UNLV MBA 795 - Lecture 4 Analyzing Resources and Capabilities

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Analyzing Resources & CapabilitiesSome game theory observationsSlide 3Rationale for the Resource-based Approach to StrategySlide 5The Rent-Earning Potential of Resources and CapabilitiesCompetitive AdvantageSustainability of RentsAppropriabilityAppraising ResourcesCapabilitiesIdentifying Organizational Capabilities: A Functional ClassificationEastman Kodak’s DilemmaSlide 14The Value Chain: The McKinsey Business SystemThe Porter Value ChainSlide 17Slide 18Slide 19Appraising VW’s Resources and CapabilitiesAppraising the Capabilities of a Business SchoolCaseAnalyzing Resources & CapabilitiesAnalyzing Resources & Capabilities•The role of resources and capabilities in strategy formulation.•The resources of the firm•Organizational capabilities•Appraising the profit potential of resources and capabilities •Putting resource and capability analysis to work—a practical guideOUTLINESome game theory observations•Is the simulation game turning out to be a prisoner’s dilemma, battle of the sexes, or game of chicken coordination problem?•Consider the recent behavior of some builders–pedal to the metal1, 1-1, -1-2, 22, - 21, 0 -1, -1-1, -10, 10, 0-2, 22, -2-10, -10Swerve or notHis choice or her choiceDefect or notQDHerHisACQuiet Defect Her Way His Way AggressorChickenTHE FIRMGoals and ValuesResources andCapabilitiesStructure and SystemsTHE INDUSTRYENVIRONMENT•Competitors•Customers•SuppliersSTRATEGYSTRATEGYThe Firm-Strategy InterfaceTheEnvironment-Strategy InterfaceShifting the Focus of Strategy Analysis:From the External to the Internal EnvironmentShifting the Focus of Strategy Analysis:From the External to the Internal EnvironmentRationale for the Resource-based Approach to StrategyRationale for the Resource-based Approach to Strategy•More variation in profitability within an industry than between industries (see simulation!)–Still variations in profit within the same strategic group who are deploying similar assets, follow similar strategies and have the same mobility barriers–If industry or group doesn’t drive profitability then what does? –Rumelt’s isolating mechanisms–Resources and capabilities as the primary sources of profitability – embedded in products and services•Also, when the external environment is subject to rapid change, internal resources and capabilities may offer a more secure basis for strategy than market focus.STRATEGYINDUSTRY KEYSUCCESS FACTORSCOMPETITIVEADVANTAGEORGANIZATIONALCAPABILITIES RESOURCESTANGIBLE INTANGIBLE HUMAN •Financial•Physical•Technology•Reputation•Culture •Skills/know-how•Capacity for communication & collaboration•MotivationThe Links between Resources, Capabilities and Competitive AdvantageThe Links between Resources, Capabilities and Competitive Advantage“PROFITS” AcronymPhysicalReputationalOrganizationalFinancialInformationalTechnologicalSkillsWhat you do with resourcesScarcityRelevanceDurabilityTransferabilityReplicabilityProperty rightsRelative bargaining powerEmbeddednessTHE EXTENT OF THE COMPETITIVE ADVANTAGE ESTABLISHEDSUSTAINABILITY OF THE COMPETITIVE ADVANTAGEAPPROPRIABILITYTHE PROFITEARNING POTENTIALOF A RESOURCE ORCAPABILITY The Rent-Earning Potential of Resources and Capabilities The Rent-Earning Potential of Resources and CapabilitiesWhat is rent?Other frameworksVRIO/VRINE (Barney, 1991/2003)Heterogeneity, ex-ante/ex-post/imperfect mobility/ (Peteraf, 1993)Competitive Advantage•Scarcity and relevance–All value (rent) comes from scarcity relative to demand (Lewin and Phelan)•Oxygen on moon, World’s oldest janitor •Monopoly rent=artificial scarcity, Ricardian rent=natural scarcity•Differential rent = difference in the quality between resources (talent, fertility)•Marshallian or entrepreneurial rent = temporary scarcity•Quasi-rents relates to generating more rent in one use than another (Jordan with Bulls), see also X-inefficiency or infra-marginal efficiency•Asset accumulation (Dierickx & Cool, 1986)–Not all rare assets are tradeable – must be accumulated (built) over time•Reputation, brand name, tacit knowledge – stocks and flows–Samurai swords, English country gardens•Implication–Acquire or develop scarce resources to create value–Recognize that competitors might have superior resources–Resources can earn more rent in some uses than othersSustainability of Rents•Durability – longer lived assets produce more rents (rents are a flow, value is a stock)•Ex-post limits to competition (I in VRIO)–Why doesn’t supply increase?–Naturally (or artificially) scarce •(BLM) land, Michael Jordan’s quasi-rents (until cloning)–Information or time•Time compression diseconomies or causal ambiguity–Lack of close substitutes•Questions:–Why do business professors earn more than liberal arts professors?–Why do professors at Harvard earn more than professors at UNLV?Appropriability•Who claims the rent stream?•Importance of property rights–Contracts, rule of law as engine of economic growth–Firms/owners as residual claimants•Strategic Factor Markets (Barney, 1986)–Superior information or luck (Peteraf ex-ante limits to competition)–Utah Railroad Game•Labor and mobility (Peteraf imperfect mobility)–Culkin, Home Alone–Bargaining power and value-added again–Resources will flow to maximise quasi-rents–Champion team versus team of champions•Superior coordination and cooperation (culture) advantages (the O in Barney’s VRIO)Appraising ResourcesAppraising ResourcesRESOURCE CHARACTERISTICS INDICATORS Financial Borrowing capacity Debt/ Equity ratioInternal funds generation Credit ratingTangible Net cash flowResources Physical Plant and equipment: Market value of size, location, technology fixed assets.flexibility. Scale of plantsLand and buildings. Alternative uses forRaw materials. fixed assets Technology Patents, copyrights, know how No. of patents ownedR&D facilities. Royalty incomeIntangible Technical and scientific R&D expenditureResources employees R&D staff Reputation Brands. Customer loyalty. Company Brand equityreputation (with suppliers, customers, Customer retentiongovernment) Supplier loyaltyHuman Training, experience, adaptability, Employee qualifications,Resources commitment and loyalty of employees pay rates, turnover.Capabilities•A firm’s capacity to deploy resources for a desired end result–Core competences – make a disproportionate contribution to ultimate customer


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UNLV MBA 795 - Lecture 4 Analyzing Resources and Capabilities

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