Chapter 5 Flashcards
What is The Role of Resources and Capabilities in Strategy Formulation
Resources and capabilities are the internal foundations for a firm’s competitive advantage. A firm’s strategy should exploit its resource and capability strengths while defending against its weaknesses.
How is Resources and Capabilities as Sources of Profit
Competitive advantage is the more important source of superior profitability. Establishing competitive advantage through the development and deployment of resources and capabilities has become the primary goal of strategy.
Ricardian Rents: The return earned by any superior resource or capability whose supply is limited.
How do you Identify Resources and Capabilities?
A thorough and profound understanding of a firm’s resources and capabilities is essential for strategy formulation. This enables the firm to adopt a strategy that exploits its resource and capability strengths while protecting against its weaknesses.
Resources: Assets, skills, and knowledge that a firm possesses
Capabilities: The ability to use resources effectively to achieve a desired outcome
What’s the meaning of Exploiting Key Strengths?
A sound strategy is one that leverages a firm’s strengths while minimizing vulnerability to its weaknesses.
Core Competence: A unique combination of resources and capabilities that provides a sustainable competitive advantage
Distinctive Capability: A capability that is unique to a firm and provides a competitive advantage
How do you Manage Key Weaknesses
A firm should identify its weaknesses and develop strategies to address them.
Weakness: A resource or capability that is lacking or inadequate
Threat: A factor that could negatively impact a firm’s resources or capabilities
How do you Distinguish Between Resources and Capabilities?
Resources are the productive assets owned by a firm, while capabilities are what the firm can do. Resources do not confer competitive advantage on their own; they must work together to create organizational capability.
“Resources are not productive on their own. A brain surgeon is close to useless without a radiologist, anesthetist, nurses, surgical instruments, imaging equipment, and a host of other resources.”
What are the Types of Resources?
Tangible Resources
Financial resources (cash, securities, borrowing capacity)
Physical assets (plant, equipment, land, mineral reserves)
Intangible Resources
Technology (patents, copyrights, trade secrets)
Reputation (brands, relationships)
Human resources (skills, knowledge, attitudes, values)
A Functional Analysis
Identifies organizational capabilities within each functional area.
Give examples on what to look at.
Operations
Purchasing
Logistics/supply chain management
Design
Engineering
New product development
Marketing
Sales and distribution
Customer service
Finance
Human resource management
Legal
Information systems
Government relations
Communication and public relations
HSE (health, safety, and environment)
Value Chain Analysis Identifies a sequential chain of the main activities that the firm undertakes.
Give examples of activities
Primary activities:
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Service
Support activities:
Firm infrastructure
Human resource management
Technology development
Procurement
What are core capabilities?
Capabilities that are fundamental to a firm’s strategy and performance
Organizational capabilities refer to the ability of an organization to perform specific tasks or activities that enable it to achieve its goals. These capabilities are developed through learning-by-doing and can be further disaggregated into more specialized capabilities.
What is dynamic Capabilities?
Dynamic capabilities refer to the ability of an organization to modify and adapt its lower-level operational and functional capabilities in response to changing environmental conditions.
Two fundamental properties need to be explored while Appraising Resources and Capabilities. What are they?
Strategic Importance: The potential of a resource or capability to generate profit for the firm.
Relative Strength: The strength of a firm’s resources and capabilities relative to its competitors.
What three factors determine importance while Appraising Strategic Importance?
Relevance: The ability of a resource or capability to create value for customers.
Scarcity: The availability of a resource or capability within the industry.
Durability: The ability of a resource or capability to support a competitive advantage over time.
How do you sustain a competitive advantage?
Durability: The ability of a resource or capability to support a competitive advantage over time.
Transferability: The ability of a resource or capability to be transferred between firms.
Replicability: The ability of a resource or capability to be replicated by competitors.
What is Benchmarking?
Benchmarking is the process of comparing one’s processes and performance to those of other companies. It offers an objective and quantitative way for a firm to assess its resources and capabilities relative to its competitors.
Process Benchmarking:
Comparing business processes to those of other companies
Performance Benchmarking:
Comparing performance metrics to those of other companies
Strategic Benchmarking:
Comparing strategic decisions to those of other companies
“Benchmarking is a process of identifying and learning from best practices in other organizations, with the goal of improving performance and competitiveness.”
