Session 3 Flashcards
What are the limitations of Porter’s Five Forces framework?
Porter’s Five Forces framework does not provide insight into individual firms, such as:
- Whether a firm can compete effectively.
- How to achieve a competitive advantage.
- Other firm-specific issues unrelated to industry forces.
What is the Resource-Based View (RBV) and its key ideas?
RBV focuses on firm-specific resources rather than industry competition. It aims to answer:
- How to identify firms with strong competitive positions.
- How firms can create and defend competitive advantage.
- How firms can differentiate from competitors.
Key ideas (Wernerfelt, 1984; Grant, 1991):
- Resources define strategy.
- Resources drive firm profitability.
Proposition: With the right mix of resources (and of the right kind), firms can extract value that competitors cannot.
This suggests that firms should focus on leveraging unique internal strengths to maintain a sustainable advantage.
What are resources according to Grant (1991)?
According to Grant (1991), resources are “inputs into the production process,” meaning they are assets or inputs that a firm uses to operate and compete. These resources can be:
- Tangible: Physical assets like machinery, cash, or buildings.
- Intangible: Non-physical assets like brand reputation, patents, or organizational culture.
What are the key challenges in assessing a firm’s resources?
- Measuring the value of resources.
- Identifying the firm’s “stock” of resources—what assets it possesses and how they contribute to the business.
How do resources differ from capabilities?
- Resources are what a firm has (e.g., a factory, skilled employees).
- Capabilities are what a firm can do (e.g., using skilled employees to innovate).
- Capabilities come from combining multiple resources.
- Core competencies are the most important capabilities that differentiate the firm from competitors (e.g., Apple’s design expertise, Amazon’s logistics efficiency).
- Not all resources provide a competitive advantage.
What is the VRIN Model (Barney, 1991)?
A resource must be:
- Valuable – Helps the firm create value or reduce costs.
- Rare – Not easily available to competitors.
- Non-Imitable – Difficult for competitors to copy or replicate.
- Non-Substitutable – No alternative resource can replace it.
If a firm’s resources satisfy VRIN, it can achieve a sustainable competitive advantage.
What is the VRIO Model, and how does it extend VRIN?
The VRIO Model extends the VRIN model by adding a fourth condition:
- Valuable
- Rare
- Non-Imitable
- Organized – The firm must be structured to take full advantage of its resources (e.g., Apple’s ability to integrate design and software efficiently).
The more difficult it is for competitors to obtain, imitate, or substitute a resource, the stronger the advantage.
How can firms build a strong strategy?
Strategy involves the “creation of a unique and valuable position, involving a different set of activities.”
To build a strong strategy, firms must:
- Leverage their VRIN/VRIO resources.
- Organize the firm effectively to support those activities.
What is Grant’s (1991) Resource-Based Approach to Strategy Analysis?
Grant’s (1991) Resource-Based Approach to Strategy Analysis outlines a step-by-step framework for firms to develop strategy based on their resources and capabilities:
- Identify and classify resources – Assess strengths and weaknesses relative to competitors.
- Identify capabilities – Determine what the firm can do better than rivals.
- Evaluate resource and capability potential – Analyze their ability to create sustainable competitive advantage and capture value.
- Select a strategy – Develop a strategic position that best utilizes the firm’s strengths.
- Identify and address resource gaps – Invest in replenishing, upgrading, or acquiring necessary resources.
How are Resources, Capabilities, Strategy, and Competitive Advantage linked?
The relationship between Resources, Capabilities, Strategy, and Competitive Advantage:
- Resources – Can be:
* Tangible: Financial, Physical
* Intangible: Technology, Reputation, Culture
* Human: Skills/know-how, Capacity for communication & collaboration, Motivation - Organizational Capabilities – Capabilities emerge from how resources are combined and used effectively.
- Strategy – The firm’s strategy is built on leveraging organizational capabilities to achieve a competitive advantage.
- Competitive Advantage – If the firm’s strategy is based on valuable, rare, and difficult-to-imitate resources, it can achieve a sustainable competitive advantage.
What are capabilities in the Resource-Based View (RBV)?
- Capabilities are bundles of resources that can be effectively deployed to achieve a goal.
- Resources alone are not productive → they must be combined and used efficiently.
- An organizational capability is a “firm’s capacity to deploy resources for a desired end result.” (Grant, Chapter 5, p. 104).
What should firms keep in mind about capabilities and the limitations of RBV?
Keep in Mind:
-
Capabilities that competitors lack → Competitive advantage
If a firm possesses unique capabilities that competitors do not, it can gain a sustainable advantage. -
Competitive advantage can erode
Capabilities may be lost due to knowledge leaks, employee turnover, or inefficiencies. -
Environments change
Firms need to adapt capabilities in response to trends like digital transformation, AI adoption, or regulatory shifts.
Major limitation of RBV:
- RBV doesn’t provide clear guidance on how to fill resource gaps.
- It explains how firms gain competitive advantage but not how firms should acquire, develop, or replenish key resources.
What are the two approaches to identifying resources and capabilities?
Starting from the Inside (Internal Analysis)
- Focuses on existing internal resources and capabilities.
- Uses Porter’s Value Chain to assess activities contributing to value creation.
- Identifies areas of strength and weakness in the firm’s operations.
Starting from the Outside (External Analysis)
Begins with Key Success Factors (KSFs):
* How do customers choose?
* What do we need to survive competition?
Determines what resources and capabilities are required to meet these KSFs.
What is Porter’s Value Chain?
Porter’s Value Chain is a framework that categorizes business activities into Primary and Support Activities to analyze how value is created in a firm.
Primary Activities – Directly contribute to product/service delivery:
- Inbound Logistics (suppliers, raw materials)
- Operations (manufacturing, production)
- Outbound Logistics (distribution)
- Marketing & Sales
- Service (after-sales support)
Support Activities – Enhance primary activities:
- Firm Infrastructure (management, policies)
- Human Resource Management (hiring, training)
- Technology Development (R&D, innovation)
- Procurement (supplier management)
What is the importance of Porter’s Value Chain?
Porter’s Value Chain is important because it:
- Helps identify where value is created in the firm.
- Determines which activities need improvement or investment.
- Assists in identifying differentiating capabilities for competitive advantage.
What are the differences between Primary and Support Activities in Porter’s Value Chain?
- Primary Activities are directly involved in creating and delivering a product or service (e.g., Logistics, Operations, Marketing).
- Support Activities enhance and enable primary activities (e.g., HR, R&D, Procurement, Firm Infrastructure).
How can resources and capabilities be appraised for strategic importance?
Resources and capabilities are evaluated using three key criteria:
Extent of Competitive Advantage
- Scarcity – Is the resource rare?
- Relevance – Does it contribute to competitive positioning?
Sustainability of Competitive Advantage
- Durability – How long can the firm retain this advantage?
- Transferability – Can competitors acquire similar resources?
- Replicability – Can competitors easily imitate it?
Appropriability (Profit Potential)
- Property Rights – Does the firm own/control the resource?
- Relative Bargaining Power – Can the firm capture value from it?
- Embeddedness – Is the resource deeply integrated into the organization?
The profit-earning potential of a resource or capability depends on these factors.
What are the similarities between Grant’s and Barney’s models for competitive advantage?
What are the key differences between Grant’s and Barney’s models for competitive advantage?
Durability Consideration
- Grant explicitly includes durability as a factor in sustaining competitive advantage.
- Barney’s VRIO does not have an equivalent criterion.
Focus on Transferability & Replicability
- Grant considers whether a resource can be transferred or replicated by competitors.
- Barney only looks at imitability, without explicitly addressing transferability.
Organizational Perspective
- Barney emphasizes the need for a firm to be well-organized to capture value.
- Grant focuses more on the resource characteristics themselves rather than internal organization.
When should you use Grant’s model vs. Barney’s VRIO model?
- Use Grant’s model for a more detailed sustainability analysis (durability, transferability).
- Use Barney’s VRIO for a structured approach to identifying and leveraging resources within an organization.
- Both models together provide a comprehensive evaluation of competitive advantage.
How do Grant and Barney define competitive advantage in terms of resource value capture?
- Grant: Competitive advantage is Appropriable → A firm must be able to extract value from its resources.
- Barney: Competitive advantage requires Organization → A firm must be structured to capture value effectively.
What is the framework for appraising resources and capabilities?
The framework for appraising resources and capabilities evaluates resources based on strategic importance and relative strength.
It categorizes resources into four quadrants:
-
Key Strengths (High Importance, High Strength)
Critical competitive advantages for the firm. -
Superfluous Strengths (Low Importance, High Strength)
Areas where the firm is strong but not strategically critical. -
Key Weaknesses (High Importance, Low Strength)
Urgent improvement needed in these areas. -
Zone of Irrelevance (Low Importance, Low Strength)
Weak areas that do not impact strategy significantly.
Rationale:
- Strategic resource analysis helps companies focus on strengths and mitigate weaknesses.
- A well-defined strategy aligns resource strengths with market needs.
- Firms should invest in key resources while avoiding unnecessary investment in non-strategic areas.
How can firms build a capability?
To build a capability, firms must:
- Acquire (complementary) resources – Resources must be integrated and aligned to enhance performance.
- Build a learning organization – Firms should encourage knowledge-sharing and adaptability.
- Recognize and use dynamic capabilities – The ability to continuously adapt and reconfigure resources to respond to changes.
What are dynamic capabilities, and why are they important?
Dynamic capabilities refer to a firm’s ability to continuously adapt, modify, and reconfigure its resources and capabilities in response to changing business environments.
Why are dynamic capabilities important?
- Businesses operate in rapidly evolving markets (e.g., technology, healthcare, retail).
- Simply having strong resources is not enough; firms must be able to reconfigure and apply them to new challenges and opportunities.
- Dynamic capabilities help firms stay competitive, innovate, and respond to disruptions.
What are the three key components of dynamic capabilities (Teece, 2007)?
Sensing – Identifying new market opportunities.
- Firms scan the environment, analyze trends, and detect shifts in consumer needs or technology.
Seizing – Acting on opportunities by investing in the right resources.
- Once an opportunity is identified, the firm must allocate resources, develop new products, or pivot strategically.
Reconfiguring – Continuously adjusting resources and business models.
- Firms reshape their capabilities, restructure operations, and innovate to sustain a competitive edge.
Examples of Dynamic Capabilities:
- Toyota – Uses product development routines to integrate new knowledge.
- IDEO – Brokers knowledge from past projects to enhance innovation.
- Biotech Firms – Form strategic alliances to access external expertise.
