Resource-Based View

IO vs. RBV
Industrial Organization (IO) Some Authors: Focus Porter, Rumelt Externaldescribes environmental conditions favoring high levels of firm performance Firms within an industry have identical strategic resources. Resources are highly mobile (easily bought and sold) and therefore homogeneous. Resource Based View (RBV) Barney, Wernerfelt Internaldescribes firms internal characteristics and performance Firms have idiosyncratic, not identical strategic resources. Resources are not perfectly mobile and therefore heterogeneous.

Assumptions:

Business Level Strategy

How do we support the corporate strategy? How do we compete in a specific business arena? Three types of business level strategies:

Low cost producer Differentiator Focus Generate sustainable competitive advantages Develop and nurture (potentially) valuable capabilities Respond to environmental changes Approval of functional level strategies

Four areas of focus, objectives of business-level strategy

Business-Level Strategy

The primary objective of business-level strategy is to create sources of sustainable competitive advantage. What is sustainable competitive advantage?

There are many definitions, used by different people in different ways. What follows is a practical description. But first, we need to back up a bit

Sustainable Competitive Advantage

An asset is anything the firm owns or controls.

Loosely, Asset is to Accounting as Resource is to Management.

Physical: plant equipment, location, access to raw materials Human: training, experience, judgment, decision-making skills, intelligence, relationships, knowledge Organizational: Culture, formal reporting structures, control systems, coordinating systems, informal relationships

Types of assets:

Sustainable Competitive Advantage

A capability is usually considered a bundle of assets or resources to perform a business process (which is composed of individual activities) E.g. The product development process involves conceptualization, product design, pilot testing, new product launch in production, process debugging, etc. All firms have capabilities. However, a firm will usually focus on certain capabilities consistent with its strategy. For example, a firm pursuing a differentiation strategy would focus on new product development. A firm focusing on a low cost strategy would focus on improving manufacturing process efficiency. The firms most important capabilities are called competencies.

Competencies vs. Core Competencies vs. Distinctive Competencies

A competency is an internal capability that a company performs better than other internal capabilities. A core competency is a well-performed internal capability that is central, not peripheral, to a companys strategy, competitiveness, and profitability. A distinctive competence is a competitively valuable capability that a company performs better than its rivals.

Examples: Distinctive Competencies

Toyota, Honda, Nissan

Low-cost, high-quality manufacturing capability and short design-to-market cycles Ability to design and manufacture ever more powerful microprocessors for PCs Defect-free manufacture (six-sigma quality) of cell phones

Intel

Motorola

Where are we?

We are discussing sustainable competitive advantage, and have defined Competencies:

AssetsCapabilitiesCompetenciesCompetitive Advantage

Next is competitive advantage.

A competitive advantage is simply an advantage you have over your competitors. A competency will produce competitive advantage provided:
A) it produces value for the organization, and B) it does this in a way that cannot easily be pursued by competitors.

Sustainable Competitive Advantage

However, we said the primary objective of business-level strategy was to create sources of sustainable competitive advantage (SCA). How do we know SCA when we see it? What is it? When is it considered sustainable? To produce SCA, the capability must:
1. Produce value 2. Be rare 3. Imperfectly imitable, i.e. not be easily imitated or substituted 4. Be exploitable by the organization

Sustainable Competitive Advantage

1. The Question of Value:

Capabilities are valuable when they enable a firm to conceive of or implement strategies that improve efficiency and effectiveness. Value is dependent on type of strategy:
Low cost strategy: lower costs (Timex) Differentiator: add enhancing features (Rolex)

To be valuable, the capability must either

Increase efficiency (outputs / inputs)

Information system reduces customer service agents required, or increases the number of calls the same number of agents can answer

Increase effectiveness (enable some new capability not previously held)

Opening a new regional campus enables outreach to a new market of students

Sustainable Competitive Advantage

2. The Question of Rareness: Valuable resources or capabilities that are shared by large numbers of firms in an industry are therefore not rare, and cannot be a source of SCA. Given the following, which are rare?

A web server An MIS instructor A state-of-the-art stamping press

None of these are rare. Some researchers think only organizational assets or resources are rare (such as culture). What do you think?

Sustainable Competitive Advantage

3. The Question of Imitability

Valuable, rare resources can only be sources of SCA if firms that do not possess them cannot obtain them. They must be imperfectly imitable, i.e. impossible to perfectly imitate them. Ways imitation can be avoided: Unique Historical Conditions (Caterpillar, e.g.) Causal Ambiguity (why resources create SCA is not understood, even by the firm owning them)

Imitating firms cannot duplicate the strategy since they do not understand why it is successful in the first place.

Social Complexity (trust, teamwork, informal relationships, causal ambiguity where cause of effectiveness is uncertain)

E.g. A competitor steals all the scientists in an R&D lab and relocates them to a new facility. But, the dynamics, culture and atmosphere are not the same.

Sustainable Competitive Advantage

4. The Question of Substitutability

There must be no equivalent resources that can be exploited to implement the same strategies. Forms of substitutability:

Duplication: Although no two management teams are the same, they can be strategically equivalent, produce the same results. Substitution: Very different resources can be substitutes, e.g.

A charismatic leader with a clear vision vs. a strategic planning dept. A superior marketing strategy for a recognized brand name. A superior technical support group for an intelligent diagnostic software package

Sustainable Competitive Advantage

5. The Question of Exploitation: Later research qualified this as another critieria for SCA. Is a firm organized to exploit the full competitive potential of its resources and capabilities? Are systems in place to enable firms to support the execution of a particular strategy?

Xerox, e.g

Notes on Sustainable

Sustainable is not measured in calendar time. Sustainable does not mean the advantage will last forever. Sustainable suggests the advantage lasts long enough that competitors stop trying to duplicate the strategy that makes the advantage sustained.

Economic Performance
Valuable? No Rare? -Costly to Imitate? Exploited by the Organization? Competitive Implications Economic Performance Below Normal

--

--

Competitive Disadvantage
Competitive Parity Temporary Competitive Advantage Sustained Competitive Advantage

Yes

No

--

--

Normal

Yes

Yes

No

--

Above Normal

Yes

Yes

Yes

Yes

Above Normal