Chapter 4 Internal Analysis Resources Capabilities and Core
Chapter 4: Internal Analysis: Resources, Capabilities, and Core Competencies
Chapter 4: Case Highlight Five Guys’ Core Competency: Make the best burgers; Don’t worry about the cost • Five Guys claims the title of fastest-growing restaurant chain in the United States with some 1, 500 locations worldwide and revenues of $2 billion. • 1986: first store opened by Jerry Murrell in Arlington, VA • 2003: 5 stores in Washington, D. C. area; started franchising • 2010: beyond the United States to Canada • 2013: to the UK • 2015 -2018: to France, Ireland, Kuwait, UAE, Saudi Arabia, and Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2
Inside the Firm: Core Competencies, Resources, and Capabilities Exhibit 4. 2 © Mc. Graw Hill
What Are Competencies? • Unique strengths • Embedded deep within a firm • Enables a firm to differentiate its products and services from those of its rivals • Results in: – Creating higher value for the customer or – Offering products and services at lower cost • Based on structures, processes, and routines Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
5 Strategy Highlight 4. 1 Dr. Dre’s Core Competence: Coolness Factor • Dr. Dre (Andrew Young) – – – First hip-hop billionaire Successful music producer, rapper, and entrepreneur Strong work ethic, expects perfection One of the best-connected businesspeople in music Founded Beats Electronics in 2008: premium headphones • Apple acquired Beats Electronics for $3 billion – Largest acquisition in Apple’s history – Hoping that some of Beats’ coolness will spill over to its brand Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Strategy Highlight 4. 1 Dr. Dre’s Core Competence: Coolness Factor • Beats’ Coolness Factor – Celebrity endorsements • Music celebrities wore them in their music videos. • Famous athletes wear them in public. – Custom Beats created for stars • Disruption in Content Delivery – Changing from downloads to streaming – Apple was lagging behind Pandora • By 2019, Apple Music had surpassed market leader, Spotify. Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
7 Examples of Core Competencies Five Guys • Offers highest quality ingredients, wide range of free toppings. • Chose not to have drive through or an expanded menu. Beats Electronics – Superior marketing, combining hardware and software Tesla • Engineering expertise in designing battery powered motors and power trains. Netflix • Creates proprietary algorithms-based on individual customer preferences. Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
The Role of Strategy in Business is to Generate and Sustain Value via the Linkages Between Positioning, Organization, and Resources & Capabilities Positioning Organization Resources & Capabilities 4– 9
Positioning • Scope of the Firm: Ø Geographic scope Ø Product-market scope: Choice of businesses (corporate portfolio analysis) Ø Product market positioning within a business Ø Vertical integration (value chain) decisions
Organization • Structure Ø Formal definition of authority Ø Conflict resolution • Systems Ø Rules, routines, evaluation and rewards • Processes Ø Informal communication, networks, and recruitment 4 -11
Resources and Capabilities • Tangible resources Ø e. g. , physical capital • Organizational capabilities Ø e. g. , routines and standard operating procedures • Intangible resources Ø e. g. , trademarks, “know-how”
Links to Competitive Advantage and Superior Firm Performance Exhibit 4. 4 © Mc. Graw Hill
Tangible and Intangible Resources Exhibit 4. 5 © Mc. Graw Hill
4– 16
The Resource-based View • Google Example Ø Since 2015 a subsidiary of Alphabet Ø Tangible resources valued at $59 billion Ø Intangible brand valued at over $300 billion (p. 126) Ø Googleplex has both tangible and intangible aspects • Competitive Advantage More Likely…. . Ø From intangible resources (e. g. , networks) 4– 17
Two Critical Assumptions of the RBV Resource Heterogeneity. • A firm is a unique bundle of resources, capabilities and competencies. • These bundles differ across firms. © Mc. Graw Hill Resource Immobility. • Resources are “sticky, ” and don’t move easily from firm to firm. • Resources are difficult to replicate. • Resources can last for a long time.
The VRIO Decision Tree Exhibit 4. 6 © Mc. Graw Hill
21 Isolating Mechanisms • Barriers to imitation: protect resources and capabilities that underpin a firm’s competitive advantage. • How: § Causal ambiguity (i. e. , cause and effect unclear) § Social complexity (e. g. , social and business systems interact) § Intellectual property (IP) protection (e. g. , patents) § Path dependence (e. g. , historical lock-in to older technology or historical development of technology; e. g. , Honda’s development of gas engines took decades and was leveraged across multiple products) Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Strategy Highlight 4. 2 The Rise and Fall of Groupon (A VRIO VIEW) • Based on the resource-based view and its framework of VRIO(N) --- Valuable, Rare, Inimitable, Organized to capture value, and Non-substitutable --explain the rise and fall of Groupon. Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 23
Strategy Highlight 4. 2 The Rise and Fall of Groupon (A VRIO VIEW) • A daily-deal website, offering group coupons • Grew quickly – 260 million subscribers, 500, 000 merchants – $6 billion buyout offer (Google 2011), was declined – Share price fell 90% • It was valuable, and rare, but not costly to imitate. – More specialized local startups began Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
25 Dynamic Capabilities • A firm’s ability to: – Create, deploy, modify, reconfigure, upgrade, and leverage its resources over time (e. g. , Apple’s dynamic capabilities enabled it to redefine the markets for mobile devices and computing; in particular in music, smartphones, and media content). • Helps prevent a core rigidity – A former core competency that turned into a liability as the environment changed. Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
26 Dynamic Capabilities at IBM • Current disruptions: – Cloud computing – Systems of engagement – Big data and analytics Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
27 Resource Stocks and Flows • Resource stocks – The firm’s current level of intangible resources • Resource flows – The firm’s level of investments to maintain or build a resource – Note: The resource stock (e. g. , historical advertising intensity or R&D intensity) impacts the current “flow” (of advertising and R&D intensity) Copyright © 2017 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
The Bathtub Metaphor Exhibit 4. 7 SOURCE: Figure based on metaphor used in I. Dierickx and K. Cool (1989), “Asset stock accumulation and sustainability of competitive advantage, ” Management Science 35: 1504– 1513. Access the text alternative for slide images. © Mc. Graw Hill
The Value Chain • Primary Activities Ø Add value directly in transforming inputs into outputs v Raw materials through production to customers • Support Activities Ø Indirectly add value Provide support to the primary activities v Information systems, human resources, accounting, etc. v • Managers can see how competitive advantage flows from a system of activities (using activity-based accounting). 4– 29
A Generic Value Chain Exhibit 4. 8 © Mc. Graw Hill
Strategic Coherence • Combining activities that complement and reinforce one another. These activities dovetail together to help achieve the overall objectives of the firm. • Such strategies, which may regarded as systems of activities are often more successful because they are more difficult to imitation. Thus, they can lead to a sustainable competitive advantage. • Strategic coherence may not be a sufficient condition for attaining a competitive advantage, but it is often a necessary one. 4– 33
34
Strategic Coherence The Logic of How The Business Fits Together: • Southwest Airlines Ø Low Price Ø Short Routes • No Frills • Point-to-Point • One Aircraft -Boeing 737 • High number of Aircraft per Route • No Meals • Flexible/ Lower Staffing • American Airlines Ø Premium Price Ø Short, Long, & Int’l Ø Variety • Hub & Spoke System • Multiple Aircraft • Low number of Aircraft per Route • Meals & Service • Higher Staffing
The Vanguard Group’s Activity System, 1997 Exhibit 4. 9 Source: Adapted from N. Siggelkow (2002), “Evolution toward fit, ” Administrative Science Quarterly 47: 146. © Mc. Graw Hill
The Vanguard Group’s Activity System� 2019 Exhibit 4. 10 Source: Adapted from N. Siggelkow (2002), “Evolution toward fit, ” Administrative Science Quarterly 47: 146. © Mc. Graw Hill
- Slides: 37