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c chapter
hapter

Leveraging
Resources
and Capabilities
Part I: Foundations of Global Strategy

Global Strategy
Mike W. Peng
Copyright 2009 Cengage.
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All rights
rights reserved.
reserved.

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by John
John Bowen,
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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.

32

Understanding Resources and


Capabilities
Tangible
Intangible
Resources and
capabilities that are
observable and
easily quantified
Broadly organized in
four categories:
Financial
Physical
Technological
Organizational
Copyright 2009 Cengage. All rights reserved.

Resources and
capabilities not
easily observed or
difficult (or
impossible) to
quantify
Examples include:
Human
Innovation
Reputational
33

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

INTANGIBLE RESOURCES AND CAPABILITIES

EXAMPLES

Human

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

Knowledge
Trust
Managerial talents
Organizational culture

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. 100104), Cambridge, UK: Blackwell; (3) R.
Hall, 1992, The strategic analysis of intangible resources (pp. 136139), Strategic Management Journal, 13: 135144.

Copyright 2009 Cengage. All rights reserved.

Table 3.1
34

Resources, Capabilities,
and the Value Chain
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.

35

The Value Chain

Panel A. An example of value chain with firm boundaries


Figure 3.1
Copyright 2009 Cengage. All rights reserved.

36

The Value Chain (contd)

Panel B. An example of value chain with some outsourcing


Figure 3.1 contd
Copyright 2009 Cengage. All rights reserved.

37

A Two-Stage Decision Model in Value Chain Analysis

Figure 3.2
Copyright 2009 Cengage. All rights reserved.

38

The VRIO Framework:


Features of a Resource or Capability

VALUABLE?

RARE?

COSTLY TO
IMITATE?

No

EXPLOITED BY
ORGANIZATION

COMPETITIVE IMPLICATIONS

FIRM PERFORMANCE

No

Competitive disadvantage

Below average

Yes

Competitive parity

Average

Yes

No

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
39

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 cant make money from it

Copyright 2009 Cengage. All rights reserved.

310

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.

311

The VRIO Framework: Imitability


(contd)

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.

312

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.

313

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.

314

Offshoring versus Non-Offshoring


Domestic ResourcesVS International
Capabilities

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315

This is a completely new business, so theres


only so much analysis you can do . . .
Its better to put something out there and see the
reaction and fix it on the fly.
You could spend six months getting it perfect in
the lab . . . But were better off spending six days
putting it out there, getting feedback, and then
evolving it. (Meg Whitman, eBays CEO)

Copyright 2009 Cengage. All rights reserved.

316

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: 11051121; (2) G. Pisano, 1994, Knowledge,
integration, and the locus of learning, Strategic Management Journal, 15: 85100.

Copyright 2009 Cengage. All rights reserved.

Table 3.3
317

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.

318

The Savvy Strategist (contd)


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.

319

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