1. Leveraging Resources and Capabilities
Chapter 3
Leveraging Resources and Capabilities
Global Strategy Mike W. Peng
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2. Outline Understanding resources and capabilities
Resources, capabilities, and the value chain
The VRIO framework
Debates and extensions
The savvy strategist
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3. 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
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4. Competing on Resources
Focus of the industry-based view:
How “average” firms within an industry compete.
Focus of the resource-based view:
How individual firms differ from each other within an industry and can outperform the industry average consistently and significantly.

5. 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.

6. 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
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7. The Value Chain
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Figure 3.1

9. In-House versus Outsource OUTSOURCING: Turning over all or part of an organizational activity to an outside supplier which will perform it on behalf of the focal firm.

10. The VRIO Framework VRIO Two Key Assumptions:
An analysis of the “sticky” nature of resources and capabilities of a firm and the difficulty of their replication elsewhere.
Two Key Assumptions:
Resource heterogeneity
Each firm has a unique combination of resources and capabilities such that no two firms are “twins.”
Resource immobility
Resources and capabilities unique to one firm cannot easily migrate to competing firms.

11. VRIO FRAMEWORK (additional case study: Enhancing VRIO @ Burberry)
Do resources or capabilities add value?
Are they rare?
How imitable are certain resources and capabilities?
How is the firm organized to deliver superb performance?
© M. W. Peng (

12. The VRIO Framework: Is a Resource or Capability…
COSTLY TO
IMITATE?
EXPLOITED BY
ORGANIZATION
VALUABLE?
RARE?
COMPETITIVE IMPLICATIONS
FIRM PERFORMANCE No No
Competitive disadvantage
Below average
Yes No
Yes
Competitive parity
Average
Yes
Yes No
Yes
Temporary competitive advantage
Above average
Yes
Yes
Yes
Yes
Sustained competitive advantage
Consistently above average
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.
Sources: Adapted from (1) J. Barney, 2002, Gaining and Sustaining Competitive Advantage, 2nd ed. (p. 173), Upper Saddle River, NJ: Prentice Hall; (2) R. Hoskisson, M. Hitt, & R. D. Ireland, 2004, Competing for Advantage (p. 118), Cincinnati: South-Western Cengage Learning..
Table 3.2

13. 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
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14. 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
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15. 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
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16. 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
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17. Strategic Sweet Spot Figure 3.5
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18. Debates and Extensions
Firm- versus Industry-Specific Determinants of Performance: Both views are complementary to each other
Static Resources versus Dynamic Capabilities
The resource-based view: incorporating dynamic capabilities
Tacit knowledge
“Learning before doing” versus “learning by doing”
Simple rules to guide behavior and decisions
Develop new resources/capabilities
Less bundled resources/capabilities
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19. Dynamic Capabilities in Slow- and Fast-Moving Industries
SLOW-MOVING INDUSTRIES
FAST-MOVING (HIGH-VELOCITY) INDUSTRIES
Market environment
Stable industry structure, defined boundaries,
clear business models, identifiable players,
linear and predictable change
Ambiguous industry structure, blurred boundaries,
fluid business models, ambiguous and shifting
players, nonlinear and unpredictable change
Attributes of
dynamic capabilities
Complex, detailed, analytic routines that
rely extensively on existing knowledge
(“learning before doing”)
Simple, experiential routines that rely on newly
created knowledge specific to the situation
(“learning by doing”)
Focus
Leverage existing resources and capabilities
Develop new resources and capabilities
Execution
Linear
Iterative
Organization
A tightly bundled collection of resources
with relative stability
A loosely bundled collection of resources that are
frequently added, recombined, and dropped
Outcome
Predictable
Unpredictable
Strategic goal
Sustainable competitive advantage
(hopefully for the long term)
A series of short-term (temporal)
competitive advantages
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.
Sources: Adapted from (1) K. Eisenhardt & J. Martin, 2000, Dynamic capabilities: What are they? Strategic Management Journal, 21: 1105–1121; (2) G. Pisano, 1994, Knowledge, integration, and the locus of learning, Strategic Management Journal, 15: 85–100.
Table 3.3

20. 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?
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22. The Savvy Strategist
Developing resources/capabilities that are valuable, rare, hard-to-imitate, and embedded in organizational structures and systems can help firms achieve successful performance
Lessons from the VRIO framework
Task for strategists - build firm strengths by identifying, developing, and leveraging resources/capabilities
Imitation is not likely to be a successful strategy
Sustained competitive advantage will not last forever
Firms should try to develop “strategic foresight”
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23. The Savvy Strategist (cont’d)
Four fundamental questions: Resource Based Views
Why do firms differ? Resource heterogeneity
How do firms behave? Take advantage of strengths and overcome weaknesses
What determines the scope of the firm? How a firm performs relative to rivals
What determines the international success and failure of firms? Firm-specific resources/capabilities and a bit of luck
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.