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Global StrategyGlobal StrategyMike W. PengMike W. Peng
c h a p t
c h a p t
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c h a p t
c h a p t
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Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community CollegeAll rights reserved. Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community CollegeAll rights reserved.
Leveraging Resources
and Capabilities
Leveraging Resources
and CapabilitiesPart I: Foundations of Global Strategy
Global StrategyGlobal StrategyMike W. PengMike W. Peng
chapter
chapter
33
Copyright © 2009 Cengage. All rights reserved. 3–2
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. 3–3
Understanding Resources and Capabilities
• TangibleResources and capabilities that are observable and easily quantified
Broadly organized in four categories:FinancialPhysical TechnologicalOrganizational
• IntangibleResources and capabilities not easily observed or difficult (or impossible) to quantify
Examples include:Human Innovation Reputational
Copyright © 2009 Cengage. All rights reserved. 3–4
Examples of Resources and Capabilities
Table 3.1
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.
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
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
EXAMPLES
Copyright © 2009 Cengage. All rights reserved. 3–5
Resources, Capabilities, and the Value Chain
• Value ChainThe functional activities within the firm that create value in the goods and services produced
• Components of the Value ChainPrimary activities
Are directly associated with the development, production, and distribution of goods and services
Support activitiesAssist in the accomplishment of primary activities
Copyright © 2009 Cengage. All rights reserved. 3–6
The Value Chain
Figure 3.1
Panel A. An example of value chain with firm boundaries
Copyright © 2009 Cengage. All rights reserved. 3–7
The Value Chain (cont’d)
Figure 3.1 cont’dPanel B. An example of value chain with some outsourcing
Copyright © 2009 Cengage. All rights reserved. 3–8
A Two-Stage Decision Model in Value Chain Analysis
Figure 3.2
Copyright © 2009 Cengage. All rights reserved. 3–9
The VRIO Framework: Features of a Resource or Capability
Table 3.2
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.
VALUABLE? RARE?
COSTLY TO IMITATE?
EXPLOITED BYORGANIZATION
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
Copyright © 2009 Cengage. All rights reserved. 3–10
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. 3–11
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. 3–12
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. 3–13
The VRIO Framework: Organization
• The Question of OrganizationHow is a firm organized to develop and leverage the full potential of its resources and capabilities?
• Using complementary assets effectively
• Managing social complexity effectivelyInvisible relationships can add value - make imitation more difficult
Copyright © 2009 Cengage. All rights reserved. 3–14
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
capabilitiesTacit knowledge“Learning before doing” versus “learning by doing”
Simple rules to guide behavior and decisions
Develop new resources/capabilitiesLess bundled resources/capabilities
Copyright © 2009 Cengage. All rights reserved. 3–15
Dynamic Capabilities in Slow- and Fast-Moving Industries
Table 3.3
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.
SLOW-MOVING INDUSTRIES FAST-MOVING (HIGH-VELOCITY) INDUSTRIES
Market environment Stable industry structure, defined boundaries,clear business models, identifiable players,linear and predictable change
Ambiguous industry structure, blurred boundaries,fluid business models, ambiguous and shiftingplayers, nonlinear and unpredictable change
Attributes ofdynamic capabilities
Complex, detailed, analytic routines that rely extensively on existing knowledge(“learning before doing”)
Simple, experiential routines that rely on newlycreated knowledge specific to the situation(“learning by doing”)
Focus Leverage existing resources and capabilities Develop new resources and capabilities
Execution Linear Iterative
Organization A tightly bundled collection of resourceswith relative stability
A loosely bundled collection of resources that arefrequently added, recombined, and dropped
Outcome Predictable Unpredictable
Strategic goal Sustainable competitive advantage(hopefully for the long term)
A series of short-term (temporal)competitive advantages
Copyright © 2009 Cengage. All rights reserved. 3–16
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. 3–17
The Savvy Strategist (cont’d)
•Four fundamental questions: Resource Based ViewsWhy 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