ibmp - strat mment - comp adv - chap 3 - june-oct 2010ibmp.bus.tu.ac.th/documents ป.โท/ai616-...

ChapterChapter 33

Evaluating a Evaluating a Chapter Chapter 33

Firm’sFirm’sInternalInternalInternal Internal CapabilitiesCapabilities

Copyright © Copyright © 2010 2010 Pearson Education, Inc. publishing as Prentice Hall.Pearson Education, Inc. publishing as Prentice Hall. 33--11

Evaluating a Firm’s Internal CapabilitiesEvaluating a Firm’s Internal Capabilities

What Does Internal Analysis Tell Us?Internal analysis provides a comparative look at a firm’s capabilities

• what are the firm’s strengths?

• what are the firm’s weaknesses?at a e t e s ea esses

how do these strengths & weaknesses compare• how do these strengths & weaknesses compareto competitors?

Copyright © Copyright © 2010 2010 Pearson Education, Inc. publishing as Prentice Hall. Pearson Education, Inc. publishing as Prentice Hall. 33--22


Why Does Internal Analysis Matter?

Internal analysis helps a firm:

• determine if its resources and capabilities aredetermine if its resources and capabilities arelikely sources of competitive advantage

• establish strategies that will exploit any sourcesof competitive advantageof competitive advantage



The Theory Behind Internal AnalysisTh R B d ViThe Resource-Based View

• Why do some companies achieve better• Why do some companies achieve better economic performance than other companies?

• an aid to helping used to help firms achievecompetitive advantage and better economicperformance

• But this approach assumes that a firm’s resources

performance

and capabilities are the main drivers of competitiveadvantage and economic performance



The Resource-Based ViewResources and Capabilities

Resources:esou ces• tangible and intangible assets of a firm

» tangible: factories, products intangible: reputationg p g p

• used to discuss / develop and implementstrategies g

Capabilities:b t f th t bl fi t• a subset of resources that enable a firm to

take full advantage of other resources» marketing skill cooperative relationships


» marketing skill, cooperative relationships


The Resource-Based ViewResources and Capabilities

Are these resourcesFirm Assets:

Machinery

or capabilities?

?y

Collective Product Design Skill ?

Recruiting Skill ?

Engineering Skill of Individuals

Mineral Deposits ?

?


Mineral Deposits ?


The Resource-Based View

Four Categories of Resources

• Financial (cash, retained earnings)

• Physical (plant & equipment, geographic location)

• Human (skills & abilities of individuals)

• Organizational (reporting structures, relationships)

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall. 33--77


The Resource-Based ViewTwo Critical Assumptions of the RBV

R diff• Resource differences

» different firms may have different resources

• Resource Immobilityy

» it may be costly for firms without certainresources to acquire or develop themresources to acquire or develop them

» some resources may not spread from firm tofi il


firm easily


The Resource-Based ViewWhat do these assumptions really mean?

• if one firm has resources that are valuable• if one firm has resources that are valuableand other firms don’t, and…

• if other firms can’t imitate these resourceswithout incurring high costs, then…

• the firm possessing the valuable resourceswill likely gain a sustained competitivewill likely gain a sustained competitive advantage



The Resource-Based ViewR l

• monopoly of resources typically occurs as the

Resource monopoly

• monopoly of resources typically occurs as the result of ‘bundling’ the resources and capabilitiesof a firm

• managers of a firm could take resources that seemto be a ‘monopoly’ and ‘bundle’ them to createto be a monopoly and bundle them to createmonopoly combinations

• competitive advantage often comes from severalresources and capabilities ‘bundled’ together



The Internal Analysis ToolThe VRIO Framework:

Four Important Questions:Four Important Questions:

• Value

• Rarity

• Imitability

• Organization



The VRIO Framework

If a firm has resources that are:

• valuable,• rare andrare, and• costly to imitate, and…

th fi i i d t l it th• the firm is organized to exploit these resources,

then the firm can expect to enjoy a sustainedp j ycompetitive advantage.



The VRIO Framework

Applying the Tool

• a resource or bundle of resources is subjected toeach question to determine the competitiveeach question to determine the competitiveimplication of the resource

• each question is considered in a comparativesense (competitive environment)sense (competitive environment)



Applying the VRIO Framework

The Question of Value

• in theory: Does the resource enable the firmto exploit an external opportunity or neutralizep pp yan external threat?

• the practical: Does the resource result in anincrease in revenues, a decrease in costs, orsome combination of the two? (Levi’s reputationallows it to charge a premium for its Docker’s pants)




The Question of Rarity

• if a resource is not rare, then perfect competitiondynamics are likely to be observed (i.e., no

titi d t b l fit )

• a resource must be rare enough that perfect

competitive advantage, no above normal profits)

competition has not set in

• thus there may be other firms that possess thethus, there may be other firms that possess theresource, but still few enough that there is scarcity (several pharmaceuticals sell cholesterol-lowering


( gdrugs, but the drugs are still scarce—look at prices)



Valuable and Rare

If a firm’s resources are: The firm can expect:

Not Valuable Competitive Disadvantage

Valuable, but Not Rare Competitive Parity

Valuable and Rare Competitive Advantage(at least temporarily)


( p y)


Applying the VRIO FrameworkThe Question of Imitability (copying or repeating)

• the temporary competitive advantage of valuablethe temporary competitive advantage of valuableand rare resources can be sustained only if competitors face a cost disadvantage in imitating(copying or repeating) the resource

» intangible resources are usually more» intangible resources are usually morecostly to imitate than tangible resources(Example: Harley-Davidson’s or Levi’s styles( a p e a ey a dso s o e s sty escould easily be imitated (copied), but their reputations cannot easily be copied)



Applying the VRIO FrameworkThe Question of Imitability (copying or repeating)

• if there are high costs of imitation then the firm• if there are high costs of imitation, then the firmmay enjoy a period of sustained competitiveadvantageg

» a sustained competitive advantage will lastonly until a duplicate or substitute emerges

if a firm has a competitive advantage othersif a firm has a competitive advantage, otherswill attempt to imitate it (Razor scooterswere a big hit and others quickly imitated them)



Applying the VRIO FrameworkThe Question of Imitability

Costs of ImitationCosts of Imitation

Unique Historical Conditions. Example ‘Caterpillar’Unique Historical Conditions. Example Caterpillar

• first mover advantages, so strong that Caterpillarg , g phas been able to decide it’s own development path with little concern about competitors



Applying the VRIO FrameworkThe Question of ImitabilityThe Question of Imitability

Costs of Imitation (copying or repeating)Patents:

• Gaining a ‘patent’ on a product could be• Gaining a patent on a product could be a two edged sword:• Short-term the patent offer a period of• Short-term – the patent offer a period of

protection but many patents have a short life by lawy

• However the required disclosure may actuallydecrease the cost of imitation, and the timing


g



Value, Rarity, & Imitability

If a firm’s resources are: The firm can expect:

Valuable, Rare, butnot Costly to Imitate

TemporaryCompetitive Advantagenot Costly to Imitate Competitive Advantage

SustainedValuable, Rare, andCostly to Imitate

SustainedCompetitive Advantage

(if Organized appropriately)


( g pp p y)


Applying the VRIO FrameworkThe Question of Organization

• a firm’s structure and control mechanismsmust be aligned so as to give people abilityand incentive to exploit the firm’s resources:

• examples: formal and informal reporting structures,management controls, compensation policies,relationships, etc.

• these structure and control mechanisms complementother firm resources—taken together, they can help a firm achieve sustained competitive advantage(3M Company)


(3M Company)


The VRIO FrameworkThe VRIO Framework

Costly to Exploited by CompetitiveValuable? Rare?

Costly toImitate?

Exploited byOrganization?

CompetitiveImplications

N N Di d tNo No Disadvantage

Yes No Parity

Yes Yes NoTemporaryAdvantage

Yes Yes Yes Yes SustainedAdvantage


Advantage


The VRIO FrameworkThe VRIO Framework

Costly to Exploited by Competitive EconomicValuable? Rare?

Costly toImitate?

Exploited byOrganization?

CompetitiveImplications

N N

EconomicImplications

BelowNo No Disadvantage BelowNormal

Yes No Parity Normal

Yes Yes NoTemporaryAdvantage

AboveNormal

Yes Yes Yes Yes SustainedAdvantage

AboveNormal


g


Competitive Dynamics of Resource Imitation

Competitive Dynamics:

• the strategic decisions and actions of firms inresponse to the strategic decisions and actionsof other firms

Firm B’s Possible Responses

Firm A(strategy decisions

No Response(strategy decisionslead to competitive

advantage)

Change Tactics

Change Strategy


advantage) Change Strategy


Competitive Dynamics“N A ti ” R (R l C i )

A firm may decide to take no action because:

“No Action” Response (Rolex Casio)

• the other firm is serving a different market

y

• a response may hurt its own competitiveadvantage

• it does not have the resources and capabilitiesto mount an effective response

• it wants to reduce or manage rivalry in themarket through tacit collusion



Competitive Dynamics“Change” Responses

Tactics (Tide) Strategy (Monsanto)Tactics (Tide) Strategy (Monsanto)

• specific actionst ki d t

• a fundamental changein a firm’s theory» tweaking product

characteristicsusually imitated so

in a firm s theory• may be necessary if

current strategy• usually imitated soquickly that there isno advantage

current strategybecomes obsolete

• a mimetic change mayno advantage• a ‘leap frog’ move

may create advantage

• a mimetic change mayachieve parity, but notadvantage


may create advantage g


Competitive DynamicsI it ti ill ld l d t titi d tImitation will seldom lead to competitive advantage

• Companies should use resources andCompanies should use resources andcapabilities to find and fill unique competitivespaces, rather than use their resources and capabilities to try to imitate (copy) other products



Internal AnalysisAssumes:Assumes:

• determinates of economic performance are• determinates of economic performance arefirm-level characteristics (resources & capabilities)

» firms may be different (monopoly)

diff b d i (i bilit )» differences may be enduring (immobility)

titi d t t f• competitive advantage stems from resourcesand capabilities that meet the VRIO criteria



The Resource-Based View

Resources & CompetitiveAd tCapabilities Advantage

• Valuable

• Rare

CA will be sustained if:

• other firms’ costs ofRare

• Costly to Imitate

• other firms costs of imitation are greaterthan benefit of imitation

• Organized to Exploit • the firm is organizedto exploit advantages


p g


An Internal Analysis can tell us:• what the firm should do, given the relative

strengths and weaknesses of resources andcapabilities

Senior managements’ JOB:

capabilities

• bundle the available positive resourcesand capabilities to achieve competitiveadvantage

VRIO Framework can Help Managers RecognizeVRIO Framework can Help Managers RecognizeSources of Competitive Advantage


ibmp - strat mment - comp adv - chap 3 - june-oct 2010ibmp.bus.tu.ac.th/documents ป.โท/ai616-...

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