global strategy mike w. peng c h a p t e r 33 copyright © 2014 cengage learning. all rights...
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Global StrategyGlobal StrategyMike W. PengMike W. Peng
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Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Global StrategyGlobal StrategyMike W. PengMike W. Peng
Chapter 3
Leveraging Resources and
Capabilities
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Outline
• Understanding resources and capabilities
• Resources, capabilities, and the value chain
• The VRIO framework
• Debates and extensions
• The savvy strategist
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Understanding Resources and Capabilities
• TangibleResources and
capabilities that are observable and easily quantified
Broadly organized in three categories:FinancialPhysical Technological
• IntangibleResources and
capabilities not easily observed or difficult (or impossible) to quantify
Examples include:Human Innovation Reputation
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3–4
Competing on Resources
• Focus of the industry-based view:
How “average” firms within an industry compete.
• Focus of the resource-based view:
How individual firms differ from each other within an industry and can outperform the industry average consistently and significantly.
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SWOT ANALYSIS
Strengths and Weaknesses – internal assessment of the organization leading to management decisions.
Opportunities and Threats – external assessment of the business environment to identify the uncontrollable events that might impact management decisions.
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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
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The Value Chain
Figure 3.1
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In-House versus OutsourceOUTSOURCING: Turning over all or part of an
organizational activity to an outside supplier which will perform it on behalf of the focal firm.
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3–10
The VRIO Framework
• VRIOAn analysis of the “sticky” nature of resources
and capabilities of a firm and the difficulty of their replication elsewhere.
• Two Key Assumptions:Resource heterogeneity
Each firm has a unique combination of resources and capabilities such that no two firms are “twins.”
Resource immobilityResources and capabilities unique to one firm
cannot easily migrate to competing firms.
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© M. W. Peng (www.mikepeng.com)
VRIO FRAMEWORK(additional case study: Enhancing
VRIO @ Burberry)
Are they rare?
Do resources or capabilities add value?
How imitable are certain resources and capabilities?
How is the firm organized to deliver superb performance?
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The VRIO Framework: Is 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: South-Western Cengage Learning..
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
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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
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The VRIO Framework: Imitability
• Easier to imitate tangible resources/capabilities than tangible ones
•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
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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
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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 effectively Invisible relationships can add value - make
imitation more difficult
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Strategic Sweet Spot
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Figure 3.5
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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 decisionsDevelop new resources/capabilitiesLess bundled resources/capabilities
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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
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Offshoring vs. Non-Offshoring
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• Offshoring (international outsourcing) is an increasing movement
• Outsourcing of high-end services such as IT and BPO is controversial because of the relatively recent rise of the internet—Long-term benefits are still unknown
• Proponents argue that outsourcing saves firms enormous costs and allows them to focus more on their core business
• Critics argue on 3 points Strategic: If everything is outsourced, what is left for the
US firm? Economic: Do developed economies actually gain? Political: Are we both exploiting cheap labor as well as
willingly putting our own security at risk?
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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”
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The Savvy Strategist (cont’d)
•Four fundamental questions: Resource Based ViewsWhy do firms differ? Resource heterogeneityHow do firms behave? Take advantage of
strengths and overcome weaknessesWhat determines the scope of the firm? How a
firm performs relative to rivalsWhat determines the international success and
failure of firms? Firm-specific resources/capabilities and a bit of luck