Analysis of Firms capabilities Flashcards
Criticisms of the environment-led approach
- Leads to predictable strategies
- Positioning advantage is often transient
- Competitive environment changes rapidly
- Internal capabilities adapt slowly
- Advantage based on internal characteristics often more robust
- Some organisations perform well in ‘unattractive’ industries
An economic perspective on firms stating that:
Firms have unique resource endowments that are not easily traded
These can confer sustained competitive advantage if they are:
Resource-Based view Valuable Rare Hard to imitate Easily Organised
Valuable
Able to generate or improve market returns by exploiting opportunities or neutralising threats
Value is relative to other firms and relative to costs of the resource
Rare
Few other firms have the resource or a close equivalent
Hard to imitate
It would be costly, slow or risky for others to gain a closely equivalent resource
E.g. due to complexity, causal ambiguity, embedded in firm history/culture
Easily Organised
Organised to exploit the resource
Resources satisfying RBV conditions tend to be
- Intangible
- Combinations, not individual resources
- Linked to company history
- Embedded in social systems / company culture
- Causally ambiguous
Resources satisfying RBV conditions can be
Patents and other IPR (if able to protect and exploit)
Property (if equivalents not accessible to current or potential competitors)
1 Steps in VRIO: Select ‘candidate resources’ to test:
-Consider both ‘threshold’ and ‘distinctive’ resources/capabilities
-May be disaggregated resources from value chain analysis E.g. an efficient production process
-Not product/service features
Instead, consider what resources or capabilities gave rise to them
-Not the firm’s strategies
Instead, consider what resources or capabilities enable them to be successful
-Usually not the firm’s managers
They can too easily transfer to other firms … ‘easily traded’
Threshold:
needed to compete in a particular line of business
Distinctive:
required to achieve competitive advantage
May be broad firm characteristics
E.g. a distinctive company culture
What is the 2nd step in VRIO analysis
Assess each resource against V, R, I and O
Develop implications:VRIO analysis step 3
-How should the firm organise/reorganise to
Exploit and nurture existing resources/capabilities
Improve on current resources/capabilities
Generate new resources/capabilities
-How might future external developments* affect current resources
Replacing them with superior alternatives
Making them less relevant in the market
Creating new market opportunities where they could be valuable
Practicalities when using VRIO
Resource selection is crucial:
It is essential to consider the downsides of resources:
Resource analysis itself has downsides:
Resource selection is crucial:
- Evaluating outcomes or strategies as if they are resources leads to circular reasoning.
- It is essential to specify resources precisely.
It is essential to consider the downsides of resources:
- Risks attached to a distinctive capability or resource configuration
- Potential for firm characteristics to represent disadvantage as well as advantage.
It is essential to specify resources precisely.
- It directs attention internally, away from new opportunities and markets
- It directs attention to the detail of the status quo.
What are dynamic capabilities
The firm’s ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments”
Teece, Pisano and Shuen, 1997
Generic types of dynamic capability
- Sensing
- Seizing
- Re-configuring
Sensing
Sensing issues in an evolving strategic enviornment
Seizing
Making opportune, timely strategic choices
Re-configuring
Re-configuring the firm to enact strategies
Value Chain analysis
-Links value added by activitiesto an organisation’s competitive strength
-Recognises importance of how activities are linked
-Advantage can be from:
Performance in individual activities
Performance in linking activities
-Advantage can be lost by poor linkage
Uses based on integration: Use of value chain
Facilitating cross-functional thinking
Aligning the focus or purpose of activities
Uses based on breakdown: Use of value chain
Benchmarking individual activities
Recognising fragmentation of activities across organisational boundaries
Calculating operating costs and assets employed by activities
‘breakdown’ based analysis:Use of value chain
It facilitates data-driven work.
It down-plays holistic qualities such as routines, tacit knowledge, and complex combinations.
Potential Uses of the value System
- Understanding cost structures in different parts of the system.
- Identifying ‘profit pools’ in the system and seeking to exploit them.
- ‘Make or buy’ decisions: which activities to do ‘in-house’ and which to outsource.
- Partnering and relationships – deciding who to work with and the nature of these relationships.
