Presentation by

Mubarak
Business Strategy
UMSDQ5-15-3
Mohamud

Senior
Lecturer
Strategy

Study Unit 4
RBV & Competences 1
“Outside In” – Porters View
 Competitive advantage results from
choosing market position. Firms
making trade off choice with aligned
activities sustain advantage.
 Critique
 Outside-in view of Competitive Advantage is
deterministic/passive. Growing evidence that
internal attributes better predict performance
 Narrow focus on privileged market position
 Market volatility (speed, disruption, blurring
boundaries) – advantage temporary
 Assumes availability of inputs – market price
matches value
 Assumes management choice/control over
position and activities
 ‘Inside Out’ – Resource Based View
 A firm is said to

have a competitive
advantage when it
is implementing a
value creating
strategy not
simultaneously
being implemented
by any current or
 Resources Are…..
“Resources include
all assets,
capabilities,
organizational
processes, firm
attributes,
information,
knowledge etc.
controlled by the
 ‘Inside Out’ – Resource Based View
 A firm is a unique collection of
resources that give it the ability
to exploit a market opportunities
 Inelastic supply of resources
drives competitive advantage:
 Resource Heterogeneity
Different firms have different specific resources
(unique) combined in different ways
 Economic Rent
Profits are appropriated by ownership of scarce
resources
 Resource Immobility
Isolated from imitation or substitution, resources
may not spread from firm to firm easily or may be
difficult to acquire/develop
Source: Barney (1991)
 Resources
Intangible Resources can be tangible assets,
Tangible knowledge, routines, cultural
 Distribution coverage norms….
 Financial capacity Relational
 Low cost  Trade relationships
manufacture/distributio  Long-term supply
n system contracts
 Production capacity  Strategic alliances
 Ownership of raw and joint ventures
material sources
 IT systems

Knowledge
 Shared expertise
 Specialised knowledge
 Know-how
 Retained in routines,
processes, culture/norms

Source: based on McGee et al (2005)

 Single resources are not enough
 “Core competencies are the roots of
competitiveness and are the collective
learning in the organization, [the]
coordination of diverse skills and the
integration of multiple streams of
technology” – i.e. BUNDLES OF RESOURCES,
some tradeable, some not.
 Long run advantage comes from the building
of an idiosyncratic mix of core competencies
and deployment of the strategic capability
they provide
 Management’s role is providing long-term
goals and then facilitating the mobilisation
and “stretching” of the firm’s competencies

Source: Prahalad and Hamel (1990)

 Resources to competences

…each a bundle of resources

(Assets, Routines, Norms)

Based on: Prahalad and Hamel (1990)

The VRIO Test
To provide sustainable competitive advantage, a
core competence (each bundle of assets, values and
routines) must pass four tests (V.R.I.O.)

– Valuable - competitively superior (i.e.

valuable in the industry context of
opportunities and threats)
making a significant difference to the
firm

– Rare - scarce or rare relative to

competitors

– non-Imitable - Hard or costly to copy

(inimitable) or easily substitute e.g.
historic circumstance, causal ambiguity,
or complex social relationships?

– Organisation – The firm captures

(appropriates) the value generated –
possession/control may not be enough
How to do it
Often easier
this way
Remember: Test at the
What does
company excel Competency Level
at?

Can be hard
in this direction
 The VRIO Test
Valuable? Rare? Difficult to Appropriates Strategic
Imitate? Value? Implications

No No No Yes/No Competitive
disadvantage

Yes No No Yes/No Competitive

parity

Yes Yes No Yes/No Temporary

competitive
advantage

Yes Yes Yes Yes/No Temporary

competitive
advantage

Yes Yes Yes Yes/No Sustainable

competitive
advantage

(Adapted from Barney, 1991 and 1995)

 These are not competencies
Make sure competencies you identify meet VRIO criteria. The following are NOT competencies:

 “Economies of Scale/Scope” – in which competency?

 “Technology” – be specific – what technology do you possess?
 “Innovation” – how contributes to current revenue? Be specific
 “First mover advantage” – what competency has been built by this?
 “Product diversification” – what competency lets you do this?
 “New market penetration” – what a competency lets you do
 “Low prices” – what competencies mean you can do this?
 “Diversification” – A strategy not a competency
 “Market Share” – a reward for possessing core competencies

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