Ch.4: Internal Resources, Capabilities, and Core Competencies MGMT 495

Capabilities

Capabilities= The orginizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically -By nature they are intangible -Find their expression in a company's structure, routines, and culture

Causal Ambiguity

Causal Ambiguity= Cause and effect of competitive advantage not readily apparent (hard to imitate) -Implies that managers need to have some kind of understanding about what causes superior and inferior performance

Core Competencies

Core Competencies= Unique strengths, embedded deep within the firm -Allow a firm to differentiate its products and services from those of their rivals -Results in: a.) Creating higher value for the customer or b.) Offering products or services at lower costs ex.)Beats: Superior Marketing/ perception of coolness

Core rigidity

Core rigidity= A former core competency that turned into a liability because the firm failed to hone, refine, and upgrade competency as the environment changed -Dynamic capabilities prevent this

(Just Understand) Core competencies are demonstrated in the company's activities, which can lead to competitive advantage, resulting in superior performance

(Just Understand) Core competencies are demonstrated in the company's activities, which can lead to competitive advantage, resulting in superior performance

(Just understand) Resources and capabilities: Resources reinforce core competencies, while capabilities allow managers to orchestrate their core competencies

(Just understand) Resources and capabilities: Resources reinforce core competencies, while capabilities allow managers to orchestrate their core competencies

(Just understand) Strategic SWOT questions: 1. How can firms use strengths to take advantage of opportunities? 2. How can the firm use strengths to reduce the likelihood and impact of threats? 3. How can the firm overcome weaknesses that prevent the firm from taking advantage of opportunities? 4. How can the firm overcome weaknesses that will make threats a reality? FINAL Step: Evaluate the pros and cons of each strategic alternative, select one or more alternatives to implement, and carefully explain decision rationale

(Just understand) Strategic SWOT questions: 1. How can firms use strengths to take advantage of opportunities? 2. How can the firm use strengths to reduce the likelihood and impact of threats? 3. How can the firm overcome weaknesses that prevent the firm from taking advantage of opportunities? 4. How can the firm overcome weaknesses that will make threats a reality? FINAL Step: Evaluate the pros and cons of each strategic alternative, select one or more alternatives to implement, and carefully explain decision rationale

(Understand) 1.) Core competencies not CONTINUALLY NOURISHED will eventually lose their ability to yield competitive advantage 2. In analyzing a company's success in the market, it can be too easy to focus on more VISIBLE elements of their core competencies, like products or services -What is more important is to recognize the INVISIBLE PART of core competencies (culture, people, etc)

(Understand) 1.) Core competencies not CONTINUALLY NOURISHED will eventually lose their ability to yield competitive advantage 2. In analyzing a company's success in the market, it can be too easy to focus on more VISIBLE elements of their core competencies, like products or services -What is more important is to recognize the INVISIBLE PART of core competencies (culture, people, etc)

(Understand) Careful analysis of the value chain allows managers to... obtain a more detailed and better understanding of how the firm's economic value (V-C) created breaks down into a distinct set of activities that helps determine perceived value (V) and the costs (C) that create it

(Understand) Careful analysis of the value chain allows managers to... obtain a more detailed and better understanding of how the firm's economic value created breaks down into a distinct set of activities that helps determine perceived value and the costs that create it

(Understand) Competitive adv. more likely to come from intangible than tangible= tangible resources can be bought by any firm, intangible resources must be built

(Understand) Competitive adv. more likely to come from intangible than tangible= tangible resources can be bought by any firm, intangible resources must be built

(Understand) In order for a resource to be driving factor of competitive advantage, has to satisfy all elements of VRIO framework: -Valuable, Rare, Costly to Imitate, and Organized to Capture Value

(Understand) In order for a resource to be driving factor of competitive advantage, has to satisfy all elements of VRIO framework: -Valuable, Rare, Costly to Imitate, and Organized to Capture Value

(Understand) SWOT analysis allows the strategist to evaluate a firm's current situation and future prospects by simultaneously considering internal and external factors -Looking for any relevant factors that might affect the firm's current or future competitive advantage

(Understand) SWOT analysis allows the strategist to evaluate a firm's current situation and future prospects by simultaneously considering internal and external factors -Looking for any relevant factors that might affect the firm's current or future competitive advantage

(Understand) The strategic implications of SWOT analysis should help the firm to leverage its internal strengths to exploit external opportunities.. While mitigating internal weaknesses and external threats

(Understand) The strategic implications of SWOT analysis should help the firm to leverage its internal strengths to exploit external opportunities.. While mitigating internal weaknesses and external threats

(Understand) To sustain a competitive advantage, any fit between firm's internal strengths and the external environment must be DYNAMIC (Internal resources must be dynamic and constantly adapt to the changing external environment)

(Understand) To sustain a competitive advantage, any fit between firm's internal strengths and the external environment must be DYNAMIC (Internal resources must be dynamic and constantly adapt to the changing external environment)

What are the 5 conditions that allow a firm to sustain a competitive advantage? (Isolating Mechanisms)

1. Better expectations of future resource value -Can obtain resources at lower cost than competitors 2. Path dependence= Options that a firm has today are limited by the decisions they made in the past 3. Causal ambiguity= Cause and effect of competitive advantage not readily apparent (hard to imitate) 4. Social Complexity= Emerges when 2 or more systems are connected. -Hard to find the cause of advantage b/c of their confusing interaction 5. Intellectual Property (IP) Protection= Patents, copyrights, etc.

What are the 2 critical assumptions of the Resource-Based View?

1.) Resource Heterogeneity= Bundles of resources, capabilities, and competencies differ across firms -Each is unique in some way 2.) Resource Immobility= Resources tend to be "sticky" and don't move early from firm to firm. -B/c of stickiness, the resource differences that exist between firms are difficult to replicate, and can last a long time.

Activities

Activities= Distinct and fine-grained BUSINESS PROCESSES that enable firms to add incremental value by transforming inputs into goods and services

Costly to Imitate Resource (VRIO)

Costly to Imitate Resource= If firms that do not possess the resource are unable to buy it or develop it at a reasonable price. -If the resource is valuable, rare, and costly to imitate then it is an internal strength and a core competency

Dynamic capabilities

Dynamic capabilities= A firm's ability to create, deploy, modify, reconfigure, and leverage resources over time (Ability to continually refine and update yourself) -Allows company to maintain competitive advantage in constantly changing environment -Firm must be able to change its internal resource base as the external environment changes (Prevents core rigidity)

Intangible Resources

Intangible Resources= Have no physical attributes and thus are invisible ex.) Culture, knowledge, brand equity, reputation, etc. -Competitive adv. more likely to come from intangible than tangible= tangible resources can be bought by any firm, intangible resources must be built

Isolating Mechanisms

Isolating Mechanisms= Barriers to imitation -Protect resources, capabilities, or competencies that underlie the firm's competitive advantage -How: 1. Better expectations of future resource value 2. Path Dependence 3. Causal Ambiguity 4. Social Complexity 5. Intellectual Property (IP) Protection

Organized to Capture Value (VRIO)

Organized to Capture Value resource= Firm is organized to capture value of the resource if it has an effective organizational structure, processes, and systems in place to fully exploit the competitive potential

Path Dependence

Path Dependence= Options that a firm has today are limited by the decisions they made in the past. -Allows firms to protect their competitive advantage

Primary Activities (Value Chain)

Primary Activities= Firm activities that add value directly -Transform inputs into outputs as the firm moves a product or service horizontally along the internal value chain -Examples 1. Supply Chain Management 2. Operations 3. Distribution 4.Marketing and Sales 5.After-sales service

Rare Resource (VRIO)

Rare Resource= If only one or few firms possess it. -If common, it will result in perfect competition where no firm gets competitive adv.

Resource Flows

Resource Flows= The firm's level of investments to maintain or build a resource -Bath: flows are like a bunch of different faucets going into the bath (Each a different investment in one of the capacities of a firm)

Resource stocks

Resource Stocks= The firm's current level of intangible resources (Built from investments of capacities over time) -Water in the bath

Resource-Based View (know pretty well)

Resource-Based View= A model that sees certain types of resources (VRIO) as key to superior performance -Valuable, Rare, Costly to Imitate, and Organized to capture value -Fall between 2 categories: Tangible v. Intangible

Resources (know pretty well)

Resources= Any assets that a firm can draw on when crafting and executing strategy

SWOT Analysis

SWOT Analysis= A framework that allows managers to synthesize insights obtained from an internal and external analysis to derive strategic implications -Internal Analysis: Strengths Weaknesses -External Analysis: Opportunities Threats

Social Complexity

Social Complexity= merges when 2 or more systems are connected. -Hard to find the cause of advantage b/c of their confusing interaction -By doing this its really hard for companies to imitate, because the interactions between different systems create too many possible permutations for a system to be understood with accuracy

Support Activities (Value Chain)

Support Activities= Firm activities that add value indirectly -Necessary to sustain primary activities -Example: 1. R&D 2. Information Systems 3. Human Resources 4. Accounting and Finance 5. Firm infrastructure including processes, policies, and procedures

Tangible Resources

Tangible Resources= Have physical attributes that are visible ex.) Labor, capital, land, buildings, plant, equip., etc.

The Dynamic Capabilities Perspective

The Dynamic Capabilities Perspective= Competitive advantage is from the firm's ability to modify and leverage its resource base in a way that enables it to gain and sustain a competitive advantage in a constantly changing environment -Competitive advantage comes from a DYNAMIC RECONFIGURATION of a firm's resource base

VRIO Framework (Just understand and know each part)

VRIO Framework= Identifies certain types of materials as key to superior firm performance (Resource-Based View) -For a resource to be the basis of a competitive advantage, it must be: 1.)V= Valuable 2.)R= Rare 3.)I= Costly to Imitate 4.)O= Organized to capture the value of the resource

Valuable Resource (VRIO)

Valuable Resource= One that enables the firm to exploit an external opportunity or offset an external threat. -Enables a firm to increase its economic value creation (V-C) -Only increases economic value creation if it also rare= can only lead to competitive parity at best

Value Chain

Value Chain= The internal activities a firm engages in when transforming inputs into outputs -Each activity the firm performs along the horizontal chain adds incremental value and incremental costs -Careful analysis of the value chain allows managers to obtain a more detailed and better understanding of how the firm's economic value created breaks down into a distinct set of activities that helps determine perceived value and the costs that create it