Resources and Capabilities Chapter 3 Resources and Capabilities Global Strategic Management 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.

Understanding Resources and Capabilities Tangible Resources and capabilities that are observable and easily quantified Broadly organized in three categories: Financial Physical Technological Intangible Resources and capabilities not easily observed or difficult (or impossible) to quantify Examples include: Human Innovation Reputation 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.

Resources, Capabilities, and the 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 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.

The Value Chain 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. Figure 3.1

A Decision Model in Value Chain Analysis 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. Figure 3.2

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 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. 4

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 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. 4

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 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.

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 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. 4

Strategic Sweet Spot Figure 3.5 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.

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? 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.