Resource-Based View

IO vs. RBV Industrial Organization (IO)Resource Based View (RBV) Some Authors:Porter, Rumelt Barney, Wernerfelt FocusExternal—describes environmental conditions favoring high levels of firm performance Internal—describes firm’s internal characteristics and performance Assumptions:Firms within an industry have identical strategic resources. Resources are highly mobile (easily bought and sold) and therefore homogeneous. Firms have idiosyncratic, not identical strategic resources. Resources are not perfectly mobile and therefore heterogeneous.

Business Level Strategy How do we support the corporate strategy? How do we compete in a specific business arena? Three types of business level strategies:  Low cost producer  Differentiator  Focus

Business Level Strategy Four areas of focus, objectives of business-level strategy  Generate sustainable competitive advantages  Develop and nurture (potentially) valuable capabilities  Respond to environmental changes  Approval of functional level strategies

Sustainable Competitive Advantage An asset is anything the firm owns or controls.  Loosely, “Asset” is to Accounting as “Resource” is to Management. Types of assets:  Physical: plant equipment, location, access to raw materials  Human: training, experience, judgment, decision-making skills, intelligence, relationships, knowledge  Organizational: Culture, formal reporting structures, control systems, coordinating systems, informal relationships

Types of assets:  Physical: plant equipment, location, access to raw materials, IT infrastructure Can IT infrastructure provide a source of competitive advantage?  How can we manage physical assets Regular maintenance Outsourcing Co-location Profit center Etc.

Types of assets:  Human: training, experience, judgment, decision- making skills, intelligence, relationships, knowledge Can People be a source of competitive advantage?  How do we manage people assets HR Management  Motivation theories  Influence and power  Effectiveness

What is Project Human Resource Management? Making the most effective use of the people involved with a project. Processes include:  Human resource planning: Identifying and documenting project roles, responsibilities, and reporting relationships.  Acquiring the project team: Getting the needed personnel assigned to and working on the project.  Developing the project team: Building individual and group skills to enhance project performance.  Managing the project team: Tracking team member performance, motivating team members, providing timely feedback, resolving issues and conflicts, and coordinating changes to help enhance project performance.

Maslow’s Hierarchy of Needs Abraham Maslow argued that human beings possess unique qualities that enable them to make independent choices, thus giving them control of their destiny. Maslow developed a hierarchy of needs, which states that people’s behaviors are guided or motivated by a sequence of needs.

Figure 9-1. Maslow’s Hierarchy of Needs

Types of assets:  Organizational: Culture, formal reporting structures, control systems, coordinating systems, informal relationships Can Organizational assets be a source of competitive advantage?  How do you manage organizational assets Teams Structure

Networked Organizations (cont.)

Components of Information Systems Hardware is a set of devices such as processor, monitor, keyboard, and printer. Software is a set of programs that enable the hardware to process data. Database is a collection of related files, tables, relations, and so on, that stores data. Network is a connecting system that permits the sharing of resources between computers. Procedures are the set of instructions about how to combine the above components. People are those individuals who work with the system or use its output. Which one of the following is not an asset?

IT Assets: Electronic Framework

Business-Level Strategy The primary objective of business-level strategy is to create “sources of sustainable competitive advantage”. What is sustainable competitive advantage?  There are many definitions, used by different people in different ways.  What follows is a practical description. But first, we need to back up a bit…

Sustainable Competitive Advantage A capability is usually considered a “bundle” of assets or resources to perform a business process (which is composed of individual activities)  E.g. The product development process involves conceptualization, product design, pilot testing, new product launch in production, process debugging, etc. All firms have capabilities. However, a firm will usually focus on certain capabilities consistent with its strategy.  For example, a firm pursuing a differentiation strategy would focus on new product development. A firm focusing on a low cost strategy would focus on improving manufacturing process efficiency. The firm’s most important capabilities are called competencies.

Competencies vs. Core Competencies vs. Distinctive Competencies A competency is an internal capability that a company performs better than other internal capabilities. A core competency is a well-performed internal capability that is central, not peripheral, to a company’s strategy, competitiveness, and profitability. A distinctive competence is a competitively valuable capability that a company performs better than its rivals.

Examples: Distinctive Competencies Toyota, Honda, Nissan  Low-cost, high-quality manufacturing capability and short design-to-market cycles Intel  Ability to design and manufacture ever more powerful microprocessors for PCs Motorola  Defect-free manufacture (six-sigma quality) of cell phones

Where are we? We are discussing sustainable competitive advantage, and have defined Competencies:  Assets  Capabilities  Competencies  Competitive Advantage Next is competitive advantage.  A competitive advantage is simply an advantage you have over your competitors.  A competency will produce competitive advantage provided: A) it produces value for the organization, and B) it does this in a way that cannot easily be pursued by competitors.

Sustainable Competitive Advantage However, we said the primary objective of business-level strategy was to create sources of sustainable competitive advantage (SCA). How do we know SCA when we see it? What is it? When is it considered “sustainable”? To produce SCA, the capability must: 1.Produce value 2.Be rare 3.Imperfectly imitable, i.e. not be easily imitated or substituted 4.Be exploitable by the organization

Sustainable Competitive Advantage 1.The Question of Value:  Capabilities are valuable when they enable a firm to conceive of or implement strategies that improve efficiency and effectiveness.  To be valuable, the capability must either Increase efficiency (outputs / inputs)  Information system reduces customer service agents required, or increases the number of calls the same number of agents can answer Increase effectiveness (enable some new capability not previously held)  Opening a new regional campus enables outreach to a new market of students

Sustainable Competitive Advantage 2.The Question of Rareness:  Valuable resources or capabilities that are shared by large numbers of firms in an industry are therefore not rare, and cannot be a source of SCA.  Given the following, which are rare? A web server An MIS instructor A state-of-the-art stamping press  None of these are rare. Some researchers think only organizational assets or resources are rare (such as culture). What do you think?

Sustainable Competitive Advantage 3.The Question of Imitability  Valuable, rare resources can only be sources of SCA if firms that do not possess them cannot obtain them. They must be “imperfectly imitable”, i.e. impossible to perfectly imitate them.  Ways imitation can be avoided: Unique Historical Conditions (Caterpillar, e.g.) Causal Ambiguity (why resources create SCA is not understood, even by the firm owning them) Social Complexity (trust, teamwork, informal relationships, causal ambiguity where cause of effectiveness is uncertain)

Sustainable Competitive Advantage 4.The Question of Substitutability  There must be no equivalent resources that can be exploited to implement the same strategies.  Forms of substitutability: Duplication: Strategically equivalent resources that can produce the same results. Substitution: Very different resources can be substitutes,

Sustainable Competitive Advantage 5.The Question of Exploitation:  Later research qualified this as another criteria for SCA. Is a firm organized to exploit the full competitive potential of its resources and capabilities?  Are systems in place to enable firms to support the execution of a particular strategy? Xerox, e.g

Notes on “Sustainable” Sustainable is not measured in calendar time. Sustainable does not mean the advantage will last forever. Sustainable suggests the advantage lasts long enough that competitors stop trying to duplicate the strategy that makes the advantage sustained.

Economic Performance Valuable?Rare? Costly to Imitate? Exploited by the Organization? Competitive Implications Economic Performance No-- Competitive Disadvantage Below Normal YesNo-- Competitive Parity Normal Yes No-- Temporary Competitive Advantage Above Normal Yes Sustained Competitive Advantage Above Normal

Business Level Strategy  Generate sustainable competitive advantages  Develop and nurture (potentially) valuable capabilities  Respond to environmental changes  Approval of functional level strategies