Lecture 5 (RBV + Dynamic Capabilities + Core Competencies) Flashcards
Link between VRIN resources and sustained competitive advantage
In order for a company to enjoy sustained competitive advantage it must exhibit VRIN capabilities
Definition of resources (Barney 1991)
“Firm resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve efficiency and effectiveness (Daft, 1984).” In the traditional view of strategic analysis, firm resources are strengths that firms can use to conceive of and implement their strategies.”
These resources can be categorized into Three groups
- physical capital resources (plant, equipment, geographical location, access to raw materials)
- Human Capital resources (training, experience, judgement, intelligence, relationships, insight of individual managers and workers in the firm)
- Organizational capital resources (formal reporting structure, formal and informal planning, controlling and coordinating systems, as well as informal relations among groups within a firm and between a firm and those in its environment).
Remember not all of them are good resources, some of them might lock or prevent implementation of strategy in the firm.
Competitive advantage and sustained competitive advantage
The notion competitive advantage is described as when a firm is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors.
A sustained competitive advantage is when the firm is implementing a value creating strategy not simultaneously being implemented by any current or potential competitor and when these other firms are unable to duplicate the benefits of this strategy.
VRIN characteristics of resources
VRIN
Valuable resources enable a firm to conceive of or implement strategies that improve its efficiency and effectiveness.
Rare resources are important as if a large number of firms possess that resource, then each of these firms have the capability of exploiting that resource in the same way, thereby implementing a common strategy that gives no one firm a competitive advantage. This is not say that ordinary (non-rare/common) resources aren’t important. These can help ensure a firm’s survival when they are exploited to create competitive parity in an industry.
Imperfectly imitable resources: Resources can be imperfectly imitable when a) the ability of a firm to obtain a resource is dependent upon unique historical conditions, b) the link between the resources possessed by a firm and a firm’s sustained competitive advantage is causally ambiguous or c) the resource generating a firm’s advantage is socially complex.
- The Unique Historical conditions refers to the company’s ability to to acquire and exploit some resources depends upon their place in time and space. Once time in history passes, firms that do not have space - and time-dependent resources cannot obtain them, and thus these resources are imperfectly imitable. (This can be experience? I guess)
- Causal ambiguity refers to the situation in which the link between the resources controlled by a firm and a firm’s sustained competitive advantage is not understood (by competition) or understood only very imperfectly. This obviously makes it hard to copy by competitors.
- Social complexity refers to the resources being very complex social phenomena, beyond the ability of firms to systematically manage and influence. When competitive advantages are based in such complex social phenomena, the ability of other firms to imitate these resources is significantly constrained.
o Examples of socially complex resources are interpersonal relations among managers in a firm, a firm’s culture, a firm’s reputation among suppliers and customers. Notice that in most these cases it is possible to specify how these socially complex resources add value to a firm. Thus, there is little or no causal ambiguity.
Substitutability refers to the situation in which there are no strategically equivalent valuable resources that are themselves either not rare or imitable. This means that even though you have some rare and valuable resources that you can exploit to create a competitive strategy, if other non-rare resources can be exploited differently, yet still reach same competitive strategy, then the resource is substitutable and thus not able to lead to sustainable competitive advantages.
Definition of Dynamic Capabilities
Dynamic capabilities require continual redeployment of resources that reflect the changing conditions of the market (e.g. technological changes)
“We definite dynamic capabilities as the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments. Dynamic capabilities thus reflect an organization’s ability to achieve new and innovative forms of competitive advantage given path dependencies and market positions.”
“Winner in the global marketplace have been firms that can demonstrate timely responsiveness and rapid and flexible product innovation, coupled with the management capability to effectively coordinate and redeploy internal and external competences.”
Capabilities definition
Capabilities emphasizes the key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources and functional competences to match the requirements of a changing environment.
Definition of processes, positions, and paths and their link to dynamic capabilities
Processes refer to the way things are done in the firm, or what might be referred to as its routines, or patterns of current practice and learning.
Positions is determined not only by its learning processes and by the coherence of its internal and external processes and incentives, but also by its specific assets.
Paths by paths we refer to the strategic alternatives that are available to the firm, and the presence or absence of increasing returns and attendant path dependencies.
Path dependencies Where a firm can go is a function of its current position and the paths ahead. Its current position is often shaped by the path it has traveled. The notion of path dependencies recognizes that history matters
Definition of Processes, positions, and paths and their link to dynamic capabilities
Processes refer to the way things are done in the firm, or what might be referred to as its routines, or patterns of current practice and learning.
Positions is determined not only by its learning processes and by the coherence of its internal and external processes and incentives, but also by its specific assets.
Paths by paths we refer to the strategic alternatives that are available to the firm, and the presence or absence of increasing returns and attendant path dependencies.
Path dependencies Where a firm can go is a function of its current position and the paths ahead. Its current position is often shaped by the path it has traveled. The notion of path dependencies recognizes that history matters
Replication and imitation
Replication involves transferring or redeploying competences from one concrete economic setting to another. Replication is often very difficult as it often relies on tacit knowledge. The transfer is therefore often impossible absent the transfer of people, though this can be minimized if investments are made to convert tacit knowledge to codified knowledge. This can be very hard. Therefore, competences and capabilities and the routines upon which they rest are normally rather difficult to replicate. Sometimes even understanding what all the relevant routines are that support a particular competence may not be transparent. If knowledge is high tacit, it indicates that underlying structures are not well understood, which limits learning because scientific and engineering principles cannot be as systematically applied.
Imitation is simply replication performed by a competitor. IF self-replication is difficult, imitation is likely to be harder. Factors that make replication difficult also make imitation difficult. Thus, the more tacit the firm’s knowledge, the harder it is to replicate by the firm itself or its competitors. Another barrier for imitation is intellectual property rights (patents, trade secrets, and trademarks, and even trade dress.
Definition of core competences (profound) + more info
Core competencies consist and embody:
- Harmonization: Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies.
- All levels in the organization: Communication, involvement and a deep commitment to working across organizational boundaries (involves many people and all functions).
- No deterioration with use but the opposite
- Access to many markets: core competence provides potential access to a wide variety,
- Provides significant contribution to the perceived customer benefits of the end product
- Difficult to imitate: A rival might acquire some of the technologies that comprise the core competence, but it will find it more difficult to duplicate the more or less comprehensive pattern of internal coordination and learning.
Example of core competence, core product and end products
M3 –>
Core competence - Adhesives (klister) –> core product (sticky material) –> Core product Post-its and scotch.
Gore-tex –> technology behind gore-tex –> waterproof textile –> clothing boots, outdoor gear.
What is a core competence?
A competency (skills, knowledge, …) that:
1) Is hard to imitate
2) Can be deployed in many markets or products, now or in the future
3) Provides significant consumer benefits
•Leads to durable competitive advantage
•Typically a few (~5) core competencies
The difference between RBV (VRIN) and Dynamic capabilities and Core competences (mangler)
The RBV gets closer to the aspects of dynamic capabilities. This approach focuses on the rent accruing to the owners of scarce firm-specific resources rather than the economic profits from product market positioning. The competitive advantage lies upstream of product markets and rests on the firms idiosyncratic and difficult-to-imitate resources. The resource-based view puts both vertical integration and diversification into a new strategic light. If furthermore invites consideration of managerial strategies for developing new capabilities.
The high-technology industries such as semiconductors, information services and software have demonstrated the need for an expanded paradigm to understand how competitive advantage is achieved. The RBV might best have contributed to understanding IBM, Texas instruments, Philips, and other accumulation of valuable technology assets, often guarded by an aggressive intellectual property stance. This is however not enough to understand the strategy of such successful firms. As “Winner in the global marketplace have been firms that can demonstrate timely responsiveness and rapid and flexible product innovation, coupled with the management capability to effectively coordinate and redeploy internal and external competences.” This is where dynamic capabilities comes into the picture and contributes to the understanding of firm’s strategy.
Core competencies (Canon example)
Canon has its precision mechanics, fine optics and micro-electronics as core competencies.
The products these core competencies create: Plain paper copier, Battery PPC, Color copier, Laser copier, Color laser copier, NAVI, Still Video system.
Core Competencies (Gore-tex)
Core competence: Water-proofing
Core products: “Membrane” - Waterproof Textile
End products: clothing, boots and outdoor gear,
