Arturo Luna. Jose Mendoza. Jerry Cuellar. Vanessa Garcia

Resources  Tangible Resources  Intangible Resources Ex: Goal/Objective of Southwest Airlines is to provide the highest quality of customer service. Certain resources are needed to obtain that goalSouthwest Airlines  Human Resources

Capabilities  What a firm can do  Essence of a firm’s superior performance  Roots of competitiveness

Objectives  The important role of a firm’s resources and capabilities  Identify and appraise  Competitive advantage  Formulate a strategy  How can a firm develop those resources and capabilities  Difficulties management faces

Hyundai Motor Company Case  Considered low quality  Low foreign sales (US, China, Europe)  Recognized the need to acquire key capabilities with clear objectives Build production sites Develop research capabilities Enhance market knowledge and marketing skills Low foreign sales (US, China, Europe)  By 2009, became 4 th in sales, passing Ford

Role of Resources & Capabilities  As an industry becomes unstable…  Competitive Advantage vs. Industry Attractiveness

Developing a Strategy  Market-focused strategies do not provide stability or constancy of direction  Have to use a Resource-Based View  If the rate of change is greater than the change of the external environment…

 The corporate balance sheet provides a limited view on a firm’s resources. Three principles allow the company to identify the resources in a broader view: Tangible Resources Intangible Resources Human Resources

Easiest to identify and evaluate Financial resources and physical assets in the firm’s financial statements Primary goal of resource analysis is not to value a company’s assets, but to understand their potential for creating competitive advantage.

Intangible Resources  For most companies, intangible resources are more valuable than tangible resources  Brand names are the most important of these undervalued or unvalued intangible resources  Reputation asset: value is in the confidence they instill in customers

What company holds the most valuable brand? XzFmA

Human Resources  Comprise the expertise and effort offered by the employees  Competency modeling- identifying the set of skills, content knowledge, attitudes and values associated with superior performers  Organizational culture – relates to the organization's values, traditions and social norms

Identifying the organizations capabilities  Organizational Capability- a firm’s capacity to deploy resources for a desired end result  Core Competences according to Hamel and Prahalad include- Make a contribution to ultimate customer value, or to the efficiency with which that value is delivered Provide a basis for entering new markets

Two approaches to Classifying capabilities  Functional Analysis- identifies organizational capabilities in relation to each of the principal functional areas of the firm  Value Chain Analysis- separates the activities of the firm into a sequential chain

Appraising resources & capabilities  Provide a long-term focus for a company’s strategy and how we can go about identifying them.  Must appraise the potential for resources and capabilities to earn profits for the company.  This all depends on three factors: 1. Establish a competitive advantage 2. Sustain that competitive advantage 3. Appropriate the returns to that competitive advantage.

Establishing Competitive Advantage  For a resource or capability to establish a competitive advantage, two conditions must be present: 1. Scarcity- If a resource or capability is widely available within the industry, then it may be essential to compete, but it will not be a sufficient basis for competitive advantage. 2. Relevance- A resource or capability must be relevant to the key success factors in the market.

Sustaining Competitive Advantage  The profits earned from resources and capabilities depend not just on their ability to establish competitive advantage, but on how long that advantage can be sustained. Resources and capabilities must be durable and imitable.  Replicability- If a firm cannot buy a resource or capability, it must build it.  You have to keep looking for opportunities to grow and stay on top! EYFc EYFc

Appropriating the returns to Competitive Advantage  Who gains the returns generated by superior capabilities? We should normally expect that such returns accrue to the owner of that capability.  Capabilities depend heavily on the skills and efforts of employees – who are not owned by the firm.

Putting resource and capability analysis to work: A practical guide  Step 1: Identify the key resources and capabilities. What factors determine why some firms in an industry are more successful than others?  Step 2: Appraising resources and capabilities. Need to be appraised against two key criteria. First is their importance. Second, where are our strengths and weaknesses as compared to competitors? Benchmarking is a powerful tool used in this step.  Step 3: Developing strategy implications. Must exploit all the key strengths and manage key weaknesses.

Developing Resources & Capabilities  Linkage between Resources & Capabilities isn’t entirely well understood.  Access to plentiful Resources does NOT guarantee great organization Capabilities.  Smaller organizations with focused resources can create impressive capabilities.

Path Dependency & Early Experiences  Managers play a critical role in developing capabilities.  Founders of new companies generally have experience in the same or a similar industry sector.  Distinctive Capabilities can be traced to circumstances present during a company’s creation.

Linkage between Resources & Capabilities  Capabilities involves coordinating team members to integrate their skills with each other and organization resources. Factors Affecting Coordination 1. Organizational Learning: coordination is perfected through repetition 2. Organizational Culture: team members are allowed to collaborate freely without fear of micro-management

Rigid or Dynamic Capabilities?  Highly developed capabilities are difficult to adapt to new circumstances, therefore capabilities are rigid. Arguments Against Rigidity of Capabilities 1. Flexibility in Organizational Routines 2. Dynamic Capability Dynamic Capabilities are rare and can inhibit developing capabilities in new products or technologies.

Developing Capabilities Externally Acquisitions are an easy way to obtain a desired capability. Downsides: 1. High Premium 2. Surplus of Resources & Capabilities 3. Assimilation and Integration Strategic Alliances grant access to competing firms’ capabilities through cooperation. Requires a high Relational Capability.

Developing Capabilities Internally Capabilities developed internally must be systematic. 1 st Step: Concentrate resources on a few specific priorities 2 nd Step: Accumulate resources to accelerate learning Over time, firms develop integrative knowledge.

Summary  Firm’s internal environment focuses on what a firm can do  Analyze available resources to understand what capabilities can be developed  Able to form a strategy for the firm