1. Leveraging Resources and Capabilities3
Leveraging Resources and Capabilities
chapter
Part I: Foundations of Global Strategy
Global Strategy Mike W. Peng
Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community College All rights reserved.

2. Outline Understanding resources and capabilities
Resources, capabilities, and the value chain
The VRIO framework
Debates and extensions
The savvy strategist
Copyright © 2009 Cengage. All rights reserved.

3. Understanding Resources and Capabilities
Tangible
Resources and capabilities that are observable and easily quantified
Broadly organized in four categories:
Financial
Physical
Technological
Organizational
Intangible
Resources and capabilities not easily observed or difficult (or impossible) to quantify
Examples include:
Human
Innovation
Reputational
Copyright © 2009 Cengage. All rights reserved.

4. Examples of Resources and Capabilities
TANGIBLE RESOURCES AND CAPABILITIES
EXAMPLES
Financial
Ability to generate internal funds
Ability to raise external capital
Physical
Location of plants, offices, and equipment
Access to raw materials and distribution channels
Technological
Possession of patents, trademarks, and copyrights
Organizational
Formal planning, command, and control systems
Integrated management information systems
INTANGIBLE RESOURCES AND CAPABILITIES
EXAMPLES
Human
Knowledge
Trust
Managerial talents
Organizational culture
Innovation
A supportive atmosphere for new ideas
Research and development capabilities
Capacities for organizational innovation and change
Reputational
Perceptions of product quality, durability, and reliability among
customers
Reputation as a good employer
Reputation as a socially responsible corporate citizen
Sources: Adapted from (1) J. Barney, 1991, Firm resources and sustained competitive advantage (p. 101), Journal of Management, 17: 101; (2) R. Grant, 1991, Contemporary Strategy Analysis (pp. 100–104), Cambridge, UK: Blackwell; (3) R. Hall, 1992, The strategic analysis of intangible resources (pp. 136–139), Strategic Management Journal, 13: 135–144.
Copyright © 2009 Cengage. All rights reserved.
Table 3.1

5. 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
Copyright © 2009 Cengage. All rights reserved.

6. The Value Chain
Panel A. An example of value chain with firm boundaries
Copyright © 2009 Cengage. All rights reserved.
Figure 3.1

7. The Value Chain (cont’d)
Panel B. An example of value chain with some outsourcing
Copyright © 2009 Cengage. All rights reserved.
Figure 3.1 cont’d

8. A Two-Stage Decision Model in Value Chain Analysis
Copyright © 2009 Cengage. All rights reserved.
Figure 3.2

9. The VRIO Framework: Features of 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
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: Thomson South-Western.
Copyright © 2009 Cengage. All rights reserved.
Table 3.2

10. 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
Copyright © 2009 Cengage. All rights reserved. 4

11. The VRIO Framework: Imitability
Easier to imitate tangible resources/capabilities than tangible ones
Two ways to imitate - direct duplication and substitution
Direct duplication - most difficult
Substitution - less challenging, but not easy
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
Copyright © 2009 Cengage. All rights reserved. 4

12. 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
Copyright © 2009 Cengage. All rights reserved.

13. 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
Copyright © 2009 Cengage. All rights reserved. 4

14. 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
Copyright © 2009 Cengage. All rights reserved. 4

15. 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
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.
Copyright © 2009 Cengage. All rights reserved.
Table 3.3

16. 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”
Copyright © 2009 Cengage. All rights reserved. 4

17. 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 © 2009 Cengage. All rights reserved.