Strategic management and Business Policy Exam 1 Chapter 3

Why give something away for free?

-value creation

-value capture

Value creation

difference between the benefits customers experience from product or service attributes and the amount they are willing to pay

Value capture

the firm’s ability to access, retain, or otherwise benefit from the value created

Competitive Advantage

-leads to performance

-create and capture more value than rivals can

-unique to a firm but defined relative to rivals

(does not last forever)

T/F: Internal and external conditions change! Success can breed complacency

True

How does any organization maintain its economic power?

A series of temporary competitive advantages

-Florida 1940s = Florida 2024

Resources

Tangible and intangible assets owned or accessible by the firm

Tangible: can be seen and quantified

Intangible: Unobservable. Not concrete.

Capabilities

a firm’s capacity to deploy resources in an integrated manner.

-often routine, knowledge, social-based

Resources that have potential to be sustainable competitive advantage

-rare

-valuable

-inimitable

-unsubstitutable

• tacit, path dependent, socially complex, casually ambiguous

valuable

Allow a firm to take advantage of opportunities and/or neutralize threats in the external environment

Rare

Possessed by few, if any, other firms.

Inimitable 

-other firms cannot obtain the resources or capabilities, at least on terms comparable to those the focal firm can invoke

Historical: resources and capabilities are an outcome of the firm’s unique history

Ambiguous cause: sources, uses, and bases of resources and capabilities are unclear

social complexity: built on interpersonal relationships among employees, suppliers, customers, and/or partners 

Non Substitutable

other resources and capabilities that perform the same functions are not available

Three resource management processes

-structure

-bundle

-leverage

structure

-structure the firm’s resources

-involves both accessing resources and divesting resources thta re no longer useful.

Bundle

Bundle the firm’s resources by combining and integrating them.

-can produce unique capabilities

Leverage

-Leverage the firm’s resources and capabilities by using them to exploit market opportunities.

-In current product and geographic markets

-In new product and geographic markets

Ex: GE in China: Have capabilities, Will Travel

Value Chain

the process through which a firm converts raw materials into goods and services

-Primary activities: involve a product’s physical creation, distribution, and after-sale service.

-Secondary activities: assist in the execution of primary activities

Outsourcing

Purchasing a value chain activity from an external supplier.

-Allows a firm to specialize

-Gain knowledge and reduce redundancy

-Share risk

-Build common standards

-Outsource with caution

-people: steal, cheat, shirk

-Seek skill and reputation

-Have contracts

Internal Analysis

-The firm is a bundle of resources and capabilities that can be used to pursue multiple endeavors

-Understanding what the firm CAN do

• Managers are humans: We are very limited in our ability to make decisions