Strategic Management Chapter #4

Resources

Any assets such as cash, buildings, machinery, or intellectual property that a firm can draw on when crafting and executing a strategy -Either tangible/intangible

Resource Heterogenity

Comes from the insight that bundles of resources, capabilities, and competencies that differ across firms -This insight ensures that analysts look more critically at the resource bundles of firms competing in the same industry, because each bundle is unique to some extent

SWOT Matrix is used to develop strategic alternatives using a 4-step process:

-Focus on the Strengths-Opportunities quadrant (top left) to derive "offensive" alternatives by using an internal strength in order to exploit an internal opportunity -Focus on the Weaknesses-Threats quadrant (bottom right) to derive "defensive" alternatives by eliminating or minimizing an internal weakness in order to mitigate an external threat -Focus on the Strengths-Threats quadrant (top right) to use an internal strength to minimize the effect of external threat -Focus on the Weaknesses-Opportunities quadrant (bottom left) to shore up an internal weakness to improve its ability to take advantage of an external opportunity ---In a final step, the strategist needs to carefully evaluate the pros/cons of each strategic alternative to select one or more alternatives to implement

Two assumptions are critical in the Resource-Based View:

-Resource Heterogenity -Resource Immobility

For a resource to have a Competitive Advantage, it must be:

-Valuable -Rare -costly to Imitate -Organized to capture the value of the resource ---VRIO Framework ---Keep in mind that resources in the VRIO Framework are broadly defined to include any assets as well as any capabilities and competencies that a firm can draw upon when formulating and implementing a strategy

Resource-Based View

This model sympathetically aids in identifying core competencies. Sees resources as a key to superior firm performance. -Either tangible/intangible

Intellectual Property Protection

A critical intangible resource that can help sustain a competitive advantage -5 major forms: patents, designs, copyrights, trademarks, and trade secrets

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

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 to derive strategic implications. -Resource is a weakness if it isn't valuable. In this case, the resource doesn't allow the firm to exploit an external opportunity or offfset an external threat -Allows the strategist to evaluate a firm's current situation and future prospects by simultaneously considering internal and external factors -The focus is on internal and external factors that can affect- in a positive or negative way- the firm's ability to gain and sustain a competitive advantage

Problem with the SWOT Analysis

A strength can also be a weakness and an opportunity can also simultaneously be a threat

Primary Activities

Add value directly as the firm transforms input into outputs- from raw materials through production phases to sales and marketing and finally customer service, specifically, -SCM -Operations -Distributions -Marketing and Sales -After-sales service

Support Activities

Add value indirectly. Activities include: -R&D -Info systems -HR -Accounting and finance -Firm Infrastructure, including processes, policies, and procedures

Dynamic Capabilities

Describes a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources over time in its quest for competitive advantage -Essential to move beyond a short-lived advantage and create a sustained competitive advantage -For a firm to sustain its advantage, any fit between its internal strengths and the external environment must be dynamic. That is, the firm must be able to change its internal resource base as the external environment changes

Path Dependence

Describes a process in which the options one faces in a current situation are limited by decisions made in the past -Often, early events- sometimes even random ones- have a significant effect on final outcomes -It also resets on the notion that time cannot be compressed at will. While management can compress resources such as labor and R&D into a shorter period, the push will not be as effective as when a firm spreads out its effort and investments over a longer period

Casual Ambiguity

Describes a situation in which the cause and effect of a phenomenon are not readily apparent -To formulate and implement a strategy that enhances a firm's chances of gaining and sustaining a competitive advantage, managers need to have a hypothesis or theory on how to compete

Social Complexity

Describes situations in which different social and business systems interact -Emerges when 2 or more systems such as Six Sigma or Iso 9000 are combined

Resource Immobility

Describes the insight that resources tend to be "sticky" and don't move easily from firm to firm -Because of that "stickiness", the resource differences that exist between firms are difficult to replicate and, therefore, can last a long time

Value Chain

Describes the internal activities a firm engages in when transforming input and outputs; each activity adds incremental value -Divided into primary and support activities

Activities

Distinct and fine-grained business processes such as order taking, the physical delivery of products, or invoicing customers -Each distinct activity enables firms to add incremental value by transforming inputs into goods and services -In the interplay of resources and capabilities, resources reinforce core competencies, while capabilities allow managers to orchestrate their core competencies

Intangible Resources

Have no physical attributes and are invisible -Firm's culture, its knowledge, brand equity, reputation

Tangible Resources

Have physical attributes and are visible -Labor, capital, land, buildings, plant, equipment

Dynamic Capabilities Perspective

Here, competitive advantage is the outflow of a firm's capacity to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment -Given the accelerated pace of technological change, in combination with deregulation, globalization, and demographic shifts, dynamic markets today are the rule rather than the exception -As a response, a firm may create, deploy, modify, reconfigure, or upgrade resources so as to provide value to customers and/or lower costs in a dynamic environment -The essence of this perspective is that competitive advantage is not derived from static resource or market advantage, but from a dynamic reconfiguration of a firm's resource base

To facilitate a SWOT Analysis:

Managers use a strategic set of questions that link the firm's internal environment to its external environment, to derive strategic implications -In this SWOT matrix, the horizontal axis is divided into factors that are external to the firm and the vertical axis into factors that are internal to the firm

Valuable Resource

One that enables a firm to exploit an external opportunity or offset an external threat -Valuable resource enables a firm to increase its economic value creation. 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

Resource Stocks

The firm's current level of intangible resources

Resource Flows

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

Capabilities

The organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically -Intangible -Find their expression in a company's structure, routines, and culture

Core Competencies

These are the unique strengths embedded deep within a firm -They 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