STRATEGY Session 4/5 Resource-Based View and Competitive Advantage

Lecture 5 - Internal Company Analysis

• Lecture 5, Internal Company Analysis, by Prof. Dr. Eva Niesten
• Use Edusign QR code to register attendance
• Resources & Capabilities: Identifying, appraising, and accessing resources and capabilities
• Data Sources: Statista, Google Finance, EPO
• Strategy Types: Cost strategy, differentiation strategy, and signaling theory
• Internal Analysis Methods: SWOT analysis, strategic capabilities, benchmarking
• Strategy Frameworks: Examples of Amazon
• Key Example: Amazon

5.1 Resources & Capabilities

• The firm's goals and values, resources and capabilities, and structure and systems are related to strategy through the firm-strategy interface
• The industry environment comprises competitors, substitutes, and suppliers, and is related to strategy through the environment-strategy interface
• Firm effects (up to 55%), industry effects (~20%), and other effects (~25%) influence business cycle effects and unexplained variance
• Resource-Based View (RBV): Internal resources and capabilities are more stable for strategy than focusing on market or industry when the environment is volatile. Resources and capabilities are the primary sources of profitability across heterogeneous and immobile firms.

5.1 Resources & Capabilities Definition

• Resources: Productive assets owned by the firm.
• Organizational Capabilities: Combining and integrating resources to create organizational skills and competences, i.e., what a firm can do.
• Core Competences: Fundamental to a firm's strategy, performance, and competitive advantage.

5.1 Resources & Capabilities - Components

• Competitive advantage
• Strategy
• Organizational capabilities
• Tangible resources (financial, physical)
• Intangible resources (technology, reputation, culture)
• Human resources (skills, communication, collaboration, motivation)

5.2 Resources & Capabilities - Identification

• Tangible Resources: Financial (borrowing capacity, internal funds generation), Physical (plant and equipment, size, location, technology flexibility, land and buildings, raw materials)
• Intangible Resources: Technology (patents, copyrights, know-how, R&D facilities, technical and scientific employees), Reputation (brands, customer loyalty, company reputation, government relations), Human Resources (training, experience, adaptability, commitment, loyalty of employees, employee qualifications, pay rates, turnover)
• Undervalued or omitted from a firm's balance sheet
• Divergence between firm's balance sheet and stock-market valuations due to brand of the firm

5.2 Resources & Capabilities – Appraisal

• Determining if a resource, capability, or competency is valuable, rare, costly to imitate, and organized
• If valuable and rare (but costly to imitate and organized): Sustainable competitive advantage
• If valuable (but not rare, costly to imitate, and organized): Competitive parity
• If not valuable: Competitive disadvantage
• If not costly to imitate and not organized: Temporary competitive advantage

5.2 Resources & Capabilities – Appraisal - Time Compression Diseconomies

• Time is needed to build a resource or capability
• Even if rivals know the advantage’s source, they might not be able to recreate the resource in a timely fashion
• History or path dependence limits imitation

5.2 Resources & Capabilities – Appraisal – Examples

• Laphroaig whisky (rare and inimitable)

5.2 Resources & Capabilities – Access

• Strategic alliances between firms (exchange, sharing, or co-development of resources or capabilities to achieve mutual benefits)
• Inter-firm alliances focus on financial performance of alliance partners
• Public-private partnerships (collaboration between firms and governments)
• Cross-sector partnerships (collaboration between firms and NGOs)

5.2 Resources & Capabilities – Access – Theories

• Resource-Based View: Accessing complementary resources and capabilities (knowledge, finance, markets, distribution channels, production capacity)
• Institutional Theory: Gaining legitimacy (generalized perception that organizations or activities are desirable or appropriate in an institutional setting)

5.2 Resources & Capabilities – Access – Examples

• ABB and Samsung alliance on energy storage
• Coca-Cola and WWF collaboration

5.3 Resources for Business Strategy – Defining Competitive Advantage

• When two or more firms compete in the same market, one firm possesses a competitive advantage over its rivals when they earn (or have the potential to earn) a persistently higher rate of profit.

5.3 Resources for Business Strategy – Sources of Competitive Advantage

• Cost advantage (similar product at lower cost)
• Differentiation advantage (a unique product with a price premium)
• Porter's generic strategies (cost leadership, differentiation, focus-cost leadership, differentiation, or focus)

5.3 Resources for Business Strategy – Two Types of Strategies

• Cost leadership (scale-efficient plants, access to capital, cost control routines, process innovation)
• Differentiation (creative skills, research and development, product engineering skills, cross-functional coordination skills, marketing capabilities)

5.3 Resources for Business Strategy – Signaling Theory

• Communicating unique features of products and services
• Companies need resources and capabilities to differentiate products and services

5.3 Resources for Business Strategy – Signaling Timeline

• Signaler produces high-quality product
• Information asymmetry exists
• Receiver wants high-quality product
• Credible signals: Brand name, extended warranty, etc.

5.4 Strategy Frameworks - Internal Analysis (SWOT)

• Strengths and weaknesses are internal to the firm
• Opportunities and threats are external to the firm
• Questions: How can the firm use internal strengths to take advantage of external opportunities? How can the firm overcome internal weaknesses that prevent it from taking advantage of external opportunities? How can the firm use internal strengths to reduce the likelihood and impact of external threats? How can the firm overcome internal weaknesses that will make external threats a reality?

5.4 Strategy Frameworks - Strategic Capabilities

• Understanding how an organization compares to its competitors
• How external factors fit with the internal environment (SWOT, VRIO Analysis)
• Superior capabilities: Valuable, rare, inimitable to competitors, organized to exploit

5.5 Amazon - Case Study

5.5 Amazon - Value

• Founded in 1995 as "Earth's Biggest Bookstore"
• IPO in May 1997, raising USD 54 million
• Market capitalization as of September 22, 2024: USD 2.01 trillion, industry codes are Electronic Shopping, Web Services, Internet Broadcasting, Wholesale Trade
• Stock value in 2024 is 212,788.89% compared to 1997

5.5 Amazon - Analysis

• Benchmarking: Understanding how Amazon compares to competitors
• VRIO Analysis: Valuable, rare, inimitable, organized
• SWOT Analysis: Strengths, weaknesses, opportunities, treats

5.5 Amazon - Resources

• Resources: Financial (borrowing capacity, internal funds generation), Physical (plant and equipment, size, location, technology flexibility, land and buildings, raw materials), Technology (patents, copyrights, know-how, R&D facilities, technical and scientific employees), Reputation (brands, customer loyalty, firm reputation), Culture (organizations' value, traditions, social norms), Human Resources (training, experience, adaptability, commitment, loyalty of employees)
• Distinctive capabilities (Selection, Price, Convenience)
• Patents and trademarks (1-click)

What's Next?

• Next session: Case study analysis of BEYOND MEAT
• Online tutorial on internal analysis in Excel
• Anticipate case study discussion by reading or watching the materials on K2
• Upload answers to case study questions

Test your knowledge on the Resource-Based View of firms and the elements that contribute to competitive advantages. This quiz covers key concepts such as intangible resources and brand value. Challenge yourself with questions focused on strategic management.