© 2010 Cengage Learning. All rights reserved. CHAPTER 4 GLOBAL t PENG © 2010 Cengage Learning. All rights reserved.

Chapter 4 LEARNING OBJECTIVES After studying this chapter, you should be able to: Define resources and capabilities. Explain how value is created from a firm’s resources and capabilities. Articulate the difference between keeping an activity in-house and outsourcing it. Explain what a VRIO framework is. Explain how to use a VRIO framework to understand a firm’s resources and capabilities. Identify three things you need to do (and one thing you should avoid) as part of a successful career and business strategy. © 2010 Cengage Learning. All rights reserved.

© 2010 Cengage Learning. All rights reserved. SWOT ANALYSIS Strengths and Weaknesses – internal assessment of the organization leading to management decisions. Opportunities and Threats – external assessment of the business environment to identify the uncontrollable events that might impact management decisions. © 2010 Cengage Learning. All rights reserved.

LO1: RESOURCES AND CAPABILITIES The tangible and intangible assets a firm uses to choose and implement its strategies. Tangible resources and capabilities are easily observable and quantifiable. There are three categories: Financial – the depth of a firm’s financial pockets. Physical – plants, offices, equipment, geographic locations and access to raw materials. Technological – skills and assets that generating leading edge products and services. Intangible resources are harder to quantify than tangible resources, but they must exist since no firm gains a competitive advantage through tangible resources alone. Human – the knowledge, trust and talents embedded within a firm that are not captured by its tangible systems and structures. Innovation – a firm’s assets and skills to research and develop new products and services. Reputational – a firm’s abilities to develop and leverage its reputation as a solid provider of goods/services, an attractive employer, and/or a socially responsible corporate citizen. © 2010 Cengage Learning. All rights reserved.

© 2010 Cengage Learning. All rights reserved. LO2: THE VALUE CHAIN A value chain analysis shows how resources and capabilities come together to add value to a firm. The value chain consists of steps in the process of turning inputs to outputs. Value is added at each stage of the chain, from development to marketing. Each activity in the chain requires a number of resources and capabilities. Value chain analysis forces managers to think about resources and capabilities at a very micro, activity-based level. © 2010 Cengage Learning. All rights reserved.

LO2: TWO-STAGE DECISION MODEL Benchmarking - Given that no firm is likely to have enough resources and capabilities to be good at all primary and support activities, the key is to examine whether the firm has resources and capabilities to perform a particular activity in a manner superior to competitors. If managers find that their firm’s particular activity is unfavorable, a two-stage decision model can remedy the situation. © 2010 Cengage Learning. All rights reserved.

LO3: LOCATION, LOCATION, LOCATION There is some amount of confusion around “oustsourcing” and “offshoring.” The table above minimizes the confusion by expanding to four terms based on location: Offshoring – international/foreign outsourcing. Inshoring – domestic outsourcing. Captive sourcing – setting up subsidiaries abroad. Domestic in-house activity. Offshoring and inshoring are international and domestic variants of outsourcing, while captive sourcing is conceptually identical to foreign direct investment (FDI). A lesson to take away from this table is that value-adding activities may be geographically dispersed around the world, even for a single firm, to take advantage of the best locations and modes to perform certain activities. © 2010 Cengage Learning. All rights reserved.

© 2010 Cengage Learning. All rights reserved. LO4: VRIO FRAMEWORK alue – do firm resources and capabilities add value? arity – how rare are the resources and capabilities? rganizational – valuable, rare and hard to imitate resources must be well organized. mitability – valuable and rare resources provide competitive advantage only if they are rare. © 2010 Cengage Learning. All rights reserved.

LO5: USING A VRIO FRAMEWORK Resources and capabilities cannot be evaluated in isolation. The VRIO framework presents four interconnected and increasingly difficult hurdles for them to become a source of sustainable, competitive advantage. © 2010 Cengage Learning. All rights reserved.

© 2010 Cengage Learning. All rights reserved. DEBATE: OFFSHORING FOR: Value for firms in access to low-cost, high quality labor. Allows firms to focus on their core capabilities. AGAINST: Offshoring nurtures rivals. Negative impact on developed economies. US firms not bound by American ethical values. © 2010 Cengage Learning. All rights reserved.

LO6: THINGS TO DO FOR SUCCESS © 2010 Cengage Learning. All rights reserved.