Week 5 - Resources & Capabilities

Question 1

Resources based view (1)

Answer 1

• Conceptualised by Barney (1991) as a criticism of too much focus on the external analysis (mainly ‘Five Forces’) in understanding competition and competitive advantage.
  
-The principle criticism concludes that:
  
1) External analysis models assuming that firms within an industry (or in a strategic group) are homogeneous (i.e., identical) in terms of strategic resources they control and in strategies they pursue. 
2) If there is a resource heterogeneity in an industry or strategic group, this will be short lived since all firms can adopt the same resources by buying them from the market (e.g., IT systems, raw materials).

Question 2

Resource-based view (2)

Answer 2

The resource-based view (RBV) of strategy asserts that:

• The competitive advantage and superior performance of an organisation are explained by the distinctiveness of its capabilities.

• It is sometimes also called the ‘capabilities view’.

Question 3

Resources and capabilities

Answer 3

• The resources and capabilities of an organisation contribute to its long-term survival and to competitive advantage. 

• Resources are the assets that organisations have or can call upon (e.g. from partners or suppliers), that is ‘what we have’. 

• Capabilities (or competences) are the ways in which assets are used or deployed, that is ‘what we do well’. 

• Core competences explain what firms do particularly well.

Question 4

Resources and capabilities - fast fashion (H&M)

Answer 4

• resources: Tangible- physical facilities (offices, distribution facilities, doesn’t own stores), financial resources (strong commitment from founding family, financial security and profits). Intangible- brand (worldwide), human resources (design knowledge, fashion trends, creativity), culture (family business mentality rested on team work and autonomy).
• Capabilities: Motivation and empowerment of human resources- (creative freedom, experimentation, informal environment, employee involvement at high levels). Supply chain management- 50 production offices and over 900 suppliers feeds fast fashion mentality.
• Core Competences: Replication- informal working, speed of actions, and increased agility which is difficult to imitate, ‘the spirit’

Question 5

Core Competences

Answer 5

• Core competences explain what firms do particularly well. 

• Core competences are the linked set of skills, activities and resources that, together: 

  • Deliver customer value. 

  • Differentiate a business from its competitors. 

  • Potentially, can be extended and developed as markets change or new opportunities arise.

Question 6

Types of resource and capabilities

Answer 6

• Some might also consider intellectual resources as being separate- patents, unique IP, etc

Question 7

Threshold and Distinctive resources and capabilities

Answer 7

• Threshold resources and capabilities are those needed for an organisation to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market – ‘qualifiers’. (Skills/Experience required in Job description)

• Identifying and managing threshold resources and capabilities raises a significant challenge because threshold levels will change as critical success factors change.
  
- Distinctive resources and capabilities are those that are required to achieve competitive advantage. Distinctive or unique capabilities that are of value to customers and which competitors find difficult to imitate – ‘winners’. (Skills/Experience desired in Job description)

Question 8

Types of competitive advantages

Answer 8

• All firms need competitive advantage- we explored this with the external environment. 

• Competitive advantage is also relevant to what resources and capabilities firms have, and how they demonstrate core competences.
  
- Classifying competitive advantage into ‘types’ is useful in understanding the perceived value of the competitive advantage created and achieved.

Question 9

Competitive parity

Answer 9

• Competitive parity is the level of competition needed to compete at a reasonable level in an industry. 

• Competitive parity is a base-line level and though firms will survive with this, it will not make them market-leaders and they may become vulnerable in the future. 

• An example is a local hairdressers which have trained staff, adequate equipment, and offers a basic no-frills service without high profile products.

Question 10

Temporary competitive advantage

Answer 10

• Having a temporary competitive advantage means advantage is created and achieved in the shortterm.
  
- It might become less valuable for firms over time and move towards competitive parity. 

• An example is firms adopting blockchain technologies for smart contracting and negotiations in the last year.

Question 11

Sustained competitive advantage

Answer 11

• Sustained competitive advantage Sustained competitive advantage is what all (competitive) organisations strive for, and means they have a rare and hard to imitate advantage over rivals which brings value.
  
- Many of the market-leaders in industries have created and achieved sustained competitive advantage through a combination of resources, capabilities and core competences. 

• An example is Singapore Airlines model of balancing quality and luxury economy experience with competitive pricing

Question 12

VRIO framework

Answer 12

• The VRIO framework offers a mean by which to analyse firms resources and capabilities and their relation to competitive advantage.
  
- The framework asks four questions and goes through these in a linear way.
  
- Again it is a practical tool used by organisations, managers, and consultants.

Question 13

4 Key Criteria VRIO Framework

Answer 13

• The four key criteria or questions by which resources and capabilities can be assessed in terms of providing a basis for achieving sustained competitive advantage are: 

  • Value - do resources and capabilities exist that are valued by customers and enable the organisation to respond to environmental opportunities or threats? 

  • Rarity - do resources and capabilities exist that no (or few) competitors possess? 

  • Inimitability - are resources and capabilities difficult and costly for competitors to obtain and imitate? 

  • Organisational support (or ‘organized’) - is the organisation appropriately organised to exploit the resources and capabilities?

Question 14

Valuable

Answer 14

• Taking advantage of opportunities and neutralising threats. 

• Value to customers shouldn’t be overlooked.
  
- The product or service needs to be provided at a cost that still allows the organisation to make the returns expected of it.

Question 15

Rare

Answer 15

• Valuable but commonly widespread resources/capabilities are less attractive. 

• Rarity can be key to long-lasting competitive advantage but not necessarily relied on.

Question 16

Inimitable

Answer 16

• Can be a sort of defence mechanism for organisations, and can be a point of frustration for competitors- complexity can be a factor and causal ambiguity occurs.
  
- Tacit knowledge is important (difficult to imitate but also difficult to explain/document). Culture and history can be a factor.

Question 17

Organisational Support

Answer 17

• Understanding the basis for competitive advantage is important and being able to recognise which need to be ’assembled’.
  
- Training, culture, good management are challenging but can contribute to organisational support.

Question 18

Summary and Implications of VRIO

Answer 18

• Resources/capabilities – it helps organisations understand their strengths and weaknesses.
  
- Competitive advantage – It guides organisations through their resources and capabilities relevant to different types of perceived competitive advantage.
  
- Rivalry – It can also help organisations understand their rivals to some degree, by looking ‘inwards’ at their own competitive advantage then ‘outwards’ to what others might be doing differently/better.

Question 19

The value chain

Answer 19

• The value chain describes the categories of activities within an organisation, which, together, create a product or service. 

• The value chain attempts to identify those activities that add value to the customer or final user.
  
- The value chain consists of five primary activities (which are directly concerned with the creation or delivery of a product or service) and four support activities (which help to improve the effectiveness or efficiency of primary activities).
  
- Competitive advantage can be analysed in any of these activities.

Question 20

Benchmarking

Answer 20

• Benchmarking is a means of understanding how an organisation compares with others – typically competitors.
  
- Two approaches to benchmarking: 

  1) Industry/sector benchmarking – comparing performance against other organisations in the same industry/sector against a set of performance indicators. 

  2) Best-in-class benchmarking – comparing an organisation’s performance or capabilities against ‘best-in-class’ performance – wherever that is found even in a very different industry. (e.g. Southwest Airlines benchmarked its refuelling operations against Formula 1

Question 21

SWOT analysis

Answer 21

• SWOT brings together what we have explored in weeks so far (including this week), and analyses the business environment and the strategic capability of an organisation relative to its competitors.
  
- It provides a general summary of the Strengths and Weaknesses explored in an analysis of strategic capabilities (this week and previous week), and the Opportunities and Threats explored in an analysis of the environment (earlier weeks). 

  INTERNAL ANALYSIS = STRENGTHS WEAKNESSES 

  EXTERNAL ANALYSIS = OPPORTUNITIES THREATS 

• Criticised by Porter for being too ‘general’ and lacking specific detail in relation to external analysis

Question 22

Dynamic Capabilities (reading)

Answer 22

• Resources and capabilities may become rigid as time goes on….
  
- Organisations need to create new resources and capabilities to create competitive advantage.
  
- Dynamic capabilities are the ‘answer’ to this. 

• “The firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments. Dynamic capabilities thus reflect an organisation’s ability to achieve new and innovative forms of competitive advantage given path dependencies and market positions”

Question 23

Three different modules of strategy

Answer 23

• These models emphasise the exploitation of market power, and the review is critical of two extant models.
  
- This criticism provides the platform through which the authors call for the third and new model of strategy - dynamic capabilities.

Question 24

There are 3 capabilities outlined in the dynamic capabilities model

Answer 24

1) Sensing capabilities – constantly scanning and exploring new opportunities across markets and technologies (e.g. R&D and market research).

2) Seizing capabilities – addressing opportunities through new products, processes and activities. 

3) Re-configuring capabilities – new products and processes may require renewal and re-configuration of capabilities and investment in new technologies.