Leveraging Resources and Capabilities: Global Strategy

3
Chapter 3
Leveraging
chapter
Resources and
Capabilities
Global Strategy
Global Strategy
Mike W. Peng
Mike W. Peng
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Outline
• Understanding resources and capabilities
• Resources, capabilities, and the value chain
• The VRIO framework
• Debates and extensions
• The savvy strategist
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Understanding Resources and
Capabilities
• Tangible • Intangible
 Resources and  Resources and
capabilities that are capabilities not easily
observable and easily observed or difficult (or
quantified impossible) to quantify
 Broadly organized in  Examples include:
three categories:  Human
 Financial  Innovation
 Physical  Reputation
 Technological
http://coursemate.cengage.com/CPReader/View/9781133435198/default.aspx?eISBN=9781133435198#3c65fa4e-db67-4b39-8d7d-
1210d2cefea5
Resources and Capabilities (Dess et al., 2014: 83)
The Value Chain
Figure 3.1
Resources, Capabilities,
and the Value Chain
• Value Chain
 The functional activities within the firm that create
value in the goods and services produced
• Components of the Value Chain
 Primary activities
 Are directly associated with the development,
production, and distribution of goods and services
 Support activities
 Assist in the accomplishment of primary activities
A Decision Model in Value Chain Analysis
Figure 3.2
In-House vs. Outsourcing
Location
The VRIO Framework:
Is a Resource or Capability…
COSTLY TO EXPLOITED BY
IMITATE? ORGANIZATION
VALUABLE? RARE? COMPETITIVE IMPLICATIONS FIRM PERFORMANCE
No No Competitive disadvantage Below average
Yes No Yes Competitive parity Average

Yes Yes No Yes Temporary competitive advantage Above average
Yes Yes Yes Yes Sustained competitive advantage Consistently above average
http://www-03.ibm.com/press/us/en/presskit/29681.wss
The VRIO Framework: Value and Rarity
• Four fundamental questions of VRIO
 Value: do the resources and capabilities add value?
 Necessary for a competitive advantage
 Rarity: how rare are the valuable resources and
capabilities?
 Valuable, but common parity, not advantage
 Valuable and rare can lead to temporary
advantage
 If everyone has it, you can’t make money from it
The VRIO Framework: Imitability
• Easier to imitate tangible resources/capabilities than
tangible ones
• Why is imitation so difficult?
 Hard to acquire in a short time what competitors have
developed over a long time
 Events earlier in time affect future events
 Difficult to identify causal determinants of performance
The VRIO Framework: Imitability
(cont’d)
•Valuable, rare, but imitable
resources/capabilities = temporary advantage
•Only valuable, rare and hard-to-imitate
resources/capabilities = sustained competitive
advantage
The VRIO Framework: Organization
• The Question of Organization
 How is a firm organized to develop and leverage the
full potential of its resources and capabilities?
• Using complementary assets effectively
• Managing social complexity effectively
 Invisible relationships can add value - make imitation
more difficult
Strategic Sweet Spot
Figure 3.5
Debates and Extensions
• Firm- versus Industry-Specific Determinants of
Performance: Both views are complementary to
each other
• Static Resources versus Dynamic Capabilities
• The resource-based view: incorporating dynamic
capabilities
 Tacit knowledge
 “Learning before doing” versus “learning by doing”
 Simple rules to guide behavior and decisions
 Develop new resources/capabilities
 Less bundled resources/capabilities
Dynamic Capabilities in Slow- and Fast-Moving Industries
SLOW-MOVING INDUSTRIES FAST-MOVING (HIGH-VELOCITY) INDUSTRIES
Market environment Stable industry structure, defined boundaries, Ambiguous industry structure, blurred boundaries,
clear business models, identifiable players, fluid business models, ambiguous and shifting
linear and predictable change players, nonlinear and unpredictable change
Attributes of Complex, detailed, analytic routines that Simple, experiential routines that rely on newly
dynamic capabilities rely extensively on existing knowledge created knowledge specific to the situation
(“learning before doing”) (“learning by doing”)
Focus Leverage existing resources and capabilities Develop new resources and capabilities
Execution Linear Iterative

Organization A tightly bundled collection of resources A loosely bundled collection of resources that are
with relative stability frequently added, recombined, and dropped
Outcome Predictable Unpredictable
Strategic goal Sustainable competitive advantage A series of short-term (temporal)

(hopefully for the long term) competitive advantages
Hotels and railways IT and Fashion
Sources: Adapted from (1) K. Eisenhardt & J. Martin, 2000, Dynamic capabilities: What are
they? Strategic Management Journal, 21: 1105–1121; (2) G. Pisano, 1994, Knowledge,
integration, and the locus of learning, Strategic Management Journal, 15: 85–100. Table 3.3
Offshoring vs. Non-Offshoring
• Offshoring (international outsourcing) is an increasing
movement
• Outsourcing of high-end services such as IT and BPO is
controversial because of the relatively recent rise of the
internet—Long-term benefits are still unknown
• Proponents argue that outsourcing saves firms
enormous costs and allows them to focus more on their
core business
• Critics argue on 3 points
 Strategic: If everything is outsourced, what is left for the US
firm?
 Economic: Do developed economies actually gain?
 Political: Are we both exploiting cheap labor as well as willingly
putting our own security at risk?
The Savvy Strategist
• Developing resources/capabilities that are valuable, rare,
hard-to-imitate, and embedded in organizational
structures and systems can help firms achieve
successful performance
• Lessons from the VRIO framework
 Task for strategists - build firm strengths by identifying,
developing, and leveraging resources/capabilities
 Imitation is not likely to be a successful strategy
 Sustained competitive advantage will not last forever
 Firms should try to develop “strategic foresight”
The Savvy Strategist (cont’d)
•Four fundamental questions: Resource Based
Views
 Why do firms differ? Resource heterogeneity
 How do firms behave? Take advantage of strengths
and overcome weaknesses
 What determines the scope of the firm? How a firm
performs relative to rivals
 What determines the international success and failure
of firms? Firm-specific resources/capabilities and a bit
of luck

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No No Competitive disadvantage Below average

Yes No Yes Competitive parity Average

Execution Linear Iterative

Outcome Predictable Unpredictable

Strategic goal Sustainable competitive advantage A series of short-term (temporal)

Hotels and railways IT and Fashion

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