1. Creating Sustainable Competitive Advantages: Resources and Capabilites

2. Profitability Differences Between Industries

3. Profitability Differences within Industries

4. Calibrating Profit Drivers
Industry
Positioning
Residual
Corporate
Source: Richard P. Rumelt, “How Much Does Industry Matter?,”
Strategic Management Journal, 1991; 12: 19 6

5. What makes an advantage sustainable?
DeHavilland
Boeing

6. What makes an advantage sustainable?
DeHavilland
EMI
Boeing GE

7. What makes an advantage sustainable?
DeHavilland
EMI
Xerox
Boeing GE
IBM

8. What makes an advantage sustainable?
DeHavilland
EMI
Xerox
Ampex
Boeing GE
IBM
Matsushita

9. What makes an advantage sustainable?
DeHavilland
EMI
Xerox
Ampex
RC Cola
Boeing GE
IBM
Matsushita
Coca Cola

10. What makes an advantage sustainable?
DeHavilland
EMI
Xerox
Ampex
RC Cola
Bowmar
Boeing GE
IBM
Matsushita
Coca Cola
Texas Instruments

11. What makes an advantage sustainable?
DeHavilland
EMI
Xerox
Ampex
RC Cola
Bowmar
Raytheon
Boeing GE
IBM
Matsushita
Coca Cola
Texas Instruments
Samsung

12. Organizational capital Tangible vs. Intangible
Resources
Physical capital
Human capital
Organizational capital
Tangible vs. Intangible
Physical capital = plant & equuipment, geographic location, access to raw materials, etc.
examples??
Human cap= training, experience, judgment, intelligence, relationships, and insight of people in the firm.
Org capital = structure, org, informal planning & coordination -- KEYWORD CAPABILITIES
Where does reputation, etc. fit in?

13. Attributes of Resources
Customer Demand
Substitutability
Appropriability
Capacity
Imitability
Fungibility
Customer Demand
Substitutability = replacing one resource with another (outpatient clinics for inpatient)
Appropriability = capturing returns generated by resources (stars in sports; biotech firms without distribution) Hlth care examples - ???
Capacity = fixed (i.e. physical); unbounded (reputation, brand names) implications for diversification -- Where does skill come in? What would Penrose say? (Mayo Clinic Medical Guide)
long-term vs short-term -- decay rates
Imitability =
fungibility = how many markets can a resource be applied in? (core competence idea) -- gen mgt skills, knowhow (i.e. Sharp)

14. What are your organization’s resources?

15. Assessing the Profit-Earning Potential of Resources

16. Resources and Sustainable Competitive Advantage -- VRIO Model
Valuable
Rare
Imitable
Organization (Implementation)

17. The Question of Value
Do a firm’s resources and capabilities enable the firm to respond to environmental threats or opportunities?

18. Changes in resource value
Value Challenge
Changes in resource value
GE - transistors
Swiss watch industry (quartz)
Forecasting difficulty

19. Question of Rareness
How many competing firms already possess particular valuable resources and capabilities?
e.g. Telephone systems and IT hardware

20. Question of Imitability
Do firms without a resource or capability face a disadvantage in obtaining it compared to firms that already possess it?

21. Sources of Disadvantage in Imitating Resources
1. Unique Historical Conditions
(Caterpillar, Coca Cola)
1st mover advantages
path dependence
2. Causal Ambiguity
taken for granted
multiple hypotheses
complexity (interactions)
3. Social Complexity

22. The Challenge of Imitation
Cannot be imitated
Patents
Unique locations
Difficult to imitate
Brand loyalty
Employee commitment
Reputation
Can be imitated - but may not be
Capacity pre-emption
Economies of scale
Easy to imitate
Cash
Commodities

23. Question of Organization
Is a firm organized to exploit the full competitive potential of its resources and capabilities?
Complementary capabilities (EMI, Xerox)

24. VRIO Framework
Is a resource or capability . . .

25. VRIO Framework
Is a resource or capability . . .

26. VRIO Framework
Is a resource or capability . . .

27. VRIO Framework
Is a resource or capability . . .

28. What is the profit potential of Wal-Mart’s resources and capabilities?

29. What is the profit potential of your resources and capabilities?

30. Framework for Analyzing Resources and Capabilities
1. Identify resources and capabilities.
Value Chain Analysis
Appraise strengths and weaknesses
2. Appraise the profit-earning potential of resources/capabilities
3. Select strategy
4. Identify gaps in resources and capabilities that need to be filled

31. Generic Strategies
Source of Advantage
Competitive
Scope

32. Types of Advantage Cost Differentiation Innovation Quality
Customer Service/Responsiveness
What resources contribute to what advantages?

33. Typical Resource Profiles
Cost Leaders
Differentiators
Scale efficient plants
Process design
Tight cost control
Structured organization and reporting system
Clear, quantitative targets
Marketing ability
Product development
Creativity
Research capability
Strong, interfunctional coordination
Qualitative measures /incentives

34. Comparison of Strategic Perspectives
Adapted from Brown & Eisenhardt, Competing on the Edge

35. Comparison of Strategic Perspectives
Adapted from Brown & Eisenhardt, Competing on the Edge

36. Comparison of Strategic Perspectives
Adapted from Brown & Eisenhardt, Competing on the Edge

37. Comparison of Strategic Perspectives
Adapted from Brown & Eisenhardt, Competing on the Edge