Ch.5 Resources an Capabilities Analysis Flashcards
What are resources and capabilities? What do the contribute to?
Resources: What we have. Assets that organisations own or can access
Can be tangible (like machinery) or intangible (like brands, patents, and copyrights)
Capabilities: What we do. How these resources are utilised.
They define how efficiently and effectively and organisation uses its resources
Effective capabilities ensure that resources are optimally used, fostering innovation, adaptability, and
efficiency.
The resources and capabilities of an organisation contribute to its long-term survival and, potentially, to competitive
advantage.
Resources important but how organisation employs and deploys its resources in the form of capabilities matters for
long-term survival.
What are threshold resources and capabilities?
What are Distinctive resources and capabilities?
THRESHOLD:
1. Essential for and organisation to even compete in a market.
- Ensures parity with competitors in that market
→ Without these, organisation could not survive over time.
Ex:
Could be changing threshold resources required to meet minimum customer requirements.
Or threshold capabilities required to deploy resources to meet customers’ requirements and support particular
strategies.
Challenge:
identify and manage threshold resources and capabilities as threshold levels change through the
activities of competitors and new entrants.
Important but do not themselves create competitive advantage or the basis or superior performance.
DISTINCTIVE:
Potential sources of competitive advantage and superior performance.
Required to achieve competitive advantage.
Offer a competitive advantage and underpin superior performance.
They’re unique, valuable to customers, and difficult for competitors to imitate or acquire.
Ex:
A well established brand.
Apple’s unique resources in smartphone technologies and their distinctive capabilities in design and understanding consumer behaviour.
Hamel and Prahalad’s Perspective on Distinctive capabilities?
Distinctive capabilities typically remain unique due to their intricate composition of multiple skills and technologies.
These are referred to as core competences. Linked set of resources, capabilities, skills and activities.
In Apple’s case, its core competences stem from the combination of its unique resources and capabilities
What is the VRIO framework and what are the criterias?
The VRIO framework is a tool to assess these resources and capabilities bases on 4 criteria:
Value, Rarity, Inimitability, Organisational support.
To achieve and maintain a competitive advantage, managers must ensure their resources and
capabilities are valuable, rare, inimitable, and supported by the appropriate organisational structures and processes.
VRIO: What is the V?
Value to Customers: Resources and capabilities must be valuable to customers. Mere uniqueness isn’t enough a basis of competitive advantage.
Addressing Opportunities & Threats: Valuable resources and capabilities help exploit opportunities and
neutralise threats.
EX: IKEA’s resources enable it to provide low-priced, designed furniture catering to specific
customer needs.
Cost: The product or service must be cost-effective to ensure profitability.
- The value chain analysis and activity systems mapping can help identify value-adding activities.
Managers should carefully consider which of organisation’s activities are particularly important in providing such
value and which are not.
VRIO: What is the R?
Is the resource rare among competitors?
Common resources and capabilities, even if valuable, can’t offer competitive advantage since competitors can
easy replicate them.
Rare resources and capabilities, possessed by few, provide longer-lasting competitive advantages.
Ex: patented products, powerful brands, unique collections, or specialised relationships with
stakeholders.
VRIO: What is the I?
Is the resource hard to copy?
Beyond being valuable and rare, resources and capabilities should be hard for competitors to imitate or acquire.
- Over time tangible resources can be acquired or imitated so competitive advantage is more
determined by capabilities - more intangible imitation barriers. - Often include linkages that integrate activities, skills, knowledge and people both inside and outside org in
distinct and mutually compatible ways → diff to imitate. There are 3 primary reasons why: BILD
COMPLEXITY: Resources and capabilities involving intricate internal linkages or external interconnectedness are
harder to replicate.
EX: IKEA and Ryanair have complex systems that, despite being widely studied, remain difficult to
imitate.
CASUAL AMBIGUITY: Competitors might find it challenging to discern the causes and effects underpinning an orgs
advantage. May exist in 2 forms:
- Characteristic Ambiguity: The significance of a characteristic is difficult to discern (maybe rooted in orgs
culture or tacit knowledge).
- Linkage Ambiguity: The interdependencies between activities aren’t clear. Even some managers do not fully
comprehend the linkages throughout org that deliver customer value.
CULTURE AND HISTORY
- Capabilities can become embedded in an orgs culture.
- Competitive advantages rooted in an organisation’s culture or developed over its history can be hard to
replicate.
- Path dependency can make certain capabilities unique but can also lead to inflexibility.
- Tacit organisational knowledge, being personal and context-specific, is hard to formalise and thus, hard to
imitate.
VRIO: What is the O?
Does the company’s organisation support the resource’s exploitation?
To realise their potential, valuable, rare, and inimitable resources and capabilities need the right organisational
structures and management system.
EX: A company might have a unique patent, but if they lack the sales force to market the product, the
potential advantage goes unrealised. Supporting capabilities labelled complementary capabilities.
Organisations also need support from stakeholders possessing unique capabilities.
These stakeholders must be appropriately compensates, or the organisation risks losing their unique
contributions.
Ways of analysing resources and capabilities?
- VRIO analysis
- Value chain and value system analysis
- Activity systems mapping
- Benchmarking
VRIO analysis
The more resources and capabilities meet all 4 criterias, the more likely they are to provide a sustainable
competitive advantage.
BILD: Shows that VRIO framework can be applied to discern competitive implications and economic performance.
Challenge:
Sometimes hard to establish exact competitive implication, ex when a resource or capability is on the border
between sustained or temporary competitive advantage.
However, most important for managers: to distinguish
between sustained or temporary competitive advantage vs competitive parity or competitive disadvantage.
Value chain and Value system analysis
Value chain: a series of activities, within an org, which together create a product or service.
Value system: Organisations
often part of a wider value system: which comprises multiple organisations contributing to the end product or
service.
Both useful to understand the strategic position of an org and where valuable resources and capabilities lie and how they can be optimised.
Questions to understand the value chain and value system:
1. The ‘make or buy’ or outsourcing decision for a particular activity is critical?
2. What are the activities and cost/price structures of the value system?
3. Where are the profit pools? Profit pool: the different levels of profity available at different parts of the value
system.
Activity systems mapping
Activity systems mapping helps organisations understand their unique configurations of resources and
capabilities.
Activities should align with strategic themes that that contribute to the organisation’s success.
The map emphasises the importance of activities reinforcing each other and aligning with client needs.
The map emphasises the importance of activities reinforcing each other and aligning with client needs.
Benchmarking
Benchmarking is a tool for comparing an organisation’s performance or capabilities against each others.
There are 2 main types:
1. Industry/sector benchmarking: Comparing against each others in the same industry. Some acknowledged strategic groups rather than everybody.
DANGER of industry norm comparisons: the whole industry can be performing badly and losing out competitively to other industries that can satisfy customers’ need in different ways.
- Best-in-class benchmarking: Comparing against the best performers (performance/capabilities), regardless of industry.
→ seeks to overcome some of the above limitations.
Importance of benchmarking - not so much detailed mechanics of comparison but the impact that these comparisons might have on reviewing resources and capabilities underlying performance.
Benchmarking - 2 potential limitations:
Surface comparisons: limited to comparing outputs
Simply achieving competitive parity: best performance could be to achieve a treshold level and
competitive parity
Benchmarking can reveal performance gaps but might not always pinpoint the underlying reasons.
It can help
organisations achieve competitive parity but might not lead to a distinctive competitive advantage.
What are Dynamic capabilities?
Dynamic capabilities allow organisations to renew and adjust their resources and capabilities in response to evolving situations.
Long term survival and competitive advantage in the future.
Static resources and capabilities may become obsolete, limited, or commonplace.
What are the types of Dynamic capabilities? And what are they about?
- Sensing:
Continuous scanning of markets and technologies for opportunities.
EX: Microsoft sensed
threats and opportunities in cloud computing services.
- Sensing is about understanding an organisation’s strategic position
- Seizing:
Addressing the sensed opportunities with new products, services, or activities.
EX: Microsoft introduced
Azure, its cloud computing service, as a seizing move.
- Seizing is about making strategic choices
- Reconfiguring
Modifying organisational capabilities to leverage the identified opportunity, which may involve investments in new technologies, markets, etc. EX: Microsoft’s venture into cloud computing required changes in its existing resources and capabilities. And discard some old capabilities.
- Reconfiguration
deals with strategy execution.
What are the approaches to manage Resources and Capabilities?
- Internal Capability Development:
a. Building and Recombining Capabilities: Promoting innovation through managerial systems and culture.
b. Leveraging Capabilities: Extending beneficial capabilities from one business unit to others.
c. Stretching Capabilities: Creating new products or services using existing capabilities.
- External Capability Development:
Acquiring or developing capabilities through external means like acquisitions,
alliances, or joint ventures. - Ceasing Activities:
Elimination or outsourcing activities that don’t significantly add value to customers.
