Chapter 3 Leveraging Resources and Capabilities

Global Strategy 1e Michael Peng Global Strategy Mike W Peng c h a p t e r 3 Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly acce.

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Resources and

Capabilities

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be scanned, copied or duplicated, or posted to a publicly

accessible website, in whole or in part.

Outline

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Understanding Resources and

impossible) to quantify

 Examples include:

 Human

 Innovation

 Reputation

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Competing on Resources

 How “average” firms within an industry

compete.

 How individual firms differ from each other

within an industry and can outperform the

industry average consistently and significantly.

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SWOT ANALYSIS

Strengths and Weaknesses – internal assessment of the

organization leading

to management decisions.

Opportunities and Threats – external assessment of the business environment

to identify the uncontrollable events that might impact

management decisions.

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Resources, Capabilities,

and the Value Chain

• Value Chain

 The functional activities within the firm that

create value in the goods and services produced

• Components of the Value Chain

 Primary activities

 Are directly associated with the development,

production, and distribution of goods and services

 Support activities

 Assist in the accomplishment of primary activities

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The Value Chain

Figure 3.1

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In-House versus Outsource

OUTSOURCING: Turning over all or part of an organizational activity to an outside supplier which

will perform it on behalf of the focal firm.

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their replication elsewhere.

 Resource heterogeneity

 Each firm has a unique combination of resources and capabilities such that no two firms are “twins.”

 Resource immobility

 Resources and capabilities unique to one firm

cannot easily migrate to competing firms.

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© M W Peng (www.mikepeng.com)

VRIO FRAMEWORK (additional case study: Enhancing

VRIO @ Burberry)

Are they

rare ?

Do resources or capabilities add value ?

How imitable are certain resources and

capabilities?

How is the firm

organized to deliver superb performance?

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or duplicated, or posted

to a publicly accessible website, in whole or in part.

The VRIO Framework:

Is a Resource or Capability…

Table 3.2

Sources: Adapted from (1) J Barney, 2002, Gaining and Sustaining Competitive

Advantage, 2nd ed (p 173), Upper Saddle River, NJ: Prentice Hall; (2) R

Hoskisson, M Hitt, & R D Ireland, 2004, Competing for Advantage (p 118),

Cincinnati: South-Western Cengage Learning

VALUABLE? RARE?

COSTLY TO IMITATE?

EXPLOITED BY ORGANIZATION COMPETITIVE IMPLICATIONS FIRM PERFORMANCE

No No Competitive disadvantage Below average

Yes No Yes Competitive parity Average

Yes Yes No Yes Temporary competitive advantage Above average

Yes Yes Yes Yes Sustained competitive advantage Consistently above average

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The VRIO Framework: Value and

Rarity

 Value: do the resources and capabilities add value?

 Necessary for a competitive advantage

 Rarity: how rare are the valuable resources and capabilities?

 Valuable, but common parity, not advantage

 Valuable and rare can lead to temporary

advantage

 If everyone has it, you can’t make money from it

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The VRIO Framework: Imitability

• Easier to imitate tangible resources/capabilities than tangible ones

• Why is imitation so difficult?

developed over a long time

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The VRIO Framework: Imitability

(cont’d)

resources/capabilities = temporary advantage

resources/capabilities = sustained competitive advantage

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The VRIO Framework:

Organization

 How is a firm organized to develop and

leverage the full potential of its resources and capabilities?

 Invisible relationships can add value - make imitation more difficult

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Strategic Sweet Spot

Figure 3.5

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Debates and Extensions

• Firm- versus Industry-Specific Determinants of Performance: Both views are complementary to each other

• Static Resources versus Dynamic Capabilities

• The resource-based view: incorporating dynamic capabilities

 Tacit knowledge

 “Learning before doing” versus “learning by

doing”

 Simple rules to guide behavior and decisions

 Develop new resources/capabilities

 Less bundled resources/capabilities

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Dynamic Capabilities in Slow- and Fast-Moving Industries

Table 3.3

Sources: Adapted from (1) K Eisenhardt & J Martin, 2000, Dynamic capabilities: What are

they? Strategic Management Journal, 21: 1105–1121; (2) G Pisano, 1994, Knowledge,

integration, and the locus of learning, Strategic Management Journal, 15: 85–100.

SLOW-MOVING INDUSTRIES FAST-MOVING (HIGH-VELOCITY) INDUSTRIES

Market environment Stable industry structure, defined boundaries,

clear business models, identifiable players, linear and predictable change

Ambiguous industry structure, blurred boundaries, fluid business models, ambiguous and shifting players, nonlinear and unpredictable change

Attributes of

dynamic capabilities

Complex, detailed, analytic routines that rely extensively on existing knowledge (“learning before doing”)

Simple, experiential routines that rely on newly created knowledge specific to the situation (“learning by doing”)

Focus Leverage existing resources and capabilities Develop new resources and capabilities

Execution Linear Iterative

Organization A tightly bundled collection of resources

with relative stability

A loosely bundled collection of resources that are frequently added, recombined, and dropped Outcome Predictable Unpredictable

Strategic goal Sustainable competitive advantage

(hopefully for the long term)

A series of short-term (temporal) competitive advantages

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Offshoring vs Non-Offshoring

• Offshoring (international outsourcing) is an increasing movement

• Outsourcing of high-end services such as IT and BPO is controversial because of the relatively recent rise of the internet—Long-term benefits are still unknown

• Proponents argue that outsourcing saves firms

enormous costs and allows them to focus more on their core business

• Critics argue on 3 points

US firm?

willingly putting our own security at risk?

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The Savvy Strategist

• Developing resources/capabilities that are valuable, rare, hard-to-imitate, and embedded in organizational

structures and systems can help firms achieve

successful performance

• Lessons from the VRIO framework

developing, and leveraging resources/capabilities

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The Savvy Strategist (cont’d)

Views

 Why do firms differ? Resource heterogeneity

 How do firms behave? Take advantage of

strengths and overcome weaknesses

 What determines the scope of the firm? How a firm performs relative to rivals

 What determines the international success and failure of firms? Firm-specific

resources/capabilities and a bit of luck

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