firm's current level of intangible resources.

Resource Flows

The firm's level of investments to maintain or build a resource.

What are the strategic alternatives that SWOT allows for?

Strengths-Opportunities - to derive offensive alternatives by using an internal strength in order to exploit an external opportunity. Weaknesses-Threats - to derive defensive alternatives by eliminating or minimizing an internal weakness in order to mitigate an external threat. Strengths-Threats - to use an internal strength to minimize the effect of an external threat. Weaknesses-Opportunities - to shore up an internal weakness to improve its ability to take advantage of an external opportunity.