Leveraging Capabilities Globally

1. Define resources and capabilities.

Resources are defined as “the tangible and intangible assets a firm uses to choose and implement
its strategies.” Capabilities are “a firm’s capacity to dynamically deploy resources.”

Resources are the organization's assets, knowledge and skills. Capabilities can be defined as the

organization's ability to effectively make use of its resources.

2. Explain how value is created from a firm’s resources and capabilities.

Value creation happens when a business or organization uses its work and resources
to create something of value that is sold to a customer base. In turn, the business earns a profit for
what it has created and the customers have a want or need fulfilled.

3. Articulate the difference between keeping an activity in-house and outsourcing it.

Insourcing is a business practice performed within the operational infrastructure of the

organization. Outsourcing, on the other hand, is the process of hiring an outside organization that
is not affiliated with the company to complete specific tasks.

4. Explain what a VRIO framework is. Describe at least three types of tangible and intangible
resources and capabilities.

VRIO framework is the tool used to analyse firm’s internal resources and capabilities to find out if
they can be a source of sustained competitive advantage.

Tangible Resources and Capabilities:

 Financial – ability to generate internal funds and to raise external capital.

 Organizational – Formal planning, command, and control systems; integrated
management information systems.
 Physical – Access to raw materials and distribution channels; location of plants,
offices, and equipment.
  Technological – Possession of patents, trademarks, copyrights, and trade secrets.

Intangible Resources and Capabilities

 Human – Managerial talents and organizational culture

 Innovation – Research and development capabilities; capacities for organizational
innovation and change.
 Reputational – Perceptions of product quality, durability, and reliability, reputation as a
good employer and socially responsible corporate citizen.

5. Explain the differences between primary activities and support activities in a value chain.

Primary activities are directly concerned with the creation or delivery of a product or service. The primary
activities of Michael Porter's value chain are inbound logistics, operations, outbound logistics, marketing
and sales, and service. The goal of the five sets of activities is to create value that exceeds the cost of
conducting that activity, therefore generating a higher profit.
Support activities are activities that helps make primary activities more effective. Increasing any of the four
support activities helps at least one primary activity to work more efficiently.

 Infrastructure: consists of activities such as accounting, legal, finance, control, public

relations, quality assurance and general (strategic) management.
 Technological development: pertains to the equipment, hardware, software, procedures and
technical knowledge brought to bear in the firm's transformation of inputs into outputs.
 Human resources management: consists of all activities involved in recruiting, hiring, training,
developing, compensating and (if necessary) dismissing or laying off personnel.
 Procurement: the acquisition of goods, services or works from an outside external source. In this
field company also makes decisions of purchases.

6. What is meant by “commoditization?”

A process of market competition through which unique products that command high prices and high
margins gradually lose their ability to do so, thus becoming commodities.

7. When analysing a value chain with a VRIO framework, what is the most important question to
begin with and why?
  Do firm resources and capabilities add value?
 Value chain analysis suggests that this is the most fundamental question. Only value-
adding resources can possibly lead to competitive advantage, whereas non-value-adding
capabilities may lead to competitive disadvantage.
 How rare are the valuable resources and capabilities?
 Resources and capabilities must be both valuable and rare to have the potential to provide
some temporary competitive advantage. Rarity boils down to a simple point: If everyone
has it, you can’t make money from it.
 Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain,
develop, or duplicate the resource/capability?
 Firms with valuable and rare resources, which are hard to imitate by other firms, can gain
the first-mover advantages in the market and can hence gain competitive advantage.
 Is the firm organized, ready, and be able to exploit the resource/ capability?
 Is the firm organized to capture value?
 Without solid internal organization, the resource or capability is unsupported, meaning
there’s an unused competitive advantage. Once those internal amendments have been
made, the resource or capability is then supported, which means it’s far more likely for
your business to capture the advantages of the resource or capability fully. This is where
the increased growth, high revenue, and lower rates of churn that I mentioned at the
beginning of this article come in, because if the answer to the fourth dimension’s question
can be changed from “no” to “yes”, then the resource or capability has sustained
competitive advantage.

8. How does the rarity of a firm’s resources and capabilities affect its competitive advantage?

Resources that can only be acquired by one or few companies are considered to be rare. If a certain
valuable resource is possessed by a large amount of players in the industry, each of the players has a
capability to exploit the resource in the same way, thereby implementing a common strategy that gives
none of the players a competitive advantage. Such a situation is indicated as competitive parity or
competitive equality. In case a company does possess a large amount of resources that are valuable and
rare, it is likely to have at least temporary competitive advantage.

9. Which is more difficult: imitating a firm’s tangible resources or its intangible resources?

It is relatively easy to imitate a firm's tangible resources (such as plants), but it is a lot more challenging and
often impossible to imitate intangible capabilities such as tactics, knowledge, superior motivation, and
managerial talent.
 10. How do complementary assets and social complexity influence a firm’s organization?

Complementary assets refer to the assets and resources that are needed to allow a firm to gain competitive
advantage. In short, complementary assets are the key factors that allows a firm to fulfil the VRIO
framework. Without these complementary assets, a product may lose its value and may not achieve VRIO.
Thus, a firm may lose its ability to gain competitive advantage. Additionally, social complexity refers to the
intricate and interdependent ways forms are typically organized. Thus, the invisible relationship and
coordination adds value as it is very difficult for rivals to imitate. This influences the firms’ organization as it
allows employees to be even more motivated to work, thus increasing its productivity, which will lead to
efficiency.

Sources:

https://www.investopedia.com/ask/answers/032715/whats-difference-between-outsourcing-and-
insourcing.asp#:~:text=Insourcing%3A%20What's%20the%20Difference%3F,-
FACEBOOK&text=Outsourcing%20is%20the%20process%20of,operational%20infrastructure%20of
%20the%20organization.

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