MANAGING STRATEGY - BUSI 1324

AGENDA

1. Introduction to the internal environment

2. Applying value chain module
3. Evaluating resources and competences (VRIO)
KEY LEARNING POINT N.2
Components of a Strategy Successful
Successful
Strategy

EFFECTIVE IMPLEMENTATION

Long-term, Profound Objective

simple and understanding of appraisal of
agreed the competitive resources
objectives environment

4
5
 Strategic Capability
The Resource-Based View of Strategy (RBV)

Definition
“…The resource-based view emphasizes the internal capabilities of the
organisation in formulating strategy to achieve a sustainable competitive
advantage.”
A Henry, pp. 126

Strategic capability is based on the resources available to the organisation and

the competencies it develops in order to make use of the resources

Chief Advocates
Hamel & Prahalad (1990); Rumelt (1991);
Barney(1991); Grant(1991).
 Porter versus Resource based view ???

The link between resources, competencies and competitive

advantage

INDUSTRY KEY
COMPETITIVE SUCCESS FACTORS
STRATEGY
ADVANTAGE
ORGANIZATIONAL
CAPABILITIES
Uniqueness!!!
RESOURCES & COMPETENCIES
TANGIBLE INTANGIBLE HUMAN

•Financial •Skills/know-how
•Technology •Capacity for
•Physical •Reputation communication &
•Culture collaboration
•Motivation
Resources and capabilities:
the key issues
 Steps in analysing internal environment

Step 1: IDENTIFYING KEY RESOURCES AND COMPETENCIES:

Tool: Value chain or Key Success Factors

Step2:DISTINGUISHING BETWEEN ORDINARY AND CORE

RESCOURCES & CAPABILITIES
Tool: competency framework/ the resources & capabilities
mapping

Step 3: APPRAISING RESOURCES AND CAPABILITIES:

Tool: VRIO

Step 4: DEVELOPING STRATEGY IMPLICATIONS

Foundations of resources and capabilities

The resources and capabilities of an

organisation contribute to its long-term survival
and potentially to competitive advantage.
• Resources are the assets that organisations have or can
call upon (e.g. from partners or suppliers), that is, ‘what
we have’.
• Capabilities (sometimes referred to as competences)
are the ways those assets are used or deployed, that is,
‘what we do well’.
Components of Strategic Capabilities
 Competency framework: Resources

THRESHOLD (ORDINARY) RESOURCES – “needed to play”

Those resources that an organisation needs to have in order to meet the
minimum requirements of its customers

For example, an airline needs more than a fleet of planes, it will also need all
the supporting structure, including landing and fly-over rights

DISTINCTIVE (CORE) RESOURCES - “needed to win”

“…those resources that critically underpin competitive advantage and that
others cannot easily imitate or obtain.”

For example, a strong brand name or reputation

 Competency framework: Capabilities

THRESHOLD (ORDINARY) CAPABILITIES “needed to play”

Those minimum capabilities an organisation requires in order to ensure that
resources are deployed efficiently enough to meet minimum customer
requirements
For example, an airline will need to ensure its operations conform to minimum
safety standards

DISTINCTIVE (CORE) CAPABILITIES - “needed to win”

“…the linked set of skills, activities and resources that, together, deliver
customer value, differentiate a business from its competitors and, potentially,
can be extended or developed .”

For example, a high level of marketing expertise

 Extension of the Resource-Based View
- the Resource-Based Perspective
• Dynamic Capabilities
 Highlight of a volatile competitive environment
 Competitive advantages come from the firm’s adaptations to changes in
the environment
 Such adaptations mean constant reconfigurations of resources and
competences
 Dynamic capabilities are embedded in the firm’s key processes and
routines

• Core Competence
 Focus on diversified firms with multiple businesses
 Highlight of critical competences among the firm’s multiple business
units
 The firm should consolidate the exploitation of resources, in order to
deploy its essential strengths
 The value chain
• The value chain describes the categories of
activities within an organisation, which, together,
create a product or service.
• The value chain consists of five primary activities
(which are directly concerned with the creation or
delivery of a product or service) and four support
activities (which help to improve the effectiveness
or efficiency of primary activities).
• Competitive advantage can be analysed in any of
these activities.
 The value chain model

Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter.
Copyright © 1985, 1998 by Michael E. Porter. All rights reserved.
What primary and support activities
represent?
 Uses of the value chain
• A generic description of activities –
understanding how the discrete activities (or clusters
of linked activities) contribute to consumer benefit .
• Identifying activities where the organisation has
particular strengths or weaknesses.
• Analysing the competitive position of the
organisation using the VRIO criteria (our next step)
– thus identifying sources of sustainable advantage.
• Looking for ways to enhance value or decrease
cost in value activities (e.g. outsourcing).
 Uses of the value system
• Understanding cost/price structures across the
value system – analysing the best area of focus and
the best business model.
• Identifying ‘profit pools’ (i.e. the levels of profit
in different parts of the system) – seeking ways to
use existing capabilities in order to exploit these.
• The ‘make or buy’ decision – which activities to
do ‘in-house’ and which to outsource.
• Partnering – deciding who to work with and the
nature of these relationships.
 VRIO
VRIO is a model which allows insight into whether
the organisation’s resources and capabilities
translate to the potential for sustained
competitive advantage

♦ The question of Value

♦ The question of Rarity
♦ The question of Imitability
♦ The question of Organisation
 The question of value

♦ Do a firm’s resources and capabilities enable the

firm to respond to environmental threats or
opportunities?
♦ Does the organisation have the capacity to deliver
what the customer values?
♦ E.g.
● Highly recognised brands
● Best locations
 The question of rarity

♦ How many competing firms already possess

particular valuable resources and capabilities?

♦ E.g.
● Patents and copyrights
● Access to the best raw materials
 The question of imitability

● Are the resources or competencies easy to

imitate which means easy to transfer or to
replicate?
● Who owns the capability and how easily
transferable is it?
● E.g.
 Easy to transfer: finance and raw materials

 Not easy to transfer: geographical

immobility of natural resources and
complementarity between resources
Criteria for the inimitability of resources
and capabilities
 The question of organisation

● Is a firm organised to exploit the full

competitive potential of its resources and
competencies?

● E.g.
 The firm is using the resources effectively
 Applying VRIO Framework

Exploitable by
Resources/ Difficult to Competitive
Valuable? Rare? the
Capabilities Imitate? implications
Organization?

Competitive
R1 No - - -
Disadvantage

Competitive
R2 Yes No - -
Parity

Temporary
C1 Yes Yes No - competitive
advantage

Sustained
C2… Yes Yes Yes Yes competitive
advantage
 Developing Strategy Implications

a) EXPLOITING KEY STRENGTHS: the key task is to

formulate our strategy to ensure that these resources
are deployed to the greatest effect.

b) MANAGING KEY WEAKNESSES: Ex: NIKE that

contracts out manufacturing and logistic..

c) WHAT ABOUT SUPERFLUOUS STRENGTHS?

lower the level of investment from these resources
and capabilities
 Internal analysis and SWOT

The Internal Analysis (through the four before-mentioned

steps) provides the basis for identifying the key Strengths
and Weaknesses of the Company and completes the
SWOT Analysis.

NB: Whereas, Strengths and Weaknesses are

INTERNAL to the organisation, Opportunities and
Threats are EXTERNAL.
 Recommended reading

• Textbook (Johnson et al. Fundamentals of Strategy,

4th edition): Chapter 4

• Grant, R. M. (1991). The resource-based theory of

competitive advantage: implications for strategy
formulation. California Management Review, 33(3),
pp.114-135.