BUSINESS STRATEGY

IBS (MBA) Bangalore

SESSION -8 & 9

Course Coordinator
Dr. L.R.S.Mani
ORGANIZATIONAL CAPABILITIES
 Organizational capabilities are the skills i.e. the ability and
ways of combining assets , people, and processes that a
company uses to transform inputs into outputs.
 Apple pioneered and leveraged its iPod iTunes success into a
leadership position in digitalized music , entertainment, and
communication on a global basis for individual consumers.
 Apple has subsequently revolutionized its own iPod, using it
to automate and customize a whole new level of
entertainment capability that combines assets, people, and
processes throughout and beyond the Apple organization.
ACHIEVING SUPERIOR EFFICIENCY
 Dangers of complacency with the experience
curve
 It will bottom out
 New technologies can make experience effects
obsolete
 Some technologies may not produce lower costs with
higher volumes of output
 Flexible manufacturing technologies may allow small
manufacturers to product at low unit costs
ACHIEVING SUPERIOR EFFICIENCY

 Flexible manufacturing (lean production)

 Technology that reduces setup times for complex
equipment, improves scheduling to increase use of
individual machines, and improves quality control
 Increases efficiency and lowers unit costs
 Mass customization reconciles two goals: low cost
and differentiation through product customization
RESOURCES BASED VIEW (RBV)
 RBV is a method of analyzing and identifying a firm’s strategic
advantages based on examining its distinct combination of
assets, skills, capabilities, and intangibles as an organization.
 Comparing Toyota and Ford, analysts cite that Toyota is
superior in tangible assets such as modern factories , R & D
facilities, computerisation, cash etc and also in intangible assets
such as reputation, quality culture, brand name, global business
system etc.
 The combination of capabilities and assets creates several
competencies that give Toyota key competitive advantages
over Ford that are durable and not easily imitated.
RESOURCES BASED VIEW (RBV)
 The RBV’s underlying premise is that firms differ
in fundamental ways because each firm possesses
a unique bundle of resources – tangible and
intangible assets and organizational capabilities
to make use of those assets.
 Each firm develops competencies from these
resources, and , when developed well become the
source of the firm’s competitive advantage.
WHAT MAKES A RESOURCE VALUABLE

1. Are the resources critical to being able to meet a

customer’s need better than other alternatives?
2. Are the resources scarce i.e. Very few others
possess that resource or skill to the degree to
which the firm has?
3. Do the resources drive a key portion of overall
profits, in a manner controlled by the firm?
4. Are the resources durable or sustainable over time?
RESOURCE BASED VIEW (RBV)
 A new perspective on understanding a firm’s
success based on how well the firm uses its
internal resources. The underlying premise is that
firms differ in fundamental ways because each
firm possesses a unique “bundle of resources”
------ both tangible and intangible assets and
organizational capabilities to make use of those
assets.
RBV GUIDELINE 1 ARE THE RESOURCES CRITICAL TO
BEING ABLE TO MEET A CUSTOMER’S NEED BETTER
THAN OTHER ALTERNATIVES?
 As an example, two restaurants offer similar
food, at similar prices, but one has a location
more convenient to down – town offices than the
other. The tangible asset i.e. The location helps
fulfil daytime worker’s lunch needs better than its
competitor , resulting in greater profitability and
sales volume for the conveniently located
restaurant
RBV GUIDELINE 1 ARE THE RESOURCES CRITICAL TO
BEING ABLE TO MEET A CUSTOMER’S NEED BETTER
THAN OTHER ALTERNATIVES?
 Another example is that of Wal-Mart. They
redefined discount retailing and outperformed the
industry. Four resources viz Store Locations,
Brand Recognition , Employee Loyalty and
Sophisticated Inbound Logistics allowed them to
fulfil customer needs much better and more cost
effectively than Kmart and other discount
retailers.
 RBV GUIDELINE 2 IS THE RESOURCE SCARCE OR NOT EASILY
IMITABLE

 Is the resource in short supply? When a resource

is scarce, it becomes more valuable. When a firm
possesses a resource which most others do not
and it is central to fulfilling customers’ needs, it
can become the basis of a competitive advantage
for the firm. Very limited natural resources, a
unique location, skills that are truly rare – all
represent types of scares resources.
RBV GUIDELINE 2 IS THE RESOURCE SCARCE OR NOT EASILY
IMITABLE

 Are substitutes available? For the industry as a whole , one

can analyze whether any substitutes are likely to become
available in the near future.
 Whether the resource is possible to be imitated in a short
period of time? Physically unique resources are virtually
impossible to imitate.
 Some examples for easily imitable are utilities, common raw
materials etc. Possible to imitate are skilled employees,
economies of scale etc. Hard to imitate are image, culture etc.
Examples for not imitable are unique location , patents etc.
RBV GUIDELINE 3 APPROPRIABILITY
 One popular example is that of Warren Buffet
investing in Walt Disney Company which
generated much more profits that other
competitors in the entertainment industry. Sports
teams, investment services, and consulting
businesses are other examples of companies that
generate sizable profits based on resources such
as key personnel, skills, networks etc.
RBV GUIDELINE 4 DURABILITY
 How rapidly is the resource likely to depreciate?
This lower a resource depreciates, the more
valuable it is. Tangible assets can be measured for
their depreciation. Intangible resources , such as
brand names or organizational capabilities are
more difficult to be measured for depreciation.
Hence the durability of the resource also plays an
important part.
 Resource-Based View of the Firm

The resource-based view (RBV)

 is a model that sees resources as
key to superior firm performance.

If a resource exhibits VRIO

attributes, the resource enables
the firm to gain and sustain
competitive advantage.
 Resource-Based View of the Firm

RBV is an approach to achieving competitive

advantage that emerged in 1980s and 1990s, after the
major works published by

• Wernerfelt, B. (“The Resource-Based View of the

Firm”),

• Prahalad and Hamel (“The Core Competence of The

Corporation”),

• Barney, J. (“Firm resources and sustained competitive

advantage”)
 Resource-Based View of the Firm

The supporters of this view argue that

organizations should look inside the
company to find the sources of
competitive advantage instead of looking
at competitive environment for it.
 RESOURCE-BASED VIEW OF THE FIRM

 Three key types of resources

Tangible resources
Intangible resources
Organizational capabilities
(Tangible & Intangible Mix)

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 TANGIBLE RESOURCES

 Relatively easy to identify

 Financial resources
Firm’s cash accounts
Firm’s capacity to raise equity
Firm’s borrowing capacity

 Physical resources
Modern plant and facilities
Favorable manufacturing locations
State-of-the-art machinery and equipment

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 TANGIBLE RESOURCES

 Technological resources
Trade secrets
Innovative production processes
Patents, copyrights, trademarks

 Organizational resources
Effective strategic planning processes
Excellent evaluation and control systems

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 INTANGIBLE RESOURCES

 Difficult for competitors (and the firm itself) to

account for or imitate
Human resources
Experience and capabilities of employees
Trust
Managerial skills
Firm-specific practices and procedures

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 INTANGIBLE RESOURCES

 Innovation and creativity

Technical and scientific skills
Innovation capacities

 Reputation
Brand name
Reputation with customers
Reputation with suppliers

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 ORGANIZATIONAL CAPABILITIES
TANGIBLE & INTANGIBLE MIX

 Competencies or skills that a firm employs to

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

Outstanding customer service

Excellent product development capabilities
Innovativeness of products and services
Ability to hire, motivate, and retain human capital

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 Heterogeneous Resources

Heterogeneous. The first assumption is that

skills, capabilities and other resources that
organizations possess differ from one
company to another. If organizations would
have the same amount and mix of resources,
they could not employ different strategies to
outcompete each other. 
RBV assumes that companies achieve
competitive advantage by using their different
bundles of resources.
 Immobile Resources

Immobile. The second assumption of RBV is that

resources are not mobile and do not move from
company to company, at least in short-run. Due to
this immobility, companies cannot replicate rivals’
resources and implement the same strategies.

Intangible resources, such as brand equity, processes,

knowledge or intellectual property are usually
immobile.
FIRM RESOURCES AND
SUSTAINABLE COMPETITIVE ADVANTAGES

 Resources alone are not basis for competitive

advantages, nor are advantages sustainable
over time

 Resources or capabilities may help firm to

increase revenue or lower costs
Only temporary advantage

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FIRM RESOURCES AND
SUSTAINABLE COMPETITIVE ADVANTAGES

Is the resource or capability…

VALUABLE
 Is the Resource Valuable?

Resources are valuable when they enable a firm

to formulate and implement strategies that
improve its efficiency or effectiveness

SWOT matrix suggests firms improve

performance only when they exploit
opportunities or neutralize threats

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RARE
 Is the Resource Rare?

If competitors possess same valuable

resource, not source of competitive advantage
Common strategies based on a resources is
not an advantage
Some strategies require mix of resources –
tangible assets, intangible assets, and
organizational capabilities

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INIMITABLE
 Can the Resource Be Imitated Easily?

Inimitability is key to value creation

Constrains competition

Competitors will eventually find a way to

copy valuable resources
Advantage based on inimitability won’t last
forever

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INIMITABLE
 Can the Resource Be Imitated Easily?

Managers can develop strategies around

resources that have one or more of the
following four characteristics:
Physical Uniqueness
Path dependency
Causal ambiguity
Social complexity

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 ORGANISATION
 Is the Capability Organizationally Activatable?

Firm must have access to complementary

resources to maximize capability potential
Types of Complementary Resources Include:
Financial Capital
Production/Manufacturing Facilities
Marketing KSAs (Knowledge, Skills, Abilities)
Distribution Networks

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 Criteria for Sustainable Competitive
Advantage and Strategic Implications

Is a resource or capability…

Valuable Rare Inimitable/ Activatable Implications

Substitute for Competitiveness

No No No No Competitive disadvantage
Yes No No No Competitive parity
Yes Yes No No Temporary competitive
advantage
Yes Yes Yes Yes Sustainable competitive
advantage

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Resource-Based View of the Firm