Resource-Based View

1. Resource-Based View

2. IO vs. RBV

3. Business Level Strategy • How do we support the corporate strategy? • How do we compete in a specific business arena? • Three types of business level strategies: • Low cost producer • Differentiator • Focus • Four areas of focus, objectives of business-level strategy • Generate sustainable competitive advantages • Develop and nurture (potentially) valuable capabilities • Respond to environmental changes • Approval of functional level strategies

4. Business-Level Strategy • The primary objective of business-level strategy is to create “sources of sustainable competitive advantage”. • What is sustainable competitive advantage? • There are many definitions, used by different people in different ways. • What follows is a practical description. But first, we need to back up a bit…

5. Sustainable Competitive Advantage • An asset is anything the firm owns or controls. • Loosely, “Asset” is to Accounting as “Resource” is to Management. • Types of assets: • Physical: plant equipment, location, access to raw materials • Human: training, experience, judgment, decision-making skills, intelligence, relationships, knowledge • Organizational: Culture, formal reporting structures, control systems, coordinating systems, informal relationships

6. Sustainable Competitive Advantage • A capability is usually considered a “bundle” of assets or resources to perform a business process (which is composed of individual activities) • E.g. The product development process involves conceptualization, product design, pilot testing, new product launch in production, process debugging, etc. • All firms have capabilities. However, a firm will usually focus on certain capabilities consistent with its strategy. • For example, a firm pursuing a differentiation strategy would focus on new product development. A firm focusing on a low cost strategy would focus on improving manufacturing process efficiency. • The firm’s most important capabilities are called competencies.

7. Competencies vs. Core Competencies vs. Distinctive Competencies • A competency is an internal capability that a company performs better than other internal capabilities. • A core competency is a well-performed internal capability that is central,not peripheral, to a company’s strategy, competitiveness, and profitability. • A distinctive competence is a competitively valuable capability that a company performs better than its rivals.

8. Examples: Distinctive Competencies • Toyota, Honda, Nissan • Low-cost, high-quality manufacturing capability and short design-to-market cycles • Intel • Ability to design and manufacture ever more powerful microprocessors for PCs • Motorola • Defect-free manufacture (six-sigma quality) of cell phones

9. Where are we? • We are discussing sustainable competitive advantage, and have defined Competencies: • AssetsCapabilitiesCompetenciesCompetitive Advantage • Next is competitive advantage. • A competitive advantage is simply an advantage you have over your competitors. • A competency will produce competitive advantage provided: A) it produces value for the organization, and B) it does this in a way that cannot easily be pursued by competitors.

10. Sustainable Competitive Advantage • However, we said the primary objective of business-level strategy was to create sources of sustainable competitive advantage (SCA). • How do we know SCA when we see it? What is it? When is it considered “sustainable”? • To produce SCA, the capability must: • Produce value • Be rare • Imperfectly imitable, i.e. not be easily imitated or substituted • Be exploitable by the organization

11. Sustainable Competitive Advantage • The Question of Value: • Capabilities are valuable when they enable a firm to conceive of or implement strategies that improve efficiency and effectiveness. • Value is dependent on type of strategy: • Low cost strategy: lower costs (Timex) • Differentiator: add enhancing features (Rolex) • To be valuable, the capability must either • Increase efficiency (outputs / inputs) • Information system reduces customer service agents required, or increases the number of calls the same number of agents can answer • Increase effectiveness (enable some new capability not previously held) • Opening a new regional campus enables outreach to a new market of students

12. Sustainable Competitive Advantage • The Question of Rareness: • Valuable resources or capabilities that are shared by large numbers of firms in an industry are therefore not rare, and cannot be a source of SCA. • Given the following, which are rare? • A web server • An MIS instructor • A state-of-the-art stamping press • None of these are rare. Some researchers think only organizational assets or resources are rare (such as culture). What do you think?

13. Sustainable Competitive Advantage • The Question of Imitability • Valuable, rare resources can only be sources of SCA if firms that do not possess them cannot obtain them. They must be “imperfectly imitable”, i.e. impossible to perfectly imitate them. • Ways imitation can be avoided: • Unique Historical Conditions (Caterpillar, e.g.) • Causal Ambiguity (why resources create SCA is not understood, even by the firm owning them) • Imitating firms cannot duplicate the strategy since they do not understand why it is successful in the first place. • Social Complexity (trust, teamwork, informal relationships, causal ambiguity where cause of effectiveness is uncertain) • E.g. A competitor steals all the scientists in an R&D lab and relocates them to a new facility. But, the “dynamics”, “culture” and “atmosphere” are not the same.

14. Sustainable Competitive Advantage • The Question of Substitutability • There must be no equivalent resources that can be exploited to implement the same strategies. • Forms of substitutability: • Duplication: Although no two management teams are the same, they can be strategically equivalent, produce the same results. • Substitution: Very different resources can be substitutes, e.g. • A charismatic leader with a clear vision vs. a strategic planning dept. • A superior marketing strategy for a recognized brand name. • A superior technical support group for an intelligent diagnostic software package

15. Sustainable Competitive Advantage • The Question of Exploitation: • Later research qualified this as another critieria for SCA. Is a firm organized to exploit the full competitive potential of its resources and capabilities? • Are systems in place to enable firms to support the execution of a particular strategy? • Xerox, e.g

16. Notes on “Sustainable” • Sustainable is not measured in calendar time. • Sustainable does not mean the advantage will last forever. • Sustainable suggests the advantage lasts long enough that competitors stop trying to duplicate the strategy that makes the advantage sustained.

17. Economic Performance