Chapter 5: Resources & capabilities Flashcards
What did Jay Barney say in 1991?
The competitive advantage and superior performance of an organisation is explained by the distinctiveness of its resources and capabilities.
What is an example of a company from a resource-based perspective?
Tesla. Tesla has successfully entered the industry based on its specialized capabilities; it was not so much the characteristics of the environment that explain these differences in performance, but difference in organization-specific resources and capabilities. This puts the focus on variations between companies within the same environment and how they vary in their resources and capabilities.
What can the RBV perspective explain?
It can explain how companies within the same industry are affected differently by external market forces.
For instance, Porsche and Hyundai are both within the same automobile industry but the the Five Forces affect them differently becaues they have different internal resources and capabilities.
How can you define resources and capabilities?
Resources: what we have
Capabilities: what we do
What is threshold resources & capabilities?
Threshold resources and capabilities are those needed for an organisation to meet the necessary requirements to compete at all in a given market (bare minimum). Without these, the organisation cannot survive over time.
What is distinctive resources and capabilities?
Distinctive resources and capabilities are required to achieve competitive advantage. This means that they deliver value and are being distinguished from their competitors. Ex: Apple has distinctive resources in smartphone technology and in its powerful brand, together with distinctive capabilities in design and in understanding consumer behavior.
What is the VRIO framework?
This framework provides four criteria by which resources and capabilities can be assessed in terms of them providing a basis for achieving competitive advantage. A VRIO analysis can be done for different functions in an organisation, ex technology, marketing or sales.
Describe the V in VRIO (3 factors)
Resources and capabilities are valuable when they create a product or service that is of value to customers and enables the organisation to respond to environmental oppotrunities or threats. Value chain analysis and activity systems mapping can be helpful here.
1. Value to customers
It needs to bring value to customers. Having resources and capabilities that are different from other organization is not in itself a basis of competitive advantage.
2. Taking advantage of opportunities and neutralizing threats
To be valuable, resources and capabilities need to address opportunities and threats that arise in an organisations environment. An external opportunity is addressed when a resource or cap increases the value for customers either through lowering their price or increasing the attractiveness. Ex IKEA.
3. Cost
The product or service needs to be provided at a cost that still allows the organisation to make the returns expected.
Describe the R in VRIO
R for Rarity.
Resources and capabilities cannot just be valuable; many competitors have valuable resources and capabilities. To gain competitive advantage, these need to be unique, differentiated, and just possessed by one or a few other competitiors. For example: patented products; libraries that only have access to unique and old books; mining companies that have access to unique mining sites.
Describe the I in VRIO and its three points
I for inimitability.
SCA also involves identifying inimitable resources and capabilities; those that competitors find it hard/costly to copy or imitate or find substitutes for. Often, the barriers to imitation lie deeply in the organisation in linkages between activities, skills and people.
It is unusual for sustainable long term competitive advantage to be explained by tangible resources such as machines since these can be acquired or imitated. Advantage is more likely to be determined by the way in which resources are deployed and managed in terms of an organisations activities. Ex: having a IT system will not in itself improve an organizations SCA; competitors can buy something similar. But the capability to manage, develop and deploy such a system to the benefit of customers may be much harder and costly to imitate; capabilities tend to involve much more intangible imitation barriers; they often include linkages that integrate activities, skills, knowledge and people both inside and outside the organisation in distinct and mutually compatible ways. It is these linkages that are hard to imitate and there are three primary reasons for this.
- Complexity (internal linkages and external interconnectedness)
- Casual ambiguity
- Culture and history (path dependency)
Capabilities can be embedded in an organizations culture. Coordination between various activities occurs naturally because people know their part in the wider picture, or it is simply taken for granted that activities are done in a certain way. IKEA is a example of this where their strategy build upon a strong organizational culture and vision.
What is casual ambiguity? (I in VRIO)
Causal ambiguity is a situation where competitors cannot clearly understand the connection between a company’s resources, capabilities, and its competitive advantage. This makes it hard for them to copy or replicate the strategy.
Because of this uncertainty, it becomes difficult and costly for competitors to imitate the company’s success, giving the original company a sustained competitive advantage. For example, a company might have a unique culture or complex processes that are not obvious to competitors, and this complexity or hidden value creates causal ambiguity.
Casual ambiguity might exist in two different forms:
1. Characteristic ambiguity (which are the key traits or qualities?)
2. Linkage ambiguity (how is everything efficiently linked?)
Describe the O in VRIO
O for organisational support.
The organisation must be suitably organized to support the V, R and I in order to successfully and effectively create long term sustainable competitive advantage. This requires appropriate organisational processes and systems. Ex: you have a patent but not the capability to sell the product because of a poor sales team.
Supportive capabilities have been labelled complementary capabilities as they by themselves are not enough to provide for CA but are useful in the exploitation of other capabilities that can provide for this.
What is the value chain and what does it consist of?
Value chain by Porter.
Focus on breaking down the company’s internal activities (primary activities and support activities) to understand how each contributes to value creation. The goal is to understand how these activities can provide a competitive advantage by delivering value more efficiently or effectively than competitors.
Primary activities: procurement, firm infrastructure, HR, technology.
Support activities: Inbound logistics, operations, outbound logistics, marketing and sales, service
What is the value system?
Its very rare that an organisation does in-house for all the value activities. There is usually specialization of activities; one supplier, one that transports etc.
A value system therefore expands beyond the company, looking at how its value chain connects with suppliers, partners, and distributors to create value across the entire supply chain.
What are the four questions that arise when understanding the value chain and value system?
- The “make or buy” or outsourcing question
We want to own the parts of the value chain that creates the most value. Typically this can be marketing, customer relationships, sales and other primary activities. - What are the activities and cost/price structures of the value system?
- Where are the profit pools?
- Which partners should we have?
