Chapter 5: Resources and capabilities analysis

Distinctive resources and capabilities

required to achieve competitive advantage

Ex: a long-established brand

ExL Apple has distinctive resources in smartphone technologies including its innovation platform and in its powerful brand, together with distinctive capabilities in design and un understanding consumer behavior

Dynamic capabilities

an organization’s ability to renew and recreate its resources and capabilities to meet the needs of changing environments

See illus 5.4 (144)

Inimitable resources and capabilities

those that competitors find difficult and costly to imitate or obtain or substitute

• “compared to physical assets, capabilities tend to involve more intangible imitation barriers”

  • often include linkages that integrate activities, skills, knowledge and people both inside and outside the org in distinct and mutually compatible ways

profit pools

refer to the different levels of profit available at different parts of the value system

Ex: the computer industry

• microprocessors and software have historically been more profitable than hardware manufacture

• strategic question: Is it possible to focus on the areas of greatest profit potential?

rare resources and capabilities

those possessed uniquely by one organization or by a few others

Ex: a company can have a patented product or service that gives it an advantage

some libraries have a unique collection of books unavailable elsewhere

resource-based view (RBV_

that the competitive advantage and superior performance of an organization are explained by the distinctiveness of its resources and capabilities

resources and capabilities

contribute to its long-term survival and, potentialy, to competitive advantage

Threshold resources and capabilities

those needed for an organization to meet the necessary requirements to compete at all in a given market and achieve parity with competitors in the market

• how to even enter and survive

Value chain

describes the categories of activities within an organization which together, create a product or service

→ invites strategists to think of an organization in terms of its activities

Value system

the set of inter-organizational links and relationships that are necessary to create a product or service

VRIO analysis

helps to evaluate if, how, and to what extent an organization or company has resources and capabilities that are

(i) valuable

(ii) rare, (iii)

initmitable

and

(iv) supported by the organization

Resources and capabilities: the key issues

threshold resources and capabilities analogy

‘qualifiers’ to be able to compete at all with competitors

distinctive resources and capabilities analogy

‘winners’ required to triumph over competitors

Value Rareness Initimitability Supported by the Organization

Value of resources and capabilities

• Value to customers

• Taking advantage of opportunities and neutralizing threats

• Cost

Criteria for the inimitability of resources and capabilities

The VRIO Framework

The value chain within an organization

as developed by Michael Porter

Primary activities (within value chain)

concerned with the creation or delivery of a product or service

Ex: manufacturing business

• Inbound logistics

• Operations

• outbound logistics

• marketing and sales

• service

Inbound logistics

activities concerned with receiving, storing and distributing inputs to the product or service

• including materials handling, stock control, transport, etc

Operations

transform these inputs into the final product or service:

• machining, packaging, assembly, testing, etc

outbound logistics

collect, store and distribute the product or service to customers

• or example, warehousing, materials handling, distribution, etc

marketing and sales

the means whereby consumers or users are made aware of the product or service and are able to purchase it

• sales admin, advertising, and selling

service:

activities that enhance or maintain the value of a product or service, such as

• installation, repair, training and spares

Support activities

help to improve the effectiveness or efficiency of primary activities:

• Procurement

• Technology development

• Human resource management

• Infrastructure

Procurement

processes that occur in many parts of the organization for acquiring the various resource inputs to the primary activities

• vitally important - achieving scale advantages

• Ex: many large consumer goods companies with multiple businesses nonetheless procure advertising centrally (CLARIFY)

Technology development

all value activities have a ‘technology’, even if it is just know-how

tech may be concerned with:

• a product (e.g., R&D, product design)

• processes (e.g., process development)

• a particular resource (e.g., raw materials improvements)

HR management

transcends all primary activities and concerns: recruiting, managing, training, developing, and rewarding people within the organization

Infrastructure

formal systems of planning, finance, quality control, information management and the structure of an organization

How the value chain can be used to analyze R&C

• as a generic description of activities

• in analyzing the competitive position of the org by using the VRIO analysis for individual value chain activities and functions

• to analyze the value and cost of activities

  • 1. identifying sets of value activities

  • 2. Relative importance of activity costs internally

The value system figure

• ‘Make or buy’ or outsourcing decision

• What are the activities and cost/price structures of the value system?

• Where are the profit pools?

• Partnering

look at illustration 5.3 (138)

Key takeaway

All organizations contain sets of resources and capabilities, what matters most is that these are likely to be configured differently across organizations, and that is what determines if its strategy is more or less unique

• How to go about that:

  • VRIO and value chain analysis

  • +

  • a nuanced understanding of the more intricate activity systems of an org

Key takeaway 2

The ways in which resources are deployed throughout an org are determined by the activities pursued by the org

—> key to figure out:

1. What are these activities?

2. How valuable are they to customers?

3. How do various activities fit together, and how are they different from competitors?

‘higher order strategic themes’

the ways in which the org meets the critical success factors determining them in the industry

• Working at a strategic level based on its own in-house methodology

• A clear stance on integrity of communication and always advises openness of communication

• high degrees of freedom but with some absolute criteria of responsibility

• recruitment - on the basis of values of openness and integrity, but also humour

• Strong financial incentives for top performancers

Benchmarking

means of understanding how an organization compares with others

→ valuable to understand how comparisons can impact reviewing resources and capabilities underlying performance

2 Approaches to Benchmarking

1. Industry/sector benchmarking

2. Best-in-class benchmarking

   1. Ex: Southwest improved its refueling time by taking inspo from Formula One Grand Prix motor racing pit stops

Potential limitations of benchmarking

• surface comparisons

• simply achieveing competitive parity

3 Types of Dynamic Capabilities

1. Sensing

2. Seizing

3. Reconfiguring

Ex: Microsoft -

“Thinking Differently”