Chapter 3 Bus 401
How do priorities drive the creation of resources and capabilities?
-Priorities guide resource allocation -Priorities maintain those allocations over time when things get tough
positive network externalities
When the value of a product increases with the number of users
assets
tangible or intangible resources or factors of production that create economic value for the fir when employed
Difference between tangible and intangible resources
tangible: those with physical presence intangible: economically valuable assets that don't have physical presence (brands, patents, knowledge, reputation)
capabilities
the procedures, processes, and routines firms employ in their activities
Resources
All assets, brands, land, information, knowledge, and so on, controlled by a firm that enable it to conceive of and implement strategies that improve its efficiency and effectiveness
What is a way to measure value, from both a customer and business perspective?
customer: What is the customer willing to sacrifice to have your product? Business: what is the business willing to sacrifice to offer their product?
Value Chain
-A visual Description of the steps required to turn raw materials into finished products and/or services. Also describes key functions of the company linked to each stage and function that span its productive activities -horizontal axis: production process firm uses to acquire and import raw materials, transform them into valuable outputs, and put them in the hands of customers -vertical axis: represents 4 administrative elements: firm infrastructure, human resource management, tech and development, and procurement- that span all of the firms economic activities
When do products/services have value?
-By creating direct pleasure/satisfaction for the end user -By creating indirect opportunities for users to experience pleasure/satisfaction
Why do companies with strong dynamic capabilities have a more secure foundation for competitive advantage than those without them?
-Dynamic capabilities entail complex communication and connections among different internal units in the firm -Dynamic capabilities take time to develop and require significant learning (entry barrier)
What two attributes determining the durability/sustainability of a competitive advantage?
-Inimitability -org's ability to exploit profits
What are the main sources of data used for the competitive advantage pyramid
Archival Data -written/numeric information found in library/internet Interviews -personal questions, impersonal surveys, etc Observation -Your own experiences
GIGO Principle
Garbage in, garbage out
Barriers to Imitation
Path Dependence -The process through which a resource or capability came into being may make it difficult for competitors to imitate Tacit Knowledge -sticky, immobile, difficult to imitate -opposite is explicit knowledge (a written recipe) Casual Ambiguity -correlation does not equal causation -Just cause steve jobs gets inspiration from a bird, does not mean you will Complexity -Resources, capabilities, priorities become difficult to imitate when they display sufficient complexity Time Compression Diseconomies -Happen when an action increases, rather than decreases, cost and inefficiency Network Effects -represents a specific form of a first-mover advantage -positive network externalities -virtuous circle
What are the categories of resource important to competitive advantage?
Physical resources (P&E) Financial Resources (FCF) Human Resources (employee skill) Intangible Resources (Brands/patents) -These all enable both the core and support activities of the value chain
Dynamic Capabilities
Procedures, processes, and routines that continuously expand existing resources or improve operating capabilities -increases firms advantage's over time -help adapt to environmental pressure
Operating Capabilites
Procedures, processes, or routines for delivering value to customers, employees, suppliers, or investors
How are resources, capabilities, and priorities part of the resource based view?
Resources are what a firm uses, capabilities are how a firm does, and priorities explains why a firm allocates, all in the name of achieving a competitive advantage and unique value
Organized to Exploit
The degree to which the legal, administrative, and operating structure of the firm allows it to capture the rents generated by resources
The Competitive Advantage Pyramid
Useful for determining strategic strengths of firms
Competitive advantages arise when resource/capabilities possess what two attributes?
Value and Rarity
What is VRIO?
Value, rarity, imitability, organization to exploit profits
What can the value chain not help managers answer?
What is the firm better at than relevant competitors
Sustained competitive advantage
When firms combine the legal elements, intellectual property rights, administrative elements, and cultural elements, allowing them to capture high profits that come from their valuable, rare, and inimitable resources
Virtuous circle
When more sellers attract more buyers, who, in turn, attract more sellers
Value
Worth or utility
priorities
a firm's values and rankings of what is most important
inimitability
an attribute of a resource that describes the degree of difficulty a competitor would face in copying, imitating, or mimicking the value of that resource
Rarity (uniqueness)
to be uncommon, or not available to other competitors
competitive parity
when a company survives but has no real competitive advantage over rivals
competitive failure
when firms can't create value for their stakeholders, they don't survive