3

3
Resources
hapter
cchapter

and Capabilities

Part I: Foundations of Global Strategy

Global
Global Strategy
Strategic Management
Mike W. Peng
Mike W. Peng
Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community College
All rights reserved.
 Outline
• Understanding resources and capabilities
• Resources, capabilities, and the value chain
• The VRIO framework
• Debates and extensions
• The savvy strategist

Copyright © 2009 Cengage. All rights reserved. 3–2

 Understanding Resources and
Capabilities
• Tangible • Intangible
 Resources and  Resources and
capabilities that are capabilities not easily
observable and easily observed or difficult (or
quantified impossible) to quantify
 Broadly organized in  Examples include:
four categories:  Human
 Financial  Innovation
 Physical  Reputational
 Technological
 Organizational

Copyright © 2009 Cengage. All rights reserved. 3–3

 Examples of Resources and Capabilities
TANGIBLE RESOURCES AND CAPABILITIES EXAMPLES
Financial  Ability to generate internal funds
 Ability to raise external capital
Physical  Location of plants, offices, and equipment
 Access to raw materials and distribution channels
Technological  Possession of patents, trademarks, and copyrights

Organizational  Formal planning, command, and control systems

 Integrated management information systems

INTANGIBLE RESOURCES AND CAPABILITIES EXAMPLES

Human  Knowledge
 Trust
 Managerial talents
 Organizational culture

Innovation  A supportive atmosphere for new ideas

 Research and development capabilities
 Capacities for organizational innovation and change

Reputational  Perceptions of product quality, durability, and reliability among

customers
 Reputation as a good employer
 Reputation as a socially responsible corporate citizen

Sources: Adapted from (1) J. Barney, 1991, Firm resources and sustained competitive advantage (p. 101), Journal of
Management, 17: 101; (2) R. Grant, 1991, Contemporary Strategy Analysis (pp. 100–104), Cambridge, UK: Blackwell; (3) R.
Hall, 1992, The strategic analysis of intangible resources (pp. 136–139), Strategic Management Journal, 13: 135–144. Table 3.1
Copyright © 2009 Cengage. All rights reserved. 3–4
 Resources, Capabilities,
and the Value Chain
• Value Chain
 The functional activities within the firm that create
value in the goods and services produced
• Components of the Value Chain
 Primary activities
 Are directly associated with the development,
production, and distribution of goods and services
 Support activities
 Assist in the accomplishment of primary activities

Copyright © 2009 Cengage. All rights reserved. 3–5

 The Value Chain

Panel A. An example of value chain with firm boundaries

Figure 3.1
Copyright © 2009 Cengage. All rights reserved. 3–6
 The Value Chain (cont’d)

Panel B. An example of value chain with some outsourcing

Figure 3.1 cont’d
Copyright © 2009 Cengage. All rights reserved. 3–7
 A Two-Stage Decision Model in Value Chain Analysis

Figure 3.2
Copyright © 2009 Cengage. All rights reserved. 3–8
 The VRIO Framework:
Features of a Resource or Capability

COSTLY TO EXPLOITED BY
IMITATE? ORGANIZATION
VALUABLE? RARE? COMPETITIVE IMPLICATIONS FIRM PERFORMANCE

No No Competitive disadvantage Below average

Yes No Yes Competitive parity Average

Yes Yes No Yes Temporary competitive advantage Above average

Yes Yes Yes Yes Sustained competitive advantage Consistently above average

Sources: Adapted from (1) J. Barney, 2002, Gaining and Sustaining Competitive
Advantage, 2nd ed. (p. 173), Upper Saddle River, NJ: Prentice Hall; (2) R.
Hoskisson, M. Hitt, & R. D. Ireland, 2004, Competing for Advantage (p. 118),
Cincinnati: Thomson South-Western. Table 3.2
Copyright © 2009 Cengage. All rights reserved. 3–9
 The VRIO Framework: Value and Rarity
• Four fundamental questions of VRIO
 Value: do the resources and capabilities add value?
 Necessary for a competitive advantage
 Rarity: how rare are the valuable resources and
capabilities?
 Valuable, but common parity, not advantage
 Valuable and rare can lead to temporary
advantage
 If everyone has it, you can’t make money from it

Copyright © 2009 Cengage. All rights reserved. 3–10

 The VRIO Framework: Imitability
• Easier to imitate tangible resources/capabilities than
tangible ones
• Two ways to imitate - direct duplication and substitution
 Direct duplication - most difficult
 Substitution - less challenging, but not easy

• Why is imitation so difficult?

 Hard to acquire in a short time what competitors have
developed over a long time
 Events earlier in time affect future events
 Difficult to identify causal determinants of performance

Copyright © 2009 Cengage. All rights reserved. 3–11

 The VRIO Framework: Imitability
(cont’d)
•Valuable, rare, but imitable
resources/capabilities = temporary advantage
•Only valuable, rare and hard-to-imitate
resources/capabilities = sustained competitive
advantage

Copyright © 2009 Cengage. All rights reserved. 3–12

 The VRIO Framework: Organization
• The Question of Organization
 How is a firm organized to develop and leverage the
full potential of its resources and capabilities?
• Using complementary assets effectively
• Managing social complexity effectively
 Invisible relationships can add value - make imitation
more difficult

Copyright © 2009 Cengage. All rights reserved. 3–13

 Debates and Extensions
• Firm- versus Industry-Specific Determinants of
Performance: Both views are complementary to
each other
• Static Resources versus Dynamic Capabilities
• The resource-based view: incorporating dynamic
capabilities
 Tacit knowledge
 “Learning before doing” versus “learning by doing”
 Simple rules to guide behavior and decisions
 Develop new resources/capabilities
 Less bundled resources/capabilities

Copyright © 2009 Cengage. All rights reserved. 3–14

 Dynamic Capabilities in Slow- and Fast-Moving Industries
SLOW-MOVING INDUSTRIES FAST-MOVING (HIGH-VELOCITY) INDUSTRIES

Market environment Stable industry structure, defined boundaries, Ambiguous industry structure, blurred boundaries,
clear business models, identifiable players, fluid business models, ambiguous and shifting
linear and predictable change players, nonlinear and unpredictable change

Attributes of Complex, detailed, analytic routines that Simple, experiential routines that rely on newly
dynamic capabilities rely extensively on existing knowledge created knowledge specific to the situation
(“learning before doing”) (“learning by doing”)

Focus Leverage existing resources and capabilities Develop new resources and capabilities

Execution Linear Iterative

Organization A tightly bundled collection of resources A loosely bundled collection of resources that are
with relative stability frequently added, recombined, and dropped

Outcome Predictable Unpredictable

Strategic goal Sustainable competitive advantage A series of short-term (temporal)

(hopefully for the long term) competitive advantages

Sources: Adapted from (1) K. Eisenhardt & J. Martin, 2000, Dynamic capabilities: What are
they? Strategic Management Journal, 21: 1105–1121; (2) G. Pisano, 1994, Knowledge,
integration, and the locus of learning, Strategic Management Journal, 15: 85–100. Table 3.3
Copyright © 2009 Cengage. All rights reserved. 3–15
 The Savvy Strategist
• Developing resources/capabilities that are valuable, rare,
hard-to-imitate, and embedded in organizational
structures and systems can help firms achieve
successful performance
• Lessons from the VRIO framework
 Task for strategists - build firm strengths by identifying,
developing, and leveraging resources/capabilities
 Imitation is not likely to be a successful strategy
 Sustained competitive advantage will not last forever
 Firms should try to develop “strategic foresight”

Copyright © 2009 Cengage. All rights reserved. 3–16

 The Savvy Strategist (cont’d)
•Four fundamental questions: Resource Based
Views
 Why do firms differ? Resource heterogeneity
 How do firms behave? Take advantage of strengths
and overcome weaknesses
 What determines the scope of the firm? How a firm
performs relative to rivals
 What determines the international success and failure
of firms? Firm-specific resources/capabilities and a bit
of luck

Copyright © 2009 Cengage. All rights reserved. 3–17