Earning sustainable supra-normal returns by superior resources. Explanation of Resource Based View (Perspective) of Barney.

('91) Economic theory holds that in the normal course, and in the absence of market imperfections, abnormal economic rents will get competed away by rivals or new entrants to an industry. The Resource Based View holds that firms can earn sustainable supra-normal returns if and only if they have superior resources and those resources are protected by some form of isolating mechanism preventing their diffusion throughout industry. Early adopters of the Resource Based View Edith Penrose contributed to the RBV field as early as 1959, when she argued: "a firm is more than an administrative unit; it is also a collection of productive resources the disposal of which between different users and over time is determined by administrative decision. When we regard the function of the private business firm from this point of view, the size of the firm is best gauged by some measure of the productive resources it employs". And Birger Wernerfelt coined the term in 1984. Jay Barney's Resource Based View of the Firm However most scholars consider Jay Barney as the father of the modern Resource-Based View of the Firm (RBV). His theory ('91) suggests that there can be heterogeneity or firm-level differences among firms that allow some of them to sustain competitive advantage. Therefore, the RBV emphasizes strategic choice, charging the

management of the firm with the important tasks of identifying, developing and deploying key resources to maximize returns. Barney (1991: "Firm resources and sustained competitive advantage") made clear that abnormal rents can be earned from resources to the extent that they are VRIN: Valuable (when they enable a firm to conceive or implement strategies that improve its efficiency or effectiveness) Rare (valuable firm resources possessed by large numbers of competing firms cannot be sources of either a competitive advantage or a sustainable competitive advantage) Imperfectly Imitable (because of {a combination of} three reasons: unique historical conditions, causally ambiguous, social complex) Non-Substitutable (there must not be strategically equivalent valuable resources that are themselves either not rare or imitable) Other strategists on the Resource Based view of the firm Differences may occur in the form of resources such as patents, properties, proprietary technologies, or relationships. Most scholars claim that it is only/mainly intangible resources that explain performance heterogeneity among firms and thus are the likely sources of competitive advantage. (Galbreath and Galvin recently discovered that while RBV theory largely associates firm performance with intangible resources, the association may not always hold true empirically. One explanation may be that the strength of some resources are dependent upon interactions or combinations with other resources and therefore no single resource - intangible or otherwise becomes the most important to firm performance. (Academy of Management Best conference Paper 2004 BPS: L6)) 'VRIN resources' are tough to find. This becomes especially clear when we look at the work done on strategies sometimes characterized as 'economizing' (Porter, 1996). These include reengineering,

enterprise systems, benchmarking, downsizing, and other similar approaches of efficiency. Unfortunately, such techniques are available to all competitors in an industry. They merely raise the bar for everyone, usually in a transparent way, and do not produce long-term competitive advantage. There is a dilemma in attainable resources not being sustainable. Clearly valuable resources that sustain advantage must be hard or impossible to imitate -and therefore not available to those who do not already have them. Imitable resources, on the other hand, can be attained by their aspirants. But as soon as they show clear promise, they risk being competed away: their strength becomes their weakness. Thus attainable resources are not sustainable. Recent developments on the Resource Based View More recently, the dynamic capability perspective has extended the Resource Based View to the realm of evolving capabilities. By developing capabilities based on sequences of path-dependent learning, a firm can stay ahead of its imitators and continue to earn superior returns (Dierickx and Cool, 1991; Teece et al., 1997). There is nothing to say, however, that most firms have the capacity to place themselves on a learning curve that would prevent rivals from leapfrogging them. To do so they would have to pick an optimal capability development trajectory that is (a) strictly path dependent to sustain first mover advantage, and (b) nonsubstitutable with an equally efficient trajectory. Bounded rationality conditions might obstruct the first aim, conditions of equifinality the second. Again the goal of inimitability is highly demanding, and asks the question of how to achieve it with assets, resources, or capabilities the firm does not already have. Thus notwithstanding major advances in the field of strategy, practitioners are left with a dilemma: how to develop sustainable advantage that they do not possess, but is nonetheless attainable. A study by Danny Miller of a number of firms shows how some of them were able to build not so much on resources and capabilities as

on asymmetries. Asymmetries are typically skills, processes, or assets a firm's competitors do not and cannot copy at a cost that affords economic rents. They are rare, hard or impossible to imitate and nonsubstitutable, although not connected to any engine of value creation, and, in fact, often act as liabilities. By discovering and reconceptualizing these asymmetries, embedding them within a complementary organizational design, and leveraging them across appropriate market opportunities, many firms were able to turn asymmetries into sustainable capabilities. Definition Strategic Agility. Description. Strategic Agility is a company's ability or capacity to continuously adjust and adapt its strategic direction by identifying and decisively seizing major, game-changing opportunities when they arise. Like other forms of agility, such as operational agility, portfolio agility and organizational agility, the underlying idea is being quick on your feet, nimble, responsive, always alert. However in the case of strategic agility the focus is on the need for flexible, fast adaptive strategy formation. A major challenge with achieving strategic agility is to balance this ability to respond and adapt quickly to changing market conditions with having a relatively stable direction (strategic vision) and key corporate resources. Typical examples of this type of organizational agility are:
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Rapidly establishing and scaling up a new business (Compare: Business Incubator). Aggressively entering a new market (Compare: First-mover Advantage, Time to Market). Betting heavily on new technologies. Making significant investments in capacity. Specific organizational capabilities to be strategically agile include (Donald Sull in HBR, February 2009):

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Strong capability to finance big bets. Flexible governance structure. Long-term perspective by shareholders and executives. Other organizational capabilities to be a strategically fast company are (Jocelyn R. Davis ad Tom Atkinson in HBR, May 2010):

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Treat personal objectives and concerns as critical inputs. Have a FAIR process that allows for needed UNEQUAL resource allocation. Resource Fluidity (fast and efficient resource mobilization, redeployment) Some resources are more fluid (money, brand) than others (key people, fixed inputs, special relationships with clients). Challenge is cognitive and political rather than procedural or financial. Generative growth (on the edges) is key. Maximize knowledge sharing with outside parties (Compare: Co-Creation). Experiment. Management Depoliticization Most top teams are, for natural reasons, collections of independent individuals with strong opinions rather than inspiring and innovative teams. Teams need to be organized for mutual interdependencies, with incentives to match. Cognitive diversity is a key precondition to high-quality internal dialogs (Compare: Cross-Functional Team) Use young rising leaders as a shadow management team focused on the future. Have an OPEN strategy process. Leaders must learn to ASK and ADAPT rather than to DECIDE and TELL.

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Align senior leaders to strategic initiatives. Innovation teams capture and communicate lessons learned. Develop the ability to explore new technologies rather than improve quality or lower costs. In their book 'Fast Strategy: How strategic agility will help you stay ahead of the game' (2008), Yvez Doz and Mikko Kosonen formulate 4 Key Enabling Capabilities for Strategic Agility:

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Strategic Sensitivity (seeing and framing opportunities and threats in a new way, in time) Casting a wide net. Multiple levels of analysis. Including understanding of one's creeping and binding "lock ins". Collective Commitment (collective decision-making and commitment) Keep the top level meetings focused on strategy. Create culture of holistic accountability instead of silos. Make time for full information sharing and interaction.

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Emotional Intelligence (Goleman) Non-cognitive aspects of intelligence. Explanation of Emotional Intelligence. Robert Thorndike ['37], David Wechsler ['40], Howard Gardner ['83], Salovey & Mayer ['90], Daniel Goleman. ['95] Emotional Intelligence history When psychologists began to write and think about intelligence, they initially focused on cognitive aspects, such as memory and problemsolving. However, some researchers recognized the importance of noncognitive aspects early on: Robert Thorndike was writing about social intelligence in 1937, David Wechsler defined intelligence as the aggregate or global capacity of the individual to act purposefully, to think rationally, and to deal effectively with his environment (Wechsler, 1958, p. 7). Already in 1940 Wechsler referred to non-intellective as well as intellective elements (Wechsler, 1940), by which he meant affective, personal, and social factors. Furthermore, already in 1943 Wechsler was proposing that the non-intellective abilities are essential for predicting ones ability to succeed in life. Howard Gardner began to write about multiple intelligence in 1983. He proposed that intrapersonal and interpersonal intelligences and the type of intelligence (typically measured by IQ and related tests) are equally important. Salovey and Mayer actually coined the term emotional intelligence in 1990. They described emotional intelligence as "a form of social intelligence that involves the ability to monitor own and others feelings and emotions, to discriminate among them, and to use this information to guide ones thinking and action" (Salovey & Mayer, 1990). Salovey and Mayer also initiated a research program intended to develop valid measures of emotional intelligence and to explore its significance.

In doing the research for his first book, Daniel Goleman became aware of Salovey and Mayers work in the early 1990s. Being trained as a psychologist at Harvard, where he worked with David McClelland, Goleman wrote the popular bestseller "Emotional Intelligence" (1995), in which he offered the first ' proof' that emotional and social factors are important.

Five Domains of Emotional Intelligence Goleman in 1995 agrees with Salovey's Five Main Domains of Emotional Intelligence (p. 43) Knowing one's emotions. Self-awareness, recognizing a feeling while it happens. Managing emotions. The ability of handling feelings so they are appropriate. Motivating oneself. Marshalling emotions in the service of a goal. Recognizing emotions in others. Empathy, social awareness. Handling relationships. Skill in managing emotions in others. Four domains of Emotional Intelligence More recently, Goleman favors only Four Domains of EI. The 4 domains have 19 categories, as described in his 2002-book "Primal Leadership". 2 extra categories were added by the Hay Group: Self-awareness (Emotional Self-Awareness. Accurate SelfAssessment and Self Confidence) Self-management (Emotional Self-Control. Transparency (Trustworthiness). Adaptability. Achievement Orientation. Initiative. Optimism. Conscientiousness)

Social awareness (Empathy. Organizational Awareness. Service Orientation) Relationship management (Inspirational Leadership. Influence. Developing Others. Change Catalyst. Conflict Management. Building Bonds. Teamwork and Collaboration. Communication) An important thing to understand is that - according to Goleman these EI competencies are not innate talents. They are learned abilities.

IQ and some aspects of EI. The stereotypes (pure types) are: (Pure) High-IQ male. He is typified - no surprise - by a wide range of intellectual interest and abilities. He is ambitious and productive. Predictable and dogged. And untroubled by concerns about himself. He also tends to be critical and condescending. Fastidious and inhibited. Uneasy with sexuality and sensual experience. Unexpressive and detached. And emotionally bland and cold. (Pure) High-EI male. He is socially poised. Outgoing and cheerful. Not prone to fearfulness or worried rumination. He has a notable capacity for commitment to people or causes, for taking responsibility, and for having an ethical outlook. He is sympathetic and caring in his relationships. His emotional life is rich, but appropriate. He is comfortable with himself, others, and the social universe he lives in. (Pure) High-IQ female. She has the expected intellectual confidence. Is fluent in expressing her thoughts. Values intellectual matters. And has a wide range of intellectual and aesthetic interests. She tends to be introspective. Prone to anxiety, rumination, and guilt. And hesitates to express her anger openly. (Pure) High-EI female. She tend to be assertive and expresses her feelings directly. And feels positive about herself. Life holds meaning for her. She is outgoing and gregarious. And expresses her feelings appropriately. She adapts well to stress. Her social poise lets her easily reach out to new people. She is comfortable enough with herself to be playful, spontaneous, and open to sensual experience. She rarely feels guilty, or sinks into rumination. Assessing and measuring Emotional Intelligence Instruments used for measuring Emotional Intelligence EQ-I (Bar-On, 1997): a self-report instrument to assess those personal qualities that enabled some people to possess better emotional well-being than others.

IQ or EI? According to some scientists, IQ by itself is not a very good predictor of job performance. Hunter and Hunter (1984) estimated that at best IQ accounts for about 25 percent of the variance. Sternberg (1996) has pointed out that studies vary and that 10 percent may be a more realistic estimate. In some studies, IQ accounts for as little as 4 percent of the variance. In a recent meta-analysis examining the correlation and predictive validity of EI when compared to IQ or general mental ability, Van Rooy and Viswesvaran (2004) found IQ to be a better predictor of work and academic performance than EI. However, when it comes to the question of whether a person will become a "star performer" (in the top ten percent, however such performance is appropriately assessed) within that role, or be an outstanding leader, IQ may be a less powerful predictor than emotional intelligence (Goleman 1998, 2001, 2002).

IQ and EI: pure types According to Goleman, IQ and EI should not be regarded as competencies with an opposite direction. They are rather separate competencies. People with a high IQ but low EI (or the opposite) are, despite the stereotypes, relatively rare. There is a correlation between

Multifactor Emotional Intelligence Scale (Mayer, Caruso, & Salovey, 1998): a test of ability where the test-taker performs a series of tasks that are designed to assess the persons ability to perceive, identify, understand, and work with emotion. Emotional Competence Inventory (ECI) (Goleman, 1998): a 360 degree instrument, where people evaluate the individuals within an organization (Individual Feedback Reports). Or the organization as a whole (Work Force Audits). These audits can provide an organizational profile for any size group within the company. The Emotional Competence Inventory works with the 19/21 competencies described above (See under Four Domains of EI).

Management by Exception

"Management by Exception is a management technique by which managers concentrate only on exceptional deviations instead of trying to correct each and every deviation. The advantage of the technique of management by exception is that it allows the manager to concentrate on problems that need his attention and to avoid dealing with those that can be well handled by the subordinated themselves. Advantages: 1. It allows the manager to devote more time for important issues by letting the subordinates deal with the issues of a routine nature. 2. The manager need not bother about routine matters. 3. Since the manager devotes more time for vital issues, he will be able to make better decisions. 4. The subordinates are given authority to make decisions on certain matters without any interference by the executives. 5. The management is also able to utilize the available talent at the lower levels 6. Helps to identify the responsible person."

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