Session 3 - Analysis of Firm\'s Resource and Capabilities PDF

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Session 3: analysis of firm’s resources and capabilities Resource based view (RBV)  Looks at the firm’s strengths and weaknesses

o Resources, capabilities and core competencies o Value added – activities o Extension to dynamic capabilities

Resources

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NOT a raw material Any productive asset that a firm can draw on in creating value

1.

1. Tangible (Visible) - Googleplex: land + futuristic buildings, daita centers, people they employ 2. Intangible (more valuable) - Location: Silicon Valley - Large computer savvy workforce (knowledge) - Reputation - Technology

Capabilities

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What you do, rather than what you have Organizational and managerial skills that find their expression in a company’s structure, routines and culture

Session 3: analysis of firm’s resources and capabilities o Google’s Capabilities:   

Human Resource Management Innovation (people and management) Analytics Ability

Core competencies

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Definition: Particularly unique and valuable bundles of resources and capabilities that are embedded deep within the firm, and that allow the firm to differentiate it products and services in terms of higher quality or lower price (or both) Combination of valuable resources and capabilities What you are good at and what gives you competitive advantage Not all resources and capabilities can be classified as core competencies Some companies only have one core competency

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Core competencies result in: o Creating higher value for customers (VC = V – C) o Offering products and services at lower costs (VC = V – C)

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Examples: o IKEA – superior in designing modern functional home furnishings at low costs o Beats Electronics – superior in marketing (creating perception of coolness) o Facebook & Google – superior algorithms to offer targeted online ads o Google – superior ability to retain their customers (manage r/s) o Honda – superior engine engineers o Disney – bringing fun to families o McDonalds – bringing convenience to consumers (first in the market to do so) o H&M: Designer clothing at a fraction of the cost o eBay: creating a marketplace that is easy to use o Mercedes: Design and innovation

Value added activities (Value chain)

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Session 3: analysis of firm’s resources and capabilities Definition: value chain is the set of internal activities a firm engages in when transforming inputs into outputs Each activity adds incremental value to the product or service and can happen directly or indirectly o Primary activities add value directly – transform inputs into outputs as the firm moves horizontally along the value chain o Support activities add value indirectly – they run parallel to the internal value chain and are necessary to sustain the primary activities

VRIO resource appraisal tool Definition: allows us to identify if those specific bundles of resources and capabilities can lead to SUSTAINABLE COMPETITIVE ADVANTAGE

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Need to have a combination of all four factors to have sustainable competitive advantage Every company has a timeline of what is considered sustainable to them – may be 10 years or 100 years

Valuable Core -

competency is valuable if: It enables the firm to exploit an external opportunity It enables the firm to offset an environmental threat It enables the firm to increase its value creation o Increasing differentiation or lowering the cost of the product Example – Beats electronics:  Design and marketing of premium headphones  Production costs = $15, retail price = $150 - $450

rare Core competency is rare if: - Only one of just very few firms possess it - Must be high in demand, and the firm must be able to appropriate it - Resource is scare Example – Beats electronics:

Session 3: analysis of firm’s resources and capabilities  

Superior product marketing Vast celebrity endorsements

Costly to imitate Core competency is costly to imitate if: - Firms that currently do not possess it are unable to develop it internally - Or they are unable to acquire it for a reasonable price Example – Beats electronics:  Dr Dre relies on gut instinct in making decisions rather than on marketing research  The social capital of De Dre and Jimmy Iovine might be impossible to replicate by other companies Imitation can happen either: - Directly – when the firm has difficulty protecting its advantage (e.g. crocs) - Through substitution – when another resource or capability is strategically equivalent and can be used in place of that original product (e.g. Amazon to replace retailers) - Both ways – as a combination of copying and substitution (E.g. Samsung galaxy) Isolating mechanism provide protection against resource imitation: - Ambiguous expectations of future resource value - ?? - Learning and path dependence – the resource took a while to learn and acquire - Causal ambiguity – other companies cannot identify the particular resources needed in getting the competitive advantage - Organizational and social complexity – based on the company’s culture and r/s which is hard to replicate (e.g. google) - Intellectual property – they have patents therefore cannot replicate

Organized to capture value Firm is organized to capture the value if: - Has an effective organizational structure to use the resource/capability - Has coordinating systems in place to control the use of core competency o Management systems, processes, policies, organizational structure Example – Xerox Parc:  Developed the first word processor with a graphical user interface, the Ethernet and the mouse  Innovations did not fit with Xerox’s focus as they were pursuing other interests in photocopying business  The firm was not organized enough to capture the competitive advantage they could have had from the innovation of new technology – eventually apple managed to do it but Xerox Parc was the first one to invent it

Invest/hone and upgrade  Because the business environment changes all the time resources and capabilities must be constantly adjusted. Therefore, business needs to be in a position to:

o Create o Deploy

Session 3: analysis of firm’s resources and capabilities o Modify and reconfigure o Upgrade o Leverage its resources advantage

and capabilities over time to sustain competitive

Session 3: analysis of firm’s resources and capabilities Strategic swot analysis

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Turn threats into opportunities and weaknesses into strengths

Case study – Walmart 1. Where

does Walmart’s industry or firm?

Competitive

advantage

come

from?

–

Use porter’s five forces to test industry attractiveness - Competitive Rivalry  Mod o Companies like Walmart, Target, Kmart and Costco are the biggest players in the industry o But still not as many as it can be - Threat of substitutes  Low o Door to door sales o Local shops o Growing your own food o However, not very feasible and the discount retailing industry offers everything under one roof which increases convenience - Threat of new entrants  Low o High cost of investments and the barrier to enter is rather high o Companies like wholefoods might enter but might dilute their brand - Bargaining power of buyers  Mod o They cannot backward integrate into the market o Many buyers, buying small products; therefore, one customers switching would not make much of a difference o Highly standardized products may allow customers to switch easily though making the bargaining power moderate o Price of competitors is also freely available - Bargaining power of suppliers  Mod o Limited number of suppliers industry can choose from (p&g, unilever, GE) o Suppliers rely on the revenue from this industry to make money o Suppliers do not have differentiated products therefore are at the mercy of the industry

Session 3: analysis of firm’s resources and capabilities o

Hard to forward integrate too

1. Where does Walmart’s industry or firm? Resources: - infrastructure - leader managers - labor force - relationships with suppliers - technology/IT - culture - reputation/Brand - network - Sam Walton - Capital

Competitive

advantage

come

from?

–

Capabilities: - Analytics - Marketing - Inventory management - SRM/HRM - Innovation - Forecasting - Investing - Pricing

Core competency: EVERYDAY LOW PRICES

2. Is their competitive advantage sustainable? -

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Valuable: Yes o Definitely brings value to customers as they are always looking for low prices Rare: Yes o Not many firms have this and Walmart’s prices are the lowest in the industry already o Would take years for another company to do this and still be profitable Costly: Yes o yes, may not be even able to replicate fully o will spend a lot of time doing it and time is money Organized: Yes o Company has many distributions centers and inventory management system therefore they are definitely organized to capture the value that their core competency brings in Therefore, there is sustainable competitive advantage...