global strategy mike w. peng c h a p t e r 33 copyright © 2014 cengage learning. all rights...

Global StrategyGlobal StrategyMike W. PengMike W. Peng

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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.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.

Global StrategyGlobal StrategyMike W. PengMike W. Peng

Chapter 3

Leveraging Resources and

Capabilities

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.

Outline

• Understanding resources and capabilities

• Resources, capabilities, and the value chain

• The VRIO framework

• Debates and extensions

• The savvy strategist


Understanding Resources and Capabilities

• TangibleResources and

capabilities that are observable and easily quantified

Broadly organized in three categories:FinancialPhysical Technological

• IntangibleResources and

capabilities not easily observed or difficult (or impossible) to quantify

Examples include:Human Innovation Reputation

3–4

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.

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.

5


Resources, Capabilities, and the Value Chain

• Value ChainThe functional activities within the firm that

create value in the goods and services produced

• Components of the Value ChainPrimary activities

Are directly associated with the development, production, and distribution of goods and services

Support activitiesAssist in the accomplishment of primary activities


The Value Chain

Figure 3.1

9

In-House versus OutsourceOUTSOURCING: Turning over all or part of an

organizational activity to an outside supplier which will perform it on behalf of the focal firm.

3–10

The VRIO Framework

• VRIOAn 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 immobilityResources and capabilities unique to one firm

cannot easily migrate to competing firms.

© M. W. Peng (www.mikepeng.com)

VRIO FRAMEWORK(additional case study: Enhancing

VRIO @ Burberry)

Are they rare?

Do resources or capabilities add value?

How imitable are certain resources and capabilities?

How is the firm organized to deliver superb performance?

11


The VRIO Framework: Is a Resource or Capability…

Table 3.2

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..

VALUABLE? RARE?

COSTLY TO IMITATE?

EXPLOITED BYORGANIZATION

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


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


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


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


The VRIO Framework: Organization

• The Question of OrganizationHow 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

Strategic Sweet Spot


Figure 3.5


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

capabilitiesTacit knowledge“Learning before doing” versus “learning by

doing”Simple rules to guide behavior and decisionsDevelop new resources/capabilitiesLess bundled resources/capabilities


Dynamic Capabilities in Slow- and Fast-Moving Industries

Table 3.3

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.

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 shiftingplayers, nonlinear and unpredictable change

Attributes ofdynamic capabilities

Complex, detailed, analytic routines that rely extensively on existing knowledge(“learning before doing”)

Simple, experiential routines that rely on newlycreated 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 resourceswith relative stability

A loosely bundled collection of resources that arefrequently 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

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?


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”


The Savvy Strategist (cont’d)

•Four fundamental questions: Resource Based ViewsWhy do firms differ? Resource heterogeneityHow do firms behave? Take advantage of

strengths and overcome weaknessesWhat determines the scope of the firm? How a

firm performs relative to rivalsWhat determines the international success and

failure of firms? Firm-specific resources/capabilities and a bit of luck

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