Creating Sustainable Competitive Advantages: Resources and Capabilites

Profitability Differences Between Industries

Profitability Differences within Industries

Calibrating Profit Drivers Industry Positioning Residual Corporate Source: Richard P. Rumelt, “How Much Does Industry Matter?,” Strategic Management Journal, 1991; 12:167-185 19 6

What makes an advantage sustainable? DeHavilland Boeing

What makes an advantage sustainable? DeHavilland EMI Boeing GE

What makes an advantage sustainable? DeHavilland EMI Xerox Boeing GE IBM

What makes an advantage sustainable? DeHavilland EMI Xerox Ampex Boeing GE IBM Matsushita

What makes an advantage sustainable? DeHavilland EMI Xerox Ampex RC Cola Boeing GE IBM Matsushita Coca Cola

What makes an advantage sustainable? DeHavilland EMI Xerox Ampex RC Cola Bowmar Boeing GE IBM Matsushita Coca Cola Texas Instruments

What makes an advantage sustainable? DeHavilland EMI Xerox Ampex RC Cola Bowmar Raytheon Boeing GE IBM Matsushita Coca Cola Texas Instruments Samsung

Organizational capital Tangible vs. Intangible Resources Physical capital Human capital Organizational capital Tangible vs. Intangible Physical capital = plant & equuipment, geographic location, access to raw materials, etc. examples?? Human cap= training, experience, judgment, intelligence, relationships, and insight of people in the firm. Org capital = structure, org, informal planning & coordination -- KEYWORD CAPABILITIES Where does reputation, etc. fit in?

Attributes of Resources Customer Demand Substitutability Appropriability Capacity Imitability Fungibility Customer Demand Substitutability = replacing one resource with another (outpatient clinics for inpatient) Appropriability = capturing returns generated by resources (stars in sports; biotech firms without distribution) Hlth care examples - ??? Capacity = fixed (i.e. physical); unbounded (reputation, brand names) implications for diversification -- Where does skill come in? What would Penrose say? (Mayo Clinic Medical Guide) long-term vs short-term -- decay rates Imitability = fungibility = how many markets can a resource be applied in? (core competence idea) -- gen mgt skills, knowhow (i.e. Sharp)

What are your organization’s resources?

Assessing the Profit-Earning Potential of Resources

Resources and Sustainable Competitive Advantage -- VRIO Model Valuable Rare Imitable Organization (Implementation)

The Question of Value Do a firm’s resources and capabilities enable the firm to respond to environmental threats or opportunities?

Changes in resource value Value Challenge Changes in resource value GE - transistors Swiss watch industry (quartz) Forecasting difficulty

Question of Rareness How many competing firms already possess particular valuable resources and capabilities? e.g. Telephone systems and IT hardware

Question of Imitability Do firms without a resource or capability face a disadvantage in obtaining it compared to firms that already possess it?

Sources of Disadvantage in Imitating Resources 1. Unique Historical Conditions (Caterpillar, Coca Cola) 1st mover advantages path dependence 2. Causal Ambiguity taken for granted multiple hypotheses complexity (interactions) 3. Social Complexity

The Challenge of Imitation Cannot be imitated Patents Unique locations Difficult to imitate Brand loyalty Employee commitment Reputation Can be imitated - but may not be Capacity pre-emption Economies of scale Easy to imitate Cash Commodities

Question of Organization Is a firm organized to exploit the full competitive potential of its resources and capabilities? Complementary capabilities (EMI, Xerox)

VRIO Framework Is a resource or capability . . .

VRIO Framework Is a resource or capability . . .

VRIO Framework Is a resource or capability . . .

VRIO Framework Is a resource or capability . . .

What is the profit potential of Wal-Mart’s resources and capabilities?

What is the profit potential of your resources and capabilities?

Framework for Analyzing Resources and Capabilities 1. Identify resources and capabilities. Value Chain Analysis Appraise strengths and weaknesses 2. Appraise the profit-earning potential of resources/capabilities 3. Select strategy 4. Identify gaps in resources and capabilities that need to be filled

Generic Strategies Source of Advantage Competitive Scope

Types of Advantage Cost Differentiation Innovation Quality Customer Service/Responsiveness What resources contribute to what advantages?

Typical Resource Profiles Cost Leaders Differentiators Scale efficient plants Process design Tight cost control Structured organization and reporting system Clear, quantitative targets Marketing ability Product development Creativity Research capability Strong, interfunctional coordination Qualitative measures /incentives

Comparison of Strategic Perspectives Adapted from Brown & Eisenhardt, Competing on the Edge

Comparison of Strategic Perspectives Adapted from Brown & Eisenhardt, Competing on the Edge

Comparison of Strategic Perspectives Adapted from Brown & Eisenhardt, Competing on the Edge

Comparison of Strategic Perspectives Adapted from Brown & Eisenhardt, Competing on the Edge