Chapter 4: Resources, Capabilities, and Core Competencies

Provide examples of support activities

-R&D -HR -Information systems -Accounting and finance

What two assumptions are critical in the resource-based model?

-Resource heterogeneity -Resource immobility

Provide examples of primary activities

-supply chain management -operations -distribution -marketing and sales

What is one problem with SWOT analysis?

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

VRIO Framework

A theoretical framework that explains and predicts firm-level competitive advantage. -Valuable -Rare, costly to -Imitate. Firm must be -Organized

five-step process of stakeholder impact analysis

Step 1: Who are our stakeholders? Step 2: What are our stakeholders' interests and claims? Step 3: What opportunities and threats do our stakeholders present? Step 4: What economic, legal, ethical, and philanthropic responsibility do we have to our stakeholders? Step 5: What should we do to effectively address the stakeholder concerns?

Costly to imitate

firms that do not possess the resource are unable to develop or buy the resource at a comparable cost

A firm's ability to gain and sustain a competitive advantage is partly driven by:

its core competencies

What are the two categories of resource?

tangible and intangible resources

Time compression diseconomies

trying to achieve the same outcome in a short time period, even with higher investments, tends to lead to inferior results

How do companies develop core competencies?

Through the interplay of resources and capabilities

Resource-based view

a model that sees certain types of resources as key to superior firm performance

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.

Are capabilities tangible or intangible?

By nature, they are intangible

Barriers to imitation

Factors that make it difficult for a competitor to copy a company's distinctive competencies

Is competitive advantage more likely to spring from tangible or intangible resources?

Intangible

Valuable resource

One of the four key criteria in the VRIO framework. A resource is valuable if it helps a firm exploit an external opportunity or offset an external threat.

Organized to capture value

One of the four key criteria in the VRIO framework. The characteristic 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.

Economic value creation

The difference between: -A buyer's willingness to pay for a product / service And the firm's total cost to produce it -The difference between value (V) and cost (C)

What is Honda's core competency?

To manufacture small but powerful and highly reliable engines

Visible vs Invisible Core Competency

Visible - products and services that make up the highly visible side of competition Invisible - core competencies that reside deep within a firm

Intellectual Property Protection

a critical intangible resource that can provide a strong isolating mechanism, and thus help to sustain a competitive advantage

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

SWOT Analysis

a framework for analyzing a company's internal and external environment and that stands for strengths, weaknesses, 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

Social Complexity

a situation in which 2 or more different social and business systems interact with one another

Casual Ambiguity

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

Path dependence

a situation in which the options one faces in the current situation are limited by decisions made in the past

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

Resources

any assets that a firm can draw on when formulating and implementing a strategy (cash, buildings, machinery, IP)

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

Isolating mechanisms

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

Activities

distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services (order taking, physical delivery of products, invoicing customers)

To help a firm achieve a competitive advantage, each distinct activity performed needs to:

either add incremental value to the product or service offering OR lower its relative cost

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

Support Activities

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

Core competencies that are not continuously nourished will eventually:

lose their ability to yield a competitive advantage

Capabilities

organizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically

Five major forms of IP protection

patents, designs, copyrights, trademarks, trade secrets

The value chain is divided into

primary and support activities

Intangible Resources

resources that do not have physical attributes and thus are invisible. Firm culture, knowledge, brand equity, reputation, and IP

Tangible resources

resources that have physical attributes and thus are visible. Land, labor, capital, buildings, plant, equipment, and supplies

At each point the goal should be to develop resources, capabilities, and competencies that create a ________ with the firm's environment

strategic fit

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 and costs

Core Competencies

unique strengths, embedded deep within a firm, that are critical to gaining and sustaining competitive advantage