2

If everyone can do it, its difficult to create and capture value from it.
or, alternatively

In In a perfectly competitive market, no firm realizes economic profits (rents).

(Industrial Organization View)

Monopoly Rents

(Resource Based View)

Ricardian Rents

Schumpeterian Rents
(Dynamic ( y Capabilities p View) )

S P S MC 1MC 2 P AC 1 q1 q2 AC 2

D Q

-Barriers to entry -Industry structure matters

-Barriers to imitation -Firm structure matters

-Markets are dynamic -Innovation matters

The Resource Based Perspective:

Premise that firm capabilities matter most Economic rents due to barriers to imitation (i.e. ) Ricardian rents) Some firms are more profitable than others
P

MC 1MC 2 AC 1 q1 q2

AC 2

MC1 MC2 AC2 P AC1 q1 q2

Cost Advantage

MC P2 P1

AC

q1 q2
Demand Advantage

CAPABILIITIES
Processes People Systems Alignment Sustainability

1. _______

2. _______

3. _______

4. _______

Supplier

Manufacture Distribution

Buyer

Firm Firm Infrastructure Infrastructure

Secondary Activities

Human Human Resource Resource Management Management Technological Technological Development Development Procurement Procurement Operations Operations Marketing Marketing & Sales Sales & Outbound Outbound Logistics Inbound Inbound Logistics Logistics Service

Primary Activities

CAPABILIITIES
Processes People Systems Alignment Sustainability

1. _______

2. _______

3. _______

4. _______

Tangible g People/ Assets

Cash Physical Plant Patents Talent

Intangible g
Brands Reputation Technical Expertise Loyalty

Systems/ Processes

Contracts/Alliances C t t /Alli IT Systems

Positive i i Culture l Talent Acquisition

CAPABILIITIES
Processes People Systems Alignment Sustainability

1. _______

2. _______

3. _______

4. _______

Internal

Alignment g

Are our processes, people, and systems aligned with

each other? Do they reinforce each other to build capability?

External

Alignment

Are capabilities aligned with the value proposition? The value in a VRIN analysis

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Operating Efficiency

Human Resource Mgmt

Performance incentives at all levels Non-unionized Fl t hierarchy, Flat hi h limited li it d status t t Participatory decision making

High Utilization

Value Proposition: Low Cost Per Ton

Rapid Expansion

Capital Efficiency Capital Resource Mgmt

Built in low cost, rural areas Acted as general contractor Design plant as built (to save time) Design plant with expansion in mind Tiger team to start plant Hired construction workers for plant

Little R&D, rely on suppliers Steady investment / upgrading Financed Fi d with ith retained t i d earnings i Kept debt to <30% Required 25% ROA within 5 years

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CAPABILIITIES
Processes People Systems Alignment Sustainability

1. _______

2. _______

3. _______

4. _______

The degree to which a competitive d t i captured t d and d sustained t i d advantage is

Imitability

Can others do what we do? Rarity and inimitability conditions of a VRIN analysis
Durability

Can we maintain our capabilities over time? Will they degrade or become obsolete?



Legal barriers present Control scarce supply Developed over unique historical path Capabilities are socially complex Value derives from tight combinations Credibly commit a firm to a course of action
Can they be used to keep others from exploiting

expanding opportunities? (scalable) Are they limited to this purpose? (specificity)

The degree to which a competitive d t i captured t d and d sustained t i d advantage is

Imitability

Can others do what we do? Rarity and inimitability conditions of a VRIN analysis
Durability

Can we maintain our capabilities over time? Will they degrade or become obsolete?

Human and physical assets tend to degrade over ti time Core capabilities may become core rigidities
success breeds complacency, risk aversion, myopia

Valuable capabilities today may be obsolete tomorrow Some assets may be more valuable to others and thus are worth selling!

CAPABILIITIES
Processes People Systems Alignment Sustainability

1. _______

2. _______

3. _______

4. _______

10

 Alternative

1: Acquired q from others

Resource markets (e.g. labor, technology, patents) Mergers & acquisitions Alliances, associations, corporate venture capital
Limitations:

Only viable if these factor markets (markets for things

that firms buy) are imperfect! Firm must have either superior information or preexisting complementary capabilities (or luck)

Value

leader

laggard

Performance

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Value

leader

laggard

Performance

Value

leader

laggard

Performance

12

 Alternative

2: Developed internally over time

New product development and internal R&D Knowledge management, training Superior leadership
Limitations: Firm

still must have either

p ( y) Superior information (know-why) Pre-existing complementary capabilities (know-how) Luck!

Capability analysis helps identify a firms value(i e strengths and weaknesses). weaknesses) creating activities (i.e., Capabilities arise through the interaction of people, processes, and systems. To provide a sustainable competitive advantage, capabilities must by well aligned internally and externally, durable, and hard to imitate. Superior capabilities are either acquired or built and required superior know-why or know-how (or luck!).

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