STRATEGIC MANAGEMENT

Session 8
Internal Environment Analysis
Resource Based View
VRIO Framework

Exec-MBA II SEM V 2019-22

September 05, 2021

“It is only one who is thoroughly acquainted with the evils of war
that can thoroughly understand the profitable way of carrying it on.”
- Sun Tzu in “The Art of War”
Quiz 2: Economies of Scale and Scope
Course Structure: a quick recap of last lecture
• Session 4 & 5: External Environment Analysis
o Introduction to External environment scanning
o PESTEL analysis
o Porter’s five forces analysis
o Netflix Ivey case study

• Session 6 & 7: External Environment Analysis (contd...)

o Porter’s five forces analysis
o Red Oceans
o Blue-Ocean Strategy
o “DuckDuckGo” case study
o Class Test - II
What are Red Oceans?

Red Oceans are established industries with

well-known rules of the game and
hyper-active competition
What are Blue Oceans?

Blue Oceans are the uncontested market

spaces where the competition is irrelevant;

Blue Oceans are new industries, with new

rules of the game and no competition
Blue Ocean Strategy Canvas

“Value Innovator”

Blue Ocean
Simultaneous pursuit of Differentiation and
Low cost

Cost
• Blue Ocean is
Value Innovation
(align innovation
with utilize, price,
cost position) Blue
Buyer Value and
Ocean Low Cost
• By contrast, Diamond
innovation could be
tech-driven and
futuristic

Buyer Value
Blue Ocean Strategy: ERRC Grid
What factor should be “reduced” until it reaches
under the company standard?

Reduce

What factor What factor that

should be has not been
eliminated from New offered yet by the
various factors Eliminate Value Create company so that
that have been Curve it should be
received by the “created”?
company?

Raise

What factor should be “raised” until the upper limit of

the standard determined by the company?
Case Study:
DuckDuckGo
Course Structure: Where are we in the course
Strategy Formulation Strategy Execution

‘Scope’ Environmnt Corporate Business MNC Strategy Managing Experiential Innovation

of a firm Analysis Strategy Strategy Strategies Execution Change Learning KM

External Change
Diversification

env Strategy
Mgmnt
Introduction scanning &
Globalisat’n Framework
to Low-cost Structure
strategy Wy&Whr
Experiential Competitive
McKinsey Learning Advantage:
BOS Culture
7S Model exercise
Differen-
tiation Innovation
Internal env Experience &
Setting the analysis
vision, Knowledge
VRIO
mission, Portfolio Niche/ Globalisat’n Ethics and Strategic Evaluation Mgmnt
goals, Planning Focus Wn&Hw Gov’nance Leadership
& Value chain
objectives analysis
Course Structure: Plan for this session
• Session 7: Internal Environment Analysis
o Introduction to Internal environment analysis
o Analysing strategic capabilities, resources, core competence
o VRIO framework study
o Evaluations and Assessment Details

o Value Chain Analysis

Why are some firms more
profitable than others?
Why are some firms more profitable than others?

Two possible explanations

• It’s something to do with the industry in which they operate
o External analysis – Porter’s five forces

• It’s something to do with the firm itself

o Internal analysis – the RBV*

*While there are several variants associated with RBV, we will use the framework
advocated by Jay Barney.
 What is
Resource Based View?
Resource Based View: some definitions

• Resources are defined as “… all assets, capabilities,

competencies, organizational processes, firm attributes,
information, knowledge, and so forth, that are controlled by a
firm that enable the firm to conceive of and implement
strategies designed to improve its efficiency and effectiveness.”
- Jay Barney
Resource Based View: some definitions (contd…)

• Capabilities - “… the capacity for a set of resources to perform

a task or an activity in an integrative manner”
• Competencies - “…Resources and Capabilities that serve as a
competitive advantage for a firm over its rivals”
• From the perspective of RBV, Resources include Competencies
and Capabilities

Source: Hitt, Ireland and Hoskisson

Resource Based View

It considers:
• Each company as a unique collection of resources - tangible
and intangible assets and capabilities
• The company’s resources as underlying basis for the firm’s
differential performance or competitive advantage

Thus, RBV is internally focused.

Resource Based View

Resources

Tangible Intangible Organizational

Resources Resources Capabilities

“…as assets that ‘…embedded in unique routines

are relatively easy and practices that have evolved
to identify” and accumulated over time.. .’
Source: Dess, Lumpkin and Eisner
Resource Based View: Tangible Resources

Physical Financial Technological

• Land, • Firm’s cash • Technical

• Property reserves Innovations
locations • Account’s • Patents
• Plants and Receivables • Trade Secret
Facilities • Firm’s capacity formulae
• Machinery and to raise equity or • Copyrights
Equipments debt

Example: Large corporations, MNCs

Source: Ketchen David Jr., Eisner Alan B., ‘Strategy’, McGraw-Hill/Erwin/2008-09
Resource Based View: Intangible Resources

Innovation
Human Goodwill
Resources

• Experience and • Brand Image • Technical

Capabilities of • Brand Expertise
Employees Reputation • Scientific
• Trust Expertise
• Managerial skills • Ideas
• Firm-specific
practices and
procedures

Example: McDonald’s, Apple

Source: Ketchen David Jr., Eisner Alan B., ‘Strategy’, McGraw-Hill/Erwin/2008-09
Resource Based View: Organizational capabilities

Competencies or skills that a firm employs to transform inputs to

outputs, and capacity to combine tangible and intangible
resources to attain desired end

• Brilliant, Innovative manufacturing processes

• Outstanding customer service
• Excellent product development capabilities
• Innovativeness of products and services
• Ability to hire, motivate, and retain human capital

Example: Dell, Nordstrom, Zara

Source: Ketchen David Jr., Eisner Alan B., ‘Strategy’, McGraw-Hill/Erwin/2008-09
Why are some firms more profitable than others?

Internal Analysis, three sources of competitive advantage

Active Competences/ Dynamic

Capabilities Capabilities

Passive Resources

Static Dynamic

Source: Whittington, R., Johnson, G., Scholes, K., “Exploring Corporate Strategy”
RBV and Core Competence

• A competence is an internal capability that a company

performs better than other internal capabilities.

• A distinctive competence is a competitively valuable

capability that a company performs better than its rivals.

• A core competence is a well-performed internal capability that

is central, not peripheral, to a company’s strategy,
competitiveness, and profitability.
RBV and Core Competence

Competence

Distinctive
competence
Knowledge Resources
Tangible
or Capabilities
Resources
Core
Competence
Resource Based View Framework

• Jay Barneys’ VRIO framework

o Resources are assessed to determine if they are:

✓ [V]aluable

✓ [R]are

✓ [I]nimitable and Non-substitutable

✓ [O]rganizationally Exploitable
VRIO (or VRINO) Analysis
How do you apply this to YOUR Business?

1. Identify important capabilities and resources as putative sources

of competitive advantage

2. Test these ..... (matrix as below)

3. What ‘core competence’ do you have (if any)? What could become
such?

The Resource/Capability Matrix

Resource/Capability R/C ‘A’ R/C ‘B’ R/C ‘C’ R/C ‘D’
Valued?
Rare?
Inimitable?
Non-substitutable?
Organizational?
Course Structure: What we covered this session
• Session 8: Internal Environment Analysis
o Introduction to Internal environment analysis
o Analyzing strategic capabilities, resources, core competence
o VRIO framework study
o VRIO framework exercise

• Session 9: Value-Chain Analysis

o Introduction to value-chain analysis
o Porter’s Value-chain and its analysis
o Primary and Secondary activities
o Beyond Meat case study
Course Structure: Plan for Next Session
• Session 8: Internal Environment Analysis
o Introduction to Internal environment analysis
o Analyzing strategic capabilities, resources, core competence
o VRIO framework study
o VRIO framework exercise

• Session 9: Value-Chain Analysis

o Introduction to value-chain analysis
o Porter’s Value-chain and its analysis
o Primary and Secondary activities
o Beyond Meat case study