Threshold Resources in Organizational Theory

Business Strategy 2024/2025

• The environment alone doesn't determine a company's success or failure. Organizational differences matter.
• Car manufacturers, despite operating in the same industry and technological environment, experience varied success. BMW is consistently successful, while PSA required government intervention and Saab went out of business (though a part of the brand remains acquired by others).
• Two key strategic issues:
  • Organizations have unique resources and capabilities.
  • It's difficult to duplicate another organization's resources and capabilities.
• The Resource-Based View (RBV) of strategy (sometimes called the capabilities view) highlights that superior organizational performance stems from distinct resources and capabilities.

Foundations of Resources and Capabilities

• Resources are the assets available to an organization (e.g., machines, buildings, raw materials, patents, databases, computer systems, balance sheets, cash flow, suppliers of funds, managers, employees, partners, suppliers, customers).

• Capabilities are how these assets are deployed (e.g., ways of achieving production efficiency, flexibility, marketing, raising funds, managing cash flow, debtors and creditors, developing skills, motivating staff, and innovation)..

• Resource effectiveness depends not just on their existence but also on their management systems, collaborative relationships, adaptability, innovation, and understanding of what works well.

• Resources: What we have, e.g. machines, buildings, raw materials, patents, databases, computer systems, balance sheets, cash flows, suppliers of funds

• Capabilities: What we do well, e.g. achieving plant utilization - efficiency, productivity, flexibility, marketing; raising funds, managing cash flows, debtors, creditors, etc.; developing experience, skills, knowledge, building relationships, motivating others, and innovating.

Threshold and Distinctive Resources and Capabilities

• Threshold resources and capabilities are needed for basic market competitiveness and parity with competitors (e.g. minimum customer requirements; sophisticated IT infrastructure for multiple retailers).
• In their absence, a company can't survive in the market. For example, entrepreneurial structures may not have or lack the capacity to compete with established rivals, increasing the risk of failure.
• E.g.-suppliers to major retailers did not require the same level of technology or logistics support a decade prior, but retailer demands and expectations have increased markedly (e.g. faster service and delivery).

Distinctive Resources and Capabilities as a Basis of Competitive Advantage

• Threshold resources and capabilities aren't enough for sustained competitive advantage; distinctiveness is necessary.
• Distinctive resources and capabilities allow organizations to win over competitors (e.g. Apple's mobile technology, powerful brand, design, and understanding of consumer behavior).
• Distinctive capabilities are often bundles of skills and technologies, rather than singular attributes (e.g. Apple's design, understanding consumer behaviour).

VRIO Framework

• Value: Do resources and capabilities help the organization respond to opportunities and threats?
• Rarity: Are resources and capabilities uncommon?
• Imitability: Are resources and capabilities difficult to imitate/duplicate?
• Organization: Does the organization effectively use its resources and capabilities?

V - Value

• Valuable resources and capabilities create customer value, help organization adapt to environments, and respond to opportunities and neutralise threats (e.g. lowering prices to improve value; or showcasing better product features.
• Three key components:
  • Taking advantage of opportunities and neutralising threats;
  • Providing value to customers;
  • Managing costs.

R - Rarity

• Rare resources and capabilities are unique to a single company or a few other companies.
• This uniqueness creates long-lasting competitive advantage (e.g., patented products, unique collections, strong brand names, prime locations).

I - Imitability

• Inimitable resources and capabilities are difficult and costly for competitors to copy. The difficulty/cost may stem from complex activity interactions between various internal activities, skills and organizational culture or history (e.g. certain skills or knowledge bases, organisational culture and history).
• Barriers to imitation frequently lie within the organization's linkages between activities, skills, and people.
• Characteristics or linkage ambiguity can make it difficult to understand how capabilities succeed

O - Organizational Support

• Organizational structures and formal/informal management control systems must support resources and capabilities.

Organizational Knowledge

• Organisational knowledge is organisation-specific, cumulative intelligence, drawing on experience shared via formal systems and informal interactions.
  • Sharing knowledge is key as organizational size and complexity increase. Effective knowledge sharing creates a competitive advantage.
• Information systems help codify valuable data (technological, financial, market) but these data are easily accessible by competitors
• Effective competitive advantage lies not just in the technology itself, but in effectively using and developing the acquired and dispersed experience-based knowledge of the organization.

Diagnosing Resources and Capabilities

• VRIO analysis is used to identify resources and capabilities that provide sustained competitive advantage.

SWOT Analysis

• SWOT provides a valuable summary of organizational strengths, weaknesses, opportunities and threats.

• Strengths and Weaknesses are explored within the context of the resources and capabilities of the organization. Opportunities and Threats result from an analysis of the environment and industry, including competitors

• It can be a useful basis for generating strategic options and assessing future courses of action.

• Two main pitfalls in SWOT analysis:

  • Listing: Producing long, unprioritized lists of strengths, weaknesses, opportunities, and threats without clear focus;
  • Summary and not a substitute: It can be a great tool for summarizing previous analysis, but not a stand-alone solution to identify critical organizational issues.

TOWS Matrix

• SWOT can aid discussions around future strategies; a useful tool for this is the TOWS matrix, built directly from a SWOT analysis
• It helps with identifying various strategies that address diverse combinations of internal and external factors (strengths, weaknesses, opportunities and threats)