UNIT 8

€ It

explains how a company·s resources drive its performance in a dynamic competitive environment.

€ The

RBV combines the internal analysis within companies with the external analysis of the industry and competitive environment. explains why some competitors are more profitable than others and how to put the idea of core competence into practice.

€ It

€ RBV

sees companies as different collections of physical and intangible assets and capabilities. € No two companies are alike because no two companies have had the same set of experiences, acquired the same assets and skills or built the same organisational cultures. € These assets and capabilities determine how efficiently and effectively a company performs its functional activities.

.€ What gives your company a competitive edge? Your strategically valuable resources ² the ones enabling your enterprise to perform activities better or more cheaply than rivals. intangible assets and capabilities. € These can be physical assets.

€ Resources € Types ƒ of Resources Are a firm¶s assets. ƒ Represent inputs into a firm¶s production process. such as: ƒ Tangible resources Financial resources Physical resources Technological resources Organizational resources Human resources Innovation resources Reputation resources Capital equipment Skills of employees Brand names Financial resources Talented managers ƒ Intangible resources . including people and the value of its brand name.

trademarks.Financial Resources Organizational Resources Physical Resources Technological Resources ‡ The firm¶s borrowing capacity ‡ The firm¶s ability to generate internal funds ‡ The firm¶s formal reporting structure and its formal planning. and coordinating systems ‡ Sophistication and location of a firm¶s plant and equipment ‡ Access to raw materials ‡ Stock of technology. controlling. and trade secrets . such as patents. copyrights.

durability.Human Resources ‡ Knowledge ‡ Trust ‡ Managerial capabilities ‡ Ideas ‡ Scientific capabilities ‡ Capacity to innovate ‡ Reputation with customers ‡ Brand name ‡ Perceptions of product quality. and reliability ‡ Reputation with suppliers Innovation Resources Reputational Resources .

€ Organisational capability is embedded in a company·s routines. Japanese auto companies have consistently excelled through their capabilities-. next in high-quality production. € (example) . processes and culture.first in low cost. lean manufactuing. and then in fast product development.

. € Superior performance will therefore be based on developing a competitively distinct set of resources and deploying them in a well--conceived strategy. ultimately can be attributed to the ownership of a valuable resource that enables the company to perform activities better or more cheaply than competitors. whatever its source.€ Competitive advantage.

STRATEGIC COMPETITIVENESS COMPETITIVE ADVANTAGE CORE COMPETENCIES ORGANISATIONAL CAPABILITIES ORGANISATIONAL RESOURCES .

(example) a brand name was once very important in the personal computer .   . Resources can not be evaluated in isolation. because their value is determined in the interplay with market forces. A resource that is valuable in a particular industry or at a particular time might fail to have the same value in a different industry or chronological context. but it is no longer.

For a resource to qualify as the basis for an effective strategy. Thus the RBV inextricably links a company·s internal capabilities (what it does well) and its external industry environment( what the market demands and what competitors offer) In practice.   . however. it must pass the following external market tests of its value. managers often have hard time identifying and evaluating their companies· resources objectively.

1. Possessing a resource that competitors easily can copy generates only temporary value. then any profit stream it generates is more likely to be sustainable.    . The test of inimitability: Is the resource hard to copy? Inimitability is at the heart of value creation because it limits competition. If a resource is inimitable.

Competitors eventually will find ways to copy most valuable resources. Inimitability doesn·t last forever. But managers can forestall them² and sustain profits for a while³by building their strategies around resources that have at least one of the following four characteristics:   .

  . A great number of resources can not be imitated because of what economists call path dependency. The second is path dependency. The first is physical uniqueness. mineral rights. which almost by definition can not be copied. (example) a wonderful real estate location.

R&D programs. Instead. they must be built over time in ways that are difficult to accelerate. As a result. competitors can not go out and buy these resources instantaneously.   . (example) brand loyalty. these resources are unique and therefore scarce because of all that has happened along the path taken in their accumulation. Simply put.

(example) Southwest Vs Continental and United Airlines.    . Causally ambiguous resource are often organisational capabilities. These exist in a complex web of social interactions and may even depend critically on particular individuals. The third source of inimitability is causal ambiguity.

 It will be difficult to reproduce Southwest·s culture of fun. The final source of inimitability. frugality and focus because no one can quite specify exactly what it is or how it arose. economic deterrence. occurs when a company preempts a competitor by making a sizable investment in an asset.  . family.

the more valuable it will be. . How quickly does this resource depreciate? The longer lasting a resource is. Like inimitability.Eisner and his team. this test asks whether the resource can sustain competitive advantage over time.2.    The test of durability. (example) Disney· brand name survived almost two decades of neglect between Walt Disney·s death and the installation of Michael D.

   The test of appropriability: Who captures the value that the resource creates? Your firm² not individual employees. Your company³not employees.3. Your company does not lose a critical resource when a key employee leaves. suppliers. . distributors or customers³keeps the lion·s share of profits generated by the resource. suppliers or customers³controls their value.

( example) because of easy substitution. The test of substitutability: Can a unique resource be trumped by a different resource? It is not easily substituted. the steel industry lost a major market in beer cans to aluminum-can makers.4.   .

5. make a better package. when combined. . none of which is superior by itself but which. Every company can identify one activity that it does relatively better than other activities and claim that as its core competence. Sometimes the valuable resource is a combination of skills.    The test of competitive superiority: Whose resource is really better? They are superior to similar resources your competitors own.

not physical.( the culture.  The tests capture how market forces determine the value of resources. Managers should build their strategies on resources that meet the five tests outlined above.  The best of these resources are often intangible. . the technology and the transformational leader).  They force mangers to look inward and outward at the same time.

And while Xerox slept. Strategy requires managers to look forward as well.  Companies fortunate enough to have a truly distinctive competence must also be wise enough to realise that its value is eroded by time and competition.  ( example) in 1970s Xerox believed its reprographic capability to be inimitable. Canon took over world leadership in photocopiers. .

companies need to maintain pressure constantly at the frontiers³building for the next round of competition. In world of continuous change.  Managers . must therefore continually invest in and upgrade their resources.

investing in core competencies without examining the competitive dynamics that determine industry attractiveness is dangerous.  At the same time. an effective corporate strategy requires continual investment in order to maintain and build valuable resources.Investing in resources:  Because all resources depreciate. .

the way Intel added a brand name. second is by upgrading to alternative resources that are threatening the company·s current capabilities. which can be accomplished in a number of ways.  The .Upgrading resources:  Upgrading resources means moving beyond what the company is already good at. Intel Inside. to its technological resource base.  The first is by adding new resources.

the most successful examples of upgrading resources are in companies that have added new competencies sequentially. often over extended period of time. Sharp Electronics  Perhaps  (Example) . a company can upgrade its resources in order to move into structurally more attractive industry. Finally.

assembler of T.s & radios. produced the world·s first digital calculator.  It came with Viewcam in 1992.  In 1964.  Did backward integration into manufacturing its own specialised semiconductors and committed to new LCD technology.  .V.  Came out with the Wizard electronic organiser.In the late 1950s.

Sharp is the dominant player in the LCD market and a force in consumer electronics. also opened new avenues for expansion. Sharp took on a new challenge. . At each stage. whether to develop or improve a technology or to enter or attack a market.  It  Today.

 (example) Disney leveraged its resources into new markets such as hotels. . retailing and publishing.Leveraging resources:  Corporate strategies must strive to leverage resources into all the markets in which those resources contribute to competitive advantage or to compete in new markets that improve the corporate resources.

How far can the company·s valuable resource be extended across markets? .  The question strategists must ask is. Good corporate strategy requires continual reassessment of the company·s scope.

. rigorously applying market tests to those resources.Building a unique set of resources and capabilities must be done with a sharp eye on the dynamic industry context and competitive situation.

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