Firm Resources and Sustained Competitive Advantage Written By Jay Barney Journal of Management Vol. 17, No.1, 1991 Summarised by RUMAJI Program Studi Doktor Ilmu Manajemen Fakultas Ekonomi Universitas Airlangga 2013

Overview Distinction between ‘environmental’ model of competitive advantage and ‘Resource-based’ model Framework used to structure understanding of Sustained Competitive Advantage – 1960’s

Overview Framework – SWOT Analysis Internal Analysis External Analysis Strengths Weaknesses Opportunities Threats Resource-based Model Environmental Model

Environmental Model Little emphasis on impact of idiosyncratic attributes on a firm’s competitive position Two simplifying assumptions: No difference between the strategically relevant resources of each firm and the strategies they pursue Where different resources develop, these will quickly become available to all Resources are homogeneous and mobile

Resource-based Model Resources can be heterogeneous and immobile Differences do exist between the strategically relevant resources of each firm and the strategies they pursue These resources are not mobile and so differentiation can be long-lasting Resources can be heterogeneous and immobile

Defining Resources Resources – all assets, capabilities, knowledge and experience controlled by a firm Physical Capital Resources – e.g. technology, location, equipment Human Capital Resources – experience, skills Organisational Capital Resources - Culture, formal reporting structures, control systems, coordinating systems, informal relationships

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.

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.

Competitive Advantage and Sustainable Competitive Advantage CA - When a firm implements a value-creating strategy not being simultaneously implemented by competitors SCA – as above + competitors are unable to duplicate

Building Sustainable Competitive Advantage Resources must be heterogeneous and immobile Also, must be Valuable Rare Imperfectly imitable No strategically equivalent substitutes

Sustainable Competitive Advantage The Question of Value: Capabilities are valuable when they enable a firm to conceive of or implement strategies that improve efficiency and effectiveness. Value is dependent on type of strategy: Low cost strategy: lower costs (Timex) Differentiator: add enhancing features (Rolex) 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 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. Some researchers think only organizational assets or resources are rare (such as culture). What do you think?

Sustainable Competitive Advantage 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) Imitating firms cannot duplicate the strategy since they do not understand why it is successful in the first place. Social Complexity (trust, teamwork, informal relationships, causal ambiguity where cause of effectiveness is uncertain) E.g. A competitor steals all the scientists in an R&D lab and relocates them to a new facility. But, the “dynamics”, “culture” and “atmosphere” are not the same.

Sustainable Competitive Advantage The Question of Substitutability There must be no equivalent resources that can be exploited to implement the same strategies. Forms of substitutability: Duplication: Although no two management teams are the same, they can be strategically equivalent, produce the same results. Substitution: Very different resources can be substitutes, e.g. A charismatic leader with a clear vision vs. a strategic planning dept. A superior marketing strategy for a recognized brand name. A superior technical support group for an intelligent diagnostic software package

Sustainable Competitive Advantage The Question of Exploitation: Later research qualified this as another critieria 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.

Summary Focus on Internal — describes firm’s internal characteristics and performance Firms have idiosyncratic, not identical strategic resources. Resources are not perfectly mobile and therefore heterogeneous. Firms cannot expect to simply ‘purchase’ Sustained Competitive Advantage Can only be found within the resources already controlled by the firm