6_Internal environment Flashcards
Definition of Resource
= what we own
“An asset that an organization can draw on when formulating and implementing a strategy.”
“A tangible resource has physical attributes and is visible. Examples of tangible resources are labor, capital, land, buildings, plant, equipment and supplies.”
Tangible assets are rarely source of competition because they can easily be acquired on the market. Example Coke: bottling stage is a physical stage which envolves lot’s of different types of resources.
“An intangible resource has no physical attributes and is thus invisible. Examples of intangible resources are organizational knowledge, trademarks, brands (reputation), and employee training systems.
Intangible asset can’t be obtained easily and offer the benefits of sustained competitive advantage. They offer unique ways of performing tasks. Therefore to find valuable, rare and costly to imitate resources, you should first look at a company’s intangible assets. An easy way to identify such resources is to look athe value chain and SWOT analyses.
Definition of Capabilities
= what we do well
“An organizational and managerial skill necessary to orchestrate a diverse set of resources and deploy them strategically. A capability by nature is intangible, finding its expression in an organizations’ structure, routines and culture.”
It is something you do to a resource you have and is usually embeded in the company.
Examples of capabilities are knowing how to design innovative and user-friendly products, how to achieve plant utilization and efficiency, abilities to raise funds and manage cash flows, and leadership skills.
skills and capabilities are intangible and work on a specific resource, even for example human ressources.
Do all resources and capabilities play the same role for strategy formulation and implementation ?
No, there are two different types of capabilities:
(1) Threshold capabilities: “qualitifiers”; points of parity
What you have to be able to do, e.g. Camera must be able to take pictures. It is a basic expectation that people have. You also expect that the picture is clear.
(2) Distinctive capabilities: “potential winners”; points of difference
More and mroe things that hlep to make your product distinctive. “Potential” because not everything that you do differently, means that you are doing it better than others and that it is going to create more value for customers.
Ex: Go pro is small and water resistant => distinctive capabilites.
What are threshold capabilities ?
Threshold capabilities are “qualitifiers” for a company to enter a market; points of parity
What you have to be able to do, e.g. Camera must be able to take pictures. It is a basic expectation that people have. You also expect that the picture is clear.
What are distinctive capabilities ?
Distinctive capabilities are “potential winners”; points of difference
More and mroe things that hlep to make your product distinctive. “Potential” because not everything that you do differently, means that you are doing it better than others and that it is going to create more value for customers.
Ex: Go pro is small and water resistant => distinctive capabilites.
What is benchmarking and which different ways can it be done ?
Benchmarking is directly comparing resources & capabilities (relative to the company’s competitors with levels from 1 = very weak to 5 = very strong).
It allows to evaluate strength and weaknesses relatively to competitors but is not efficient enough to say which capability could serve as a basis for competitive advantage.
One can either do Benchmarking with or without trajectory.
Without Trajectory = it does not say if company has increased it’s technology or not (so called Trajectories). To find the dynamic of these developments, you put arrows => so called Trajectories. It says if the company got stronger or weaker.
With Trajectory = allows to evaluate where I have a relative strength or weakness. But it’s not efficient to say which capabilty could serve as a basis for competitive advantage. For this we use the VRIO framework
How can you evaluate capabilities and resources ?
Either with benchmarking or better is with VRIO framework.
Benchmarking evaluates where I have a relative strength or weakness
VRIO Framework is more efficient, because it says which capability could serve as a basis for competitive advantage
What is “VRIO” ?
VRIO allows to evaluate the extent to which each of the reousrces and capabilities that I have inside the organization is either valuable, rare, inimitable, and supported by organizational structur.
What does “V” from the VRIO Framework mean ?
V = Valuable
- A resource/ capability is valuable if it enables an organization to exploit opportunities or defend against threats.
- Resources/ capabilities are also valuable if they help an organization to increase perceived value for money (increase differentiation and/or decreasing price of a product)
=> if not: competitive disadvantage
Value comes from the link to the firms competitive environment !
Example questions:
Do we have a brand reputation for quality/ low prices?
Do we engage in activities that differentiate our product?
What does “R” from the VRIO Framework mean ?
Rare
A resource/ capability is rare if it can only be acquired by one or very few companies
Rare and valuable resources/ capabilities may help a firm to gain temporal c_ompetitive advantage_.
=> if not (the situation when more than few companies have the same resource or uses the capability in the similar way) leads to competitive parity.
Example questions:
- How many other organizations own the same resource or can perform the capability in the same way that we can?
- Can the resource be easily bought in the market by our competitors? Can competitors obtain the resource or capability in the near future ? If it can easily be baught, then it is not in particularly rare.
What does “I” from the VRIO Framework mean ?
Inimitable
A resource/ capability that inimitable if it is difficult to imitate or create a suitable substitute for it.
Rare, valuable and inimitable resources/ capabilities may help a firm to achieve sustainable competitive advantage (SCA)
=> if not: temporary competitive advantage
Example questions:
- Can our competitors easily duplicate the resource?
- Do we have patents to protect the resource?
- Is it hard to identify the processes, tasks and factors that form the resource or capability?
What are the reasons why resources can be hard to imitate ?
- Historical conditions: Resources that were developed due to historical events or over a long period usually are costly to imitate.
- Causal ambiguity: Companies can’t identify the particular resources that are the cause of competitive advantage.
- Social Complexity:The resources and capabilities that are based on company’s culture or interpersonal relationships.
What does “O” from the VRIO Framework mean ?
Organized to capture value
Resources/ capabilities are organized to capture value if the organization’s management systems, processes, policies, structure and culture are set up to fully realize the potential of the VRI resources and capabilities.
Only then can an organization achieve SCA
=> if not: temporary competitive advantage
Example question:
- Do we have an effective strategic management process?
- Are effective motivation and reward systems in place?
What are core / distinct competencies ?
Core/ distinct competency are
„A unique strength, embedded deep within an organization that allows the organization to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower costs.”
A core competency is a resource, capability or bundle thereof that is VRIO!
These should be protected by all means!
Whether something is really a core competence changes with the market environment in which you operate.
Which analyze is combined in the SWOT analysis ?
SWOT combines internal and external analysis (insights)
