Resources and Capabilities - Comprehensive Notes

Introduction to Resources and Capabilities

  • Resources and capabilities determine an organization's competitive ability.
  • Analysis progresses from uncontrollable macro environments (political, economic, societal trends) to controllable internal resources and capabilities.
  • Key question: What does the organization need to succeed?

Butcher Shop Example: Necessary Resources

  • Cleavers (physical resource)
  • Technical expertise (human resource/capability)
  • Access to meat supply (resource)
  • Understanding customer needs (capability)
  • Packaging (resource)
  • Physical space (butchery - resource)
  • Refrigeration (resource)
  • Customers (framed as network - resource)

Categories of Resources

  • Physical resources (meat, cleaver, building, fridge)

  • Financial resources (financing for marketing, rent)

  • Human resources (expertise, employees)

  • Resources: Assets an organization has or can access (not necessarily owned).

Capabilities Defined

  • Capabilities: Ways resources are utilized or deployed.

  • Linked to physical, financial, and human resources.

    • Physical Resource Capability Example: Ability to coordinate between suppliers.
    • Financial Capability Example: Ability to easily finance operations.
    • Human Capability Example: Eye for recognizing emerging butchers.

  • Organizational capabilities are shared within a company.

    • Example: Amazon's delivery capability relies on a network of relationships.
    • The capability remains even with personnel changes, emphasizing the shared aspect.

Resources vs. Capabilities

  • Resources: Things we have (nouns - fridge).
  • Capabilities: Things we do well (verbs - deliver).
  • Resources are more tangible, while capabilities are cognitive and reside in brains or networks of brains.
  • Resources: Assets organizations have or can call upon
  • Capabilities: Ways those assets are used or deployed.
Kim Deal (Bass Guitarist) Example
  • Resource: Bass guitar
  • Capability: Ability to play the bass guitar.
  • Competitive advantage (core competencies) arises from mixing resources with capabilities.

Application to Amazon.com

  • Distribution centers: Resources (physical).
  • Server farms: Resources (physical).
  • Ability to provide one-day shipping: Capability.
  • Ability to restructure resources to respond to dynamic environments: Capability.
  • Employees: Typically resources (human resources).
  • Motivating company culture: Can be framed as either a resource (handbooks/charter) or a capability (cultivated via shared minds); often ambiguous.

Resources and Capabilities for Strategy Formulation

  • Useful for internal analysis and strategy development.
  • Important for matching resources to organizational needs.
Aesop's Fable: The Donkey and the Grasshopper
  • Donkey wants to sing like a grasshopper, only consumes dew, and dies.
  • Moral: Resources matter, but so does the organization's ability to utilize them effectively.

Resource-Based View (RBV) & Economics

  • RBV challenges economics' assumption of perfect resource mobility.
  • Resources are not always easily exchanged; their value depends on the organization using them.

VRIO Framework Introduction

  • VRIO assesses competitive potential based on resource characteristics.
    • Valuable
    • Rare
    • Inimitable
    • Organization
  • Goal: Identify resources that create sustainable competitive advantage.
  • Applies to individual resources/capabilities, not entire companies or industries.
VRIO Components
  • Valuable: Does the resource deliver value to customers? (Usually always a yes.)
    • Example: A dentist's chair in a butcher shop is not valuable.
  • Rare: Is the resource possessed by a minority of players? (Meat cleaver and fridge are not rare for butchers. Good Google reviews can be rare.)
    • Valuable and Rare = Competitive Parity (Threshold Resource)
  • Inimitable: Is the resource difficult/costly to imitate, obtain, or substitute?
    • Trick: Consider if an innovative startup or a well-established giant corporation can replicate the resource/capability.
    • Organizational knowledge is hard to imitate.
  • Organization: Does the organization support the resource?
Kodak Example (V,R,I, but not O)
  • Kodak had patents for digital photography (valuable, rare, inimitable) but did not capitalize on them.
  • Organization didn't support digital photography, leading to missed opportunity and catch-up by competitors.

VRIO Summarized

  • V: Almost always yes.
  • If not R (Valuable, but not Rare): Competitive Parity.
  • If Valuable & Rare, but not Inimitable: Temporary competitive advantage.
  • If Valuable, Rare, Inimitable, but not supported by the Organization: Unused competitive advantage.
  • The holy grail: Valuable, Rare, Inimitable, and supported by Organization = Sustainable Competitive Advantage.

Starbucks Example

  • Access to coffee beans: Valuable, but not rare.
  • Trendy brand: Valuable, Rare, Inimitable, and supported by the Organization best candidate for source of sustainable advantage
  • Global locations: Valuable, Rare, but not Inimitable
  • Efficient/Effective managers: Valuable, but not rare - (or were those the thresholds to BE considered E/E?)
Color Coding the VRIO Framework
  • Rather than yes/no, can assign scores or traffic light colors (red/yellow/green).
  • If red or low chance, stop the analysis.

Going Beyond

  • "Firm Resources and Sustained Competitive Advantage" by Jay Barney (1991)
  • "Gaining and Sustaining Competitive Advantage" by Jay Barney and Delvin Clark

Organizational Knowledge

  • Organizational knowledge is often a source of sustainable competitive advantage.

Tacit vs. Explicit Information

  • Tacit: Difficult to communicate.

  • Explicit: Easily communicated.

  • Organizational Knowledge: Organization-specific collective intelligence accumulated through formal systems and shared experience.

    • Cambridge Dictionary Definition: The different knowledge and skills that the employees of a large company or organization have and how these can be used and shared to make the organization more effective

  • Expert knowledge (more explicit).

  • Organizational culture (largely tacit).

  • Know-how (more tacit).

Bread Making Example
  • Japanese appliance makers (Hitachi) tried to create a bread-making machine.
  • Bread makers had the know-how but couldn't articulate it explicitly.
  • Appliance makers observed and decomposed motions to replicate them in a machine.
Riding a Bike and Evaluating Art
  • Bike riding: Instructions can be explicit, but the experience is largely tacit.
  • Evaluating art: Some aspects explicit, but largely depends on feeling and interpretation, much of which is tacit.

Importance of Tacit Knowledge

  • Tacit knowledge is harder to replicate than explicit knowledge.
  • Explicit knowledge can be protected (e.g., patents).
  • Organizational knowledge (especially tacit) is a source of sustainable competitive advantage.

Examples of Organizational Knowledge

  • ARM: Expert knowledge in chip design (protected by patents, some tacit).
  • Apple: Unique culture focused on design, secrecy, and minimalism (largely tacit).
  • Rolex: Know-how in assembling mechanical watches (requires training under Rolex watchmakers for years, diffused).

Knowledge Management

  • Knowledge management supports organizational knowledge.

Data, Information, Knowledge

  • Data: Raw.
  • Information: What can be derived from the data.
  • Knowledge: Understanding how and why.
    • Knowledge: Requires sense-making, it must make sense within the organizational context.
  • Knowledge management processes develop, organize, and share organizational knowledge.

Chief Knowledge Officer (CKO)

  • CKO energizes learning processes and manages intellectual assets.
  • CKO Develops and increases the amount of information that's shared/organized in the company.

Management Information System (MIS)

  • IT system to coordinate and share information.
  • Management Information systems Analyze and Visualize data and information, which will then become Knowledge.

Value Chain Analysis (Porter)

Value Chain Definition

  • We consider first resources capabilities, these will inform strategic choices.
  • A value chain allows us to focus on business activities performed.
  • Activities impact competitive actions and are used in resource allocation.
    • A value chain should show the business activity from START to FINISH.
  • What is management?
    • Management of an Organization: A collection of people working toward a common goal.
      • Resources --> Organization (Black Box- but now broken down) --> Outputs
        • Value Chain Analysis fills what happens inside the black box of the organization by showing what activities actually occur and that turn imputs into end products.

Primary Activities

  • Turn inputs into outputs directly.
    * Inbound Logistics, Operations (Production/Turning imputs into something else), Outbound Logistics (Shipping the products), Marketing and Sales, Sericing to Enhance or maintain value.
New Balance Shoe Example
  • Inbound logistics: rubber;YKK zippers
  • Operations: Turning material into final product.
  • Outbound Logistics: Shipping the product to market for marketing and sales efforts.
  • Marketing and Sales- Market the product so that a consumer purchases it.
  • Servicing- replace shoes that fall apart hours after purchasing (a defect).

Support activities

  • Don't directly transform materials, but suppourt primary activities.
    * Firm infrastructure, Human resource management, Technological Development, Procurement.
New Balance Shoe Example Continued
  • Infrastructure: organizational structure, finanicial structure.
  • Human Resources: Hiring and developing employees- recruit, train hire, fire.
  • Technological Development: Improving the shoes themselves and costing less.
    Procurement: get the best deals on materials.
Revenue Minus Costs

Revenue - cost = Margin.

Value Chain Use Cases

  • Gets a broad picture of business activities
  • descriptive use of mapping the business and how it turns imputs int valuable goods.
  • Can identify areas that need more/less resources.
  • Evaluate a new method of competiting.
  • Compare resources with other companies.
Louis Vuitton Example Contined
  • Brand is its source that leads to sustainible conpetative advantage by taking the through a VIRO annalysis.
  • The marketing and sales teams make that happen that puts the consumer int eh market.
YMO Example
  • Expertise in self driving cars makes the technology and developement key to YMO's success.
YKK Zipper Example
  • Operations provides the greatest strength due to mass production.
    * Where do competiars and partnerships work and not work in this case?
The New Value
  • Value does not just end with the company but continues when other businesses, such as retailers, add more value up and down stream.
  • This is referred to as the Value System which considers downstream and unpstream vendors.
  • This has Corporate level implications as questions of company integration are questioned.