Chapter 7: Analysing the Internal Environment Flashcards
Why are resources important and what determines their value?
Why are they NB:
* Resources determine strategic direction of the firm (What the firm is capable of)
* Resources are primary source of profitability (By creating competitve advantage)
What determines resource value?
* Extent to which they can generate competitive advantage
* Extent to which competitive advantage can be sustained
* Extent to which firm can appropriate value generated by resources
* Extent to which resources can stimulate future growth
What determines a resource’s ability to create a competitive advantage?
- Presence of distinctive capabilities is NB
- Resource scarcity is NB
Scarcity is determined by the following factors: - Physical uniqueness
- Complexity of creation of resource (Brand images/reputation are impossible to imitate)
- Ambiguity (Competitors cannot quantify what the truly valuable resource is)
What determines competitve advantage sustainability wrt resources?
- Resource must be durable
- Firm must be able to duplicate resource/CA in other markets/products
- Firm must be able to protect resources from imitation by competitors
- Firm must be able to exploit and leverage their resources
What determines the appropriability of resources?
- Protection of IPRs
- Relative bargaining power of complementary products
- Resource embeddedness- how integrated is the resource into the structure of the organisation (More embedded=more ability to appropriate value)
- Resource exploitation (How well can you leverage & exploit your resources
How do you exploit resources effectively?
- Resource concentration- focusing resources on specific tasks yielding highest customer value (DOn’t dilute resources by multitasking)
- Accumulating new resources quickly- building up experience, learning, borrow resources through joint ventures/strategic alliances
- Complementing resources- increasing value of resources by linking them to other complementary resources/capabilities
- Conserving resources- using resources to fullest extent (Recycling resources)
How do you develop new resources?
- M&As with companies possessing desired resources/capabilities
- Internal creation of resources/capabilities
- Spin-offs
What are the 3 types of resources?
- Physical resources: tangible and shown on balance sheet
- Intangible resources: Not shown on balance sheet, but often major sources of competitive advantage the more they are used (Brands, patents, business systems, customer databases)
- Human Resources: The knowledge and capabilities of employees (Are never actually owned by company)
What are capabilities and what types of capabilities are there?
Capabilities are complex combinations of assets, people and processes, representing the ability to convert inputs into valuable outputs.
3 types:
* Threshold capabilities: basic capabilities required to operate in an industry (Every player has them, not a source of competitive advantage)
* Core competencies: Capabilities that provide a competitive advantage (difficult for competitors to imitate)
* Dynamic capabilities: Capacity of the firm to develop new capabilities and reconfigure itself according to changing macro conditions (e.g: Knowledge creation & constant internal learning; Strategic alliances & cooperation; terminating old resource combinations that are outdated)
What are some other frameworks for identifying capabilities?
- Functional analysis (Assessing each departmental function for potential core competencies)
- Porter’s value chain (Chain of activities organisation does to add value; Primary activties and secondary activities)
- **Architecture **(Design of the business), Reputation and Innovative ability can also all be distinctive capabilities
- Knowledge (Organisational/employee knowledge through knowledge integration results in distinctive capabilities)
Why is the Dynamic view of strategy better than the purely RBV?
- Competencies change over time as markets are volatile
- Ability of firm to use current resources and capabilities to make new strategic commitments and develop new capabilities overtime is useful
How do you identify strengths and weaknesses in an organisation?
- Value chain analysis: Look at each activity in the value chain and compare its costs and differentiation potential to competitors. Identify ways to improve differentiation and reduce costs
- Benchmarking (Compare to historal company performance, industry performance, best-in-class performance)
How do you an appraisal of resources and capabilities?
- Identify key resources & capabilities
- Determine strategic importance of them
- Determine relative performance of them through benchmarking
- Decide on implications and future oriented strategies
