MAN 4720 Chapter 4

Path dependence

A situation in which the options ones faces in the current situation are limited by decisions made in the past.

VRIO Framework

A theoretical framework that explains and predicts firm-level competitive advantage. A firm can gain a competitive advantage if it has resources that are valuable (V), rare (R), and costly to imitate (I); the firm also must organize (O) to capture the value of the resources.

Resources

Any assets that a firm can draw on

Resource Heterogeneity

Assumption in the resource-based view that a firm is a bundle of resources and capabilities that differ across firms.

Activities:

Distinct and fine-grained business processes

A Resource Is...Costly to Imitate if:

Competitors can't develop the resource for a reasonable price

The goal of Dynamic Capabilities

Develop resources, capabilities, and competencies Create a strategic fit with the firm's environment Change in a dynamic fashion

A Resource Is...The firm is organized to capture value through:

Effective organizational structure and coordinating systems

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.

LO 4-1 Distinguish among a firm's resources, capabilities, core competencies, and firm activities.

- Core competencies are unique, deeply embedded, firm specific strengths that allow firms to differentiate their products and services to create more value for consumers than their rivals or to offer products and services of acceptable value at lower cost. - Resources are assets that a company can draw on when crafting and executing strategy. Capabilities are the organizational skills necessary to orchestrate a diverse set of resources to deploy them strategically. Activities enable firms to add value by transforming inputs into goods and services.

LO 4-5 Identify competitive advantage as residing in a network of firm activities.

- Each primary activity the firm performs should add incremental value directly by transforming inputs into outputs. Support activities sustain primary activities. - A network of primary and supporting firm activities can create a strategic fit that can lead to competitive advantage. - A strategic activity system conceives of a firm as a network of interconnected activities. Firms need to upgrade their value activities over time, in response to changes in the external environment and to moves of competitors.

LO 4-8 Conduct a SWOT Analysis.

- Formulating a strategy that increases the chances of gaining and sustaining a competitive advantage is based on the synthesizing a competitive advantage is based on synthesizing insights obtained from an internal analysis of the company's STRENGTHS and WEAKNESSES with those from an analysis of external OPPORTUNITIES and THREATS. - A SWOT analysis by itself is insufficient to guide strategy formulation.

LO 4-2 Differentiate between tangible and intangible resources.

- Tangible resources have physical attributes and are visible. - Intangible resources have no physical attributes and are invisible. - Competitive advantage is more likely to be based on intangible resources.

Support activities

Firm activities that add value indirectly, but are necessary to sustain primary activities.

Costly to Imitate Resource

1 of the 4 in the VRIO framework; 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.

Rare Resources

1 of the 4 in the VRIO framework; 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.

resource heterogeneity

A firm is bundle of resources and capabilities that differ across firms

LO 4-4 Apply the VRIO framework to assess the competitive implications of a firm's resources.

For a firm's resource to be the basis of a competitive advantage, it must have VRIO attributes: valuable, rare, costly to imitate; the firm must also be able to organize in order to capture the value of the resource.

A Resource Is...Valuable if:

Helps exploit an opportunity or offset a threat

A Resource Is...Rare if:

Only one or a few firms possess it

Core Competencies

Unique strengths, embedded deep within a 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.

Dynamic Capabilities

a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage

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

The 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

Isolating Mechanisms

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

Tangible Resources examples

buildings, manufacturing plants, offices, machinery, computers, ect. (can be touched)

intangible Resources examples

human capital, social capital, organizational capital (organizational culture)

The bathtub

metaphor: The role of inflows and outflows in building stocks of intangible resources

Two Critical Assumptions of the RBV

resource heterogeneity and resource immobility

resource stocks

the firm's current level of intangible resources -New product development Engineering expertise Innovation capability Reputation for quality

Resource flows

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

Valuable Resource

One of the four key criteria in the VRIO Framework; a resource is valuable if it allows the firm to take advantage of an external opportunity and/or neutralize an external threat.

Capabilities:

Organizational and managerial skills

Support Activities

Research and development (R&D) Information systems Human resources Accounting and finance Firm infrastructure

The Resource Based View

Resources are key to superior firm performance

Resource Immobility

Resources don't move easily from firm to firm Resources are difficult to replicate Resources can last for a long time.

Intangible Resources

Resources that do not have any physical attributes and thus are invisible.

Tangible Resources

Resources with physical attributes, which thus are visible.

LO 4-7 Identify different conditions that allow firms to sustain their competitive advantage.

Several conditions make it costly for competitors to imitate another firm's resource or capability that underlie its competitive advantage: (1) better expectations of future resource value (or luck), (2) path dependence, (3) causal ambiguity, and (4) social complexity.

Primary activities in the value chain

Supply chain management Operations Distribution Marketing and sales After-sales service

The Resource Based View: Resources fall into two categories:

Tangible Intangible

Dynamic markets are due to:

Technological change Deregulation Globalization Demographic shifts

Strategic Activity System

The conceptualization of a firm as a network of interconnected activities.

Resource Stocks

The firm's current level of intangible resources.

Resource Flows

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

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.

Generic Value Chain

The range of activities that result in delivering a product or service to the customer

LO 4-3 Describe the critical assumptions behind the resource-based view.

The resource-based view makes 2 critical assumptions: resource heterogeneity (resources differ across firms) and resource immobility (resources are sticky).

LO 4-6 Outline how dynamic capabilities can help a firm sustain competitive advantage.

To sustain a competitive advantage, any fit between a firm's internal strengths and the external environment must be dynamic. This is accomplished through the ability to create, deploy, modify, reconfigure, or upgrade the resource base.

Organized to Capture Value

1 of the 4 in the VRIO framework; the characteristic of having in place an effective organizational structure and coordinating systems to fully exploit the competitive potential of the firm's resources and capabilities.

The VRIO Framework: To be the basis of a competitive advantage, resources must be:

: Valuable Rare Costly to Imitate and the firm must be Organized to capture the value of the resource

SWOT Analysis

A framework that allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses with those from an analysis of external opportunities and threats.

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.

Resource-Based Review

A model that sees resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain a competitive advantage.

Social Complexity

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

Causal Ambiguity

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