Chapter 6 Introduction PDF

11/18/24, 1:19 PM Chapter 6 Introduction Chapter 6 Resource and Capabilities Analysis: The Strategy–Resource Linkage NOT DISTRI DO...

11/18/24, 1:19 PM Chapter 6 Introduction Chapter 6 Resource and Capabilities Analysis: The Strategy–Resource Linkage NOT DISTRI DO B UT - © P E A RS O N E CMASTER.... M 1@ FO IA R HE L T PR G IVAT F MA E US E O https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b25d9a90-4c7b-11ec-8305-8064e0fe3f9c?iesCode=39wEKyZkme 1/3 11/18/24, 1:19 PM Chapter 6 Introduction If you have worked through the analysis outlined in the previous chapter, you now have a strategic proposal that fits well with the external environment. Your analysis has shown that the proposal is likely to generate the kind of results that you want—if you can make it happen! This chapter discusses the nature and role of resources and capabilities in the strategic process and sets out an analytic N O T DI S T R process to deal with the O IBin the strategy– questions implicit D resource linkage in the Diamond-E framework. UT - © P E A RS O N E CMASTER.... The first implementation questions that are addressed in this chapter have to do with resources and capabilities. Resources are physical or tangible assets while capabilities refer to skills M or abilities. For a simple analogy of a resource/capability, 1@ FO IA R consider owning aHcar L E versus being able toGdrive a car. We will T PR MA IVATthe F refer to “resources” most of SE Oto keep things simple. E Utime Resources and capabilities both speak to what the company “can do,” which may or may not overlap with what it “needs to do” given external market demands. It is essential to do an analysis of your resources to fully assess your proposal. What resources will you need to execute the proposal? What gaps are there between the resources required https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b25d9a90-4c7b-11ec-8305-8064e0fe3f9c?iesCode=39wEKyZkme 2/3 11/18/24, 1:19 PM Chapter 6 Introduction by the proposal and the resources that your business has on hand or readily available? What are the possibilities of closing the most important gaps? If the gaps are modest, or can be bridged at acceptable cost and risk, you can move to further steps of the Diamond-E analysis. If the gaps are sizeable, however, and the risks of closing them are high, you will need to recycle to develop a more viable proposition. New strategies usually require N DISnew OT that T things are done and RI O D You have alreadyBthought about the that they are done well. UT - © P E A RS O N new resources that would be needed to support your strategic E CMASTER.... proposal, and the new preferences that would be required of senior management. But filling gaps in those two areas may not be enough. Your new resources, put into the hands of people M who still act in the “same old way,” may not be of much use. 1@ FO You might build a new H factory, for example, but if the people in IA R L T EP A G RIVcustomer responsiveness it do not understand that F M is the key to ATE USE O your new value proposition, and behave accordingly, your strategy will never be properly executed. This simple example highlights the distinction and connection between resources and capabilities. https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b25d9a90-4c7b-11ec-8305-8064e0fe3f9c?iesCode=39wEKyZkme 3/3 11/18/24, 1:19 PM The Nature of Resources versus Capabilities The Nature of Resources versus Capabilities O N O T DI S T R IB D UT Resources provide your business with the potential to act. To - © P E A RS O N E execute a strategic proposal, you will need to draw on financial CMASTER.... resources for the required investment, operating resources to supply the product or service, marketing resources for promotion and sales, and so on. In Table 6.1, we classify the M 1@ FO many and varied resources to which you might refer as you IA R HE consider implementation GL examples of T and we provide some PR MA IVAT F E US E O particular resources in each category. Table 6.1 Resource Categories and Examples Marketing Scale Market share Brands Product distinctiveness, reputation, and installed base Distribution network Sales force Trade and customer relationships Patents, copyrights https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26821e0-4c7b-11ec-80a6-63921c3448fe?iesCode=39wEKyZkme 1/6 11/18/24, 1:19 PM The Nature of Resources versus Capabilities Operations Access to low-cost inputs Supplier relationships Plant costs, capacity, efficiency, and flexibility Proprietary process, information technology, and know- how Logistics reliability and efficiency Quality reputation Location Development Expertise in product and process development Scale of facilities, efforts Pipeline of projects, products Technology partnerships and agreements Regulatory relationships Links to scientific community N O T DI S T R Financial O I B D UT - Performance Scale Cash flow Capacity to raise capital Cost of capital © P E A RS O N Investor (owner) expectations Banking and investor relations Resilience to E CMASTER.... cycles, shocks Human Resources Depth, experience, skills, and flexibility of management, professional staff, and workforce Commitment, loyalty, morale Positive relationships with unions, staff M 1@ associations FO IA R Corporate ReputationHE L T PR G IVAT F MA O employer, partner in alliances E USEcitizen, Reputation of the business as a corporate and joint ventures, competitor, acquiring firm Relationships with business community, regulatory authorities, government agencies, and politicians Ability to manage reputation effectively Three important points need to be made about the nature of resources as they relate to strategic choice. The first is that the adequacy of a resource is relative to the demands of your https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26821e0-4c7b-11ec-80a6-63921c3448fe?iesCode=39wEKyZkme 2/6 11/18/24, 1:19 PM The Nature of Resources versus Capabilities strategic proposal. Absolutes in terms of size or depth or scope may or may not be important. This suggests caution about some approaches to strategic analysis that start from an absolute or internally referenced review of resources (such as the strengths and weaknesses component of a SWOT analysis—strengths, weaknesses, opportunities, and threats). You need to cast resources in the OT DISbefore context of their intended utilization N RI T they can be said to D O be adequate or otherwise. B That means considering how your UT - © P E A RS O N resources compare to those of your competitors. If your E CMASTER.... resources compare favourably to competitors’ resources, they offer sources of competitive advantage; if they are similar to competitors’ resources, they provide only competitive parity; if M they are not as good as competitors’ resources, they need to 1@ FO be considered sources of competitive disadvantage. Table 6.1 IA R H L T EP A G RIV conditions. summarizes these different F M ATE USE O Resources differ with respect to how easy or difficult it is to augment or to adapt them to meet the requirements of a proposal. It is essential to ask whether each resource supports the proposed strategy or not. If a resource does not support the proposed strategy, a gaping hole exists that needs to be closed. For example, if plant capacity is an issue, it may be fairly simple to reallocate part of the production, or to expand https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26821e0-4c7b-11ec-80a6-63921c3448fe?iesCode=39wEKyZkme 3/6 11/18/24, 1:19 PM The Nature of Resources versus Capabilities as necessary through investment. But if critical workforce skills are the issue, it may take substantial time to hire and train the needed people, and in some circumstances, this may not be a practical possibility at all. Thus, as your analysis proceeds and you perceive gaps, you will have to be sensitive to the particular issues of expanding the specific resource to meet the strategic needs. A final notable characteristic N DISthe OTis that T value of particular RI O B additionally, is more D context specific and, resources tends to be UT - © P E A RS O N or less transferable to new applications. Resources have E CMASTER.... primary uses as well as other uses. It is this use-value that is consequential. Suppose you have a production line, a piece of equipment that in essence makes aluminum cans for the M beverage industry. Its primary use is, of course, producing 1@ FO aluminum cans. What H is its next best use? Its next best use IA R L T EP G RIVIn the context may well be scrap metal. F MofAan aluminum can ATE USE O manufacturing company, then, a production line has a high value. That same resource in a context other than a specialized use (i.e., as scrap metal) has a value approaching zero. A computer, on the other hand, likely has a market value impacted by supply and demand pricing. Computers are more generalized assets. They are not specialized assets in quite the same way that specialized equipment, a patent, or a highly trained expert might be. https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26821e0-4c7b-11ec-80a6-63921c3448fe?iesCode=39wEKyZkme 4/6 11/18/24, 1:19 PM The Nature of Resources versus Capabilities Some resources are less easily transferable. Work by W. Glenn Rowe suggests that in the National Hockey League, it is very difficult to transfer the impact of top-tier general managers (GMs) and coaches from one team to another.1 Rowe found that GMs were five times more likely to build two or more winning teams if they stayed with the same team and that coaches were almost three times more likely to lead teams to Stanley Cup wins if theyN OT Dwith stayed ISTthe same team. Additional RI DO data suggests that transferring a resource such as a top-tier B UT - © P E A RS O N business unit leader from one business unit to another may not E CMASTER.... benefit the second business unit. M 1@ FO elznick, P. Leadership in Administration: A Sociological Interpretation. New York IA R HE L T arper & Row, 1957. PR G IVAT F MA E US E O nsoff, Igor. Corporate Strategy: An Analytic Approach to Business Policy for rowth and Expansion. Harmondsworth, U.K.: Penguin, 1965. https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26821e0-4c7b-11ec-80a6-63921c3448fe?iesCode=39wEKyZkme 5/6 11/18/24, 1:19 PM The Nature of Resources versus Capabilities rigley, Leonard. “Divisional Autonomy and Diversification.” Diss. Harvard Busine chool, 1970. amel, Gary, and C.K. Prahalad. “The Core Competence of the Corporation.” arvard Business Review 68 (May–June 1990): 79–91. N O T DI S T R O I B D UT - ollis, David J., and Cynthia Montgomery. “Competing on Resources: Strategy in © P E A RS O N E CMASTER.... e 1990s.” Harvard Business Review 73 (July–August 1995): 118–128. M 1@ FO owe, W.G. “Debunking the ‘Proven Winner’ Myth in the National Hockey League IA R H L T E P 2012): 1–13. ey Business Journal (May–June A G RIV F M ATE USE O https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26821e0-4c7b-11ec-80a6-63921c3448fe?iesCode=39wEKyZkme 6/6 11/18/24, 1:19 PM Other Characterizations of Resources Other Characterizations of Resources We have characterized resources in specific terms to keep the N O T DI S T R analysis of your strategic O IB and as proposal as tangible D operational as possible. In wider-ranging discussions about the UT - © P E A RS O N E future direction of your business, however, such as in the CMASTER.... development of your long-term strategic aims, you may find it useful to work with more broadly based conceptions of resources. M 1@ FO IA R HE resource concepts areLnow becoming Although the various T PR A G IV F M somewhat redundant, theAparticular TE USE Ospins that the authors put on them can add value to your analysis. In the late 1950s, Philip Selznick2 and Igor Ansoff3 used the term distinctive competence to highlight the core activities that a business can perform better than its competitors. Thus, Dow Chemical might be said to have a distinctive competence in the low-cost production of commodity chemicals. The implications of this concept for strategy formulation are clear cut, in that distinctive https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26b2f20-4c7b-11ec-8f0c-287cb54b9ffb?iesCode=39wEKyZkme 1/5 11/18/24, 1:19 PM Other Characterizations of Resources competencies translate, in effect, into competitive advantages. In their strategies, businesses should seek to exploit their distinctive competencies and to avoid initiatives that hold no relationship to what the organization is good at doing. In the early 1970s, Leonard Wrigley4 introduced the term core skills to describe the collective skills accumulated by a management or professional team as they worked together O NOT D over time in a common pursuit. ISTMerck Thus, R might be said to IB D have developed core skills in the process of bringing a drug UT - © P E A RS O N product from discovery through commercialization. The core E CMASTER.... skills possessed by businesses represent potentially valuable resources in that they are not easy to develop—and hence are hard for competitors to copy. The implications for strategy are M that a business ought carefully to identify and nourish its core 1@ FO IA R skills and then useHthem as reference pointsL in creating or T EP A G R IVAT evaluating new initiatives. M E USE OF In the 1990s, C. K. Prahalad and Gary Hamel5 further developed earlier concepts such as distinctive competence (Selznick and Ansoff, 1950s) and core skills (Wrigley, 1970s) under the notion of competing on the basis of unique resources. Prahalad and Hamel introduced the concept of core competencies. Core competencies are the skills possessed by https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26b2f20-4c7b-11ec-8f0c-287cb54b9ffb?iesCode=39wEKyZkme 2/5 11/18/24, 1:19 PM Other Characterizations of Resources corporations that underlie a whole range of products and business units, such as miniaturization in the case of Sony and materials coating in the case of 3M. Thus, core competencies, conceived of as corporate resources, provide a focal point for strategy at the corporate level and give direction to corporate management in the integration of the efforts of the various parts of the corporation. The advantages of summary N DIST of resources, such as OTconceptions RI D O those of distinctive competence, B core skills, and core UT - © P E A RS O N competence, lie in the facility they provide for informal and E CMASTER.... open-ended explorations of strategic direction. We find the notion of distinctive competence, in particular, a quick and easy reference point in creating and sorting through ideas and in M raising questions for subsequent, more detailed analysis. The 1@ FO disadvantages of these concepts, however, lie in their high IA R H L T EP G A in pinning down RIV creates difficulties level of abstraction, which F M ATE USE O whether they really do exist in a particular business and subsequently in testing the validity of specific strategic ideas. We are aware, for example, of businesses that have become very frustrated trying to pin down their core competencies, and in this respect David Collis and Cynthia Montgomery criticize the search for core competencies as too often becoming “a feel good exercise that no one fails.”6 Perhaps more dangerously, https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26b2f20-4c7b-11ec-8f0c-287cb54b9ffb?iesCode=39wEKyZkme 3/5 11/18/24, 1:19 PM Other Characterizations of Resources these concepts might build a false confidence that they provide a sufficient basis for actual decisions, and lead to ignoring or slighting the many other resources that are critical to any undertaking. Our advice is simply to proceed with an understanding that there are natural phases of exploration and analysis. In early exploratory work, the broad concepts are useful. But as the OT Dimportant analysis proceeds, it is critically N IST that you move to an RI O B D of your strategic proposal operational definition and to the UT - © P E A RS O N consideration of specific, tangible resource requirements. E CMASTER.... elznick, P. Leadership in Administration: A Sociological Interpretation. New York M 1@ FO arper & Row, 1957. IA R HE L T PR G IVAT F MA E US E O nsoff, Igor. Corporate Strategy: An Analytic Approach to Business Policy for rowth and Expansion. Harmondsworth, U.K.: Penguin, 1965. rigley, Leonard. “Divisional Autonomy and Diversification.” Diss. Harvard Busine chool, 1970. https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26b2f20-4c7b-11ec-8f0c-287cb54b9ffb?iesCode=39wEKyZkme 4/5 11/18/24, 1:19 PM Other Characterizations of Resources amel, Gary, and C.K. Prahalad. “The Core Competence of the Corporation.” arvard Business Review 68 (May–June 1990): 79–91. ollis, David J., and Cynthia Montgomery. “Competing on Resources: Strategy in NO73 (July–August e 1990s.” Harvard Business Review TR T DI S I 1995): 118–128. DO B UT - © P E A RS O N E MCMASTER.... 1@ FO IA R HE L T PR G IVAT F MA E US E O https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26b2f20-4c7b-11ec-8f0c-287cb54b9ffb?iesCode=39wEKyZkme 5/5 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities Competitive Advantage from Resources and Capabilities O N O T DI S T R IB D UT As you are conducting your internal analysis of resources and - © P E A RS O N E capabilities, your focus may be resting on what you do really CMASTER.... well. This pattern of thinking is encouraged by tools such as SWOT. But for a strength to be a resource or capability that offers competitive advantage, it needs to have a direct link to M 1@ FO value creation, by either lowering costs or increasing IA R willingness to pay,Hplus GL from rivals’ T E it needs to be distinct PR IVAT F MA resources and capabilities. E USE O Jay Barney developed the Resource-based View (RBV) as a framework for analyzing whether resources offer a competitive advantage. The RBV suggests that for a resource to offer a competitive advantage, it must be valuable, rare, inimitable, and organized to be used. The model is called VRIO (valuable, rare, inimitable, organized). The following questions can be https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 1/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities used to assess whether a firm’s resources contribute to competitive advantage.7 In responding to the questions, it is critical to keep in mind how the resource provides competitive advantage given the strategy the firm is pursuing or intends to pursue, and relative to the firm’s competitors. In the abstract a resource does not provide a competitive advantage. The resource needs to be considered in a strategic and competitive context. N O T DI S T R O B I D 1. The Question of Value: Do a firm’s resources and UT - © P E A RS O N capabilities enable the firm to create value by increasing E CMASTER.... customers’ willingness to pay or lowering costs? 2. The Question of Rareness: How many competing firms already possess specific, valuable resources and M 1@ FO capabilities? In practical terms, a specific resource can IA R H L T be consideredE rare AGfirms out of 10, or P if only one or two RIV ATE USE OF M six out of 50, have it. Economically, a resource or capability is rare if the number of firms that have the resource or capability is less than that required for perfect competitive dynamics. 3. The Question of Inimitability: Do firms without a resource or capability face a cost disadvantage in obtaining it compared to firms that already possess it? https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 2/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities 4. The Question of Organization: Is a firm organized to exploit the full competitive potential of its resources and capabilities? Jay Barney8 sees the questions building on one another. Table 6.2 offers an overview: Table 6.2 The VRIO Framework N O T DI S T R O I B D UT Is a resource or capability Then... - © P E A RS O N E Valuable? Rare? Costly Exploited by Competitive Economic CMASTER.... to Organization? Implications Performance Imitate? No – – No Competitive Below normal disadvantage M 1@ FO Yes No – Yes Competitive Normal IA R HE L T PR G parity IVAT F MA E US E O Yes Yes No Yes Temporary Above normal competitive advantage Yes Yes Yes Yes Sustained Above normal competitive advantage https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 3/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities A resource or capability that is not valuable relative to a firm’s competitors will be a source of competitive disadvantage and below normal performance. And, hopefully, the firm will not be trying to organize to exploit this source of competitive disadvantage. For example, think of a negative reputation, such as Uber underpaying its drivers, or about how little it pays its service providers (Uber).9 Next, if a resource or capability is valuable and the firm is organized D to exploit that resource, then N OT ISTR IB to competitors DO it will be a source of competitive parity relative UT - and a source of normal performance. Most resources and © P E A RS O N E capabilities will fall into this category. Further, to be a source of CMASTER.... temporary competitive advantage, a resource must be comparatively rare among the competing firms in addition to being valuable. Finally, for a resource to be considered a M 1@ FO source of sustained competitive advantage, it must be valuable, IA R H L T E P and costly for otherAfirms rare, and very difficult G to duplicate, RIVAT M E U S E OF imitate, or substitute for and the firm must be organized to exploit this resource. The question of how to organize a resource or capability so that it can be utilized effectively, depends on an organization’s design, which we will delve into in Chapter 7. While a firm may possess the appropriate resources, it may not be able to leverage the resources if it is not organized in a manner to do https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 4/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities so. For example, a firm may have a large number of highly talented employees, but they may not be organized in a way that allows them to work on innovative projects that would allow the hidden talent to surface and create value for the firm. It is organizational design that transforms resources and capabilities into effective sources of value creation and capture. The question of inimitability and whether a resource is a source NO T DI S T of sustained competitive advantage has been central to RI D O strategic analysis. Barney B suggests four key aspects or UT - © P E A RS O N components of inimitability. First, unique historical conditions E CMASTER.... may create the opportunity to acquire or to develop a particular resource, as, for example, some companies were able to do during the Second World War. Caterpillar was chosen as the M single supplier of construction equipment to military bases 1@ FO around the world at H a time when no supplier had global IA R L T EP G A of its global RIV developed Fmuch presence. Coca-Cola also M ATE USE O distribution network at that time. Unique historical conditions may also arise when one firm pre-empts competitive investment by being the first to market in an arena where subsequent investors will yield below-average returns. History may be viewed as creating a path-dependency, so that the development of the resource arises from a series of events occurring over time that would be difficult to replicate or for others to copy. Collis and Montgomery offer the example of the https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 5/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities Gerber Products Company, whose reputation in baby food was developed over many years. Even though a competitor might be able to imitate or copy the Gerber food products, the Gerber brand itself would be extremely difficult to copy. A firm’s resource endowment may give it the ability to pivot its strategy and reorient itself during shifts in the external environment. Canadian Hockey gear manufacturer Brian Custom Sports used its production skills for making goalie pads to shift focus and make protective gear Nfor DISTRhealthcare workers in OTfront-line O IB D response to skyrocketing demand during the COVID-19 UT - © P E A RS O N crisis.10 This quick pivot to a different product and a different E CMASTER.... customer group was supported by the firm’s resources and capabilities. M A second reason why it may be challenging to imitate a 1@ FO IA R strategy is causal Hambiguity. It occurs when Lthe conditions or T EP A G R IVATcompetitive the nature of the sustained M advantage is E USE OF ambiguous. While one firm may attempt to disguise or to hide the nature of its advantage, causal ambiguity often arises because even the firm that possesses the advantage may have difficulty understanding the underlying causes. As Barney points out, sometimes sources of sustained competitive advantage are taken for granted because they may be tacit, there may be competing claims by managers within the firm on https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 6/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities the source of the advantage, or there may be thousands of highly interconnected organizational attributes, creating a level of complexity that defies understanding. For example, Lincoln Electric’s success in manufacturing welding equipment has often focused solely on the piece-rate compensation system. A closer look reveals a complex web of interrelated functions and factors that make the overall system very difficult to replicate. Southwest Airlines is arguably one of the most analyzed and discussed business models. DISbeen NOTIt has TR the subject of O IB D numerous attempts at replication by U.S. competitors and UT - © P E A RS O N others around the world. Yet few if any (Canada’s WestJet E CMASTER.... perhaps comes closest) have been able to replicate Southwest Airlines’ success. One key reason? Former Southwest CEO, James Parker, says that Southwest Airlines’ culture of fun, M family, frugality, and focus is difficult for competitors to imitate.11 1@ FO IA R HE L T P A G Barney points to socialRcomplexity IVAT as a F M third aspect of E US E O inimitability. He suggests that social complexity arises from the interpersonal relations among managers, firm culture, relationship with suppliers, and relationship with customers. A socially complex organization need not be inherently positive. Social complexity is both difficult to imitate and difficult to change. The Disney theme parks are an example of social complexity. A strong underlying culture in the Disney https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 7/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities organization enables its members to deliver a unique experience to the customer. In our view, social complexity and causal ambiguity are closely related, as often socially complex phenomena have a great deal of causal ambiguity—Southwest Airlines’ culture, for example, is socially complex and ambiguous. Finally, although patents appear to be an obvious aspect of inimitability, Barney points O N out DISwhile Tthat T in some cases they RI D O are, at other times, patents B accelerate the diffusion process and UT - © P E A RS O N make imitation more likely. E CMASTER.... In a manner different from Barney, Collis and Montgomery point out that a test of competitive advantage is the durability of the resource, such as brand or a natural resource. Brands like M 1@ FO Coke and Nike may be extremely durable, creating a IA R HE L T PRthat is sustainable G competitive advantage IVAT F MAover a period of time, E US E O even without high levels of investment. Collis and Montgomery also introduce the test of “appropriability,” suggesting that it is important to know whether an advantage accrues to a firm or to individuals, as in investment banking or professional sports teams where the superstars appropriate disproportionate value for themselves. https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 8/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities Cara Maurer, Pratima Bansal, and Mary Crossan12 advance a culturally informed resource-based view (RBV), which they refer to as CRBV. They argue that resources cannot be understood independently of the social context in which the firm is operating. Social values, social issues, and social movements can enhance or undermine a firm’s resources. The firm’s resources and associated strategy activate these social dimensions as depicted in Figure D 6.1. Take, for example, TD N OT ISTR I DO resources andB in particular its Bank’s approach to human UT - approach to diversity. TD Bank has been publicly supportive of © P E A RS O N E the lesbian, gay, bisexual, and transgendered (LGBTQ+) CMASTER.... community and did not back down in face of opposition, whereas Walmart did. TD Bank positioned its strategy as a push for human rights, which was consistent with its diversity M 1@ FO programs and policies. Paul Douglas, the Executive Vice IA R H L T E P Banking for TD ABank President of Commercial G Financial Group, R IVAT M stated: E USE OF Genuine diversity isn’t about token gestures or lip service. It’s not about filling quotas, labeling people, or grudgingly complying with the federal government’s employment equity requirements. Nor is it about political correctness or “pseudo diversity.” There has to be a deep-seated commitment to and understanding of diversity and groups https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 9/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities such as the GLBT community. And concrete actions have to back up the rhetoric.13 Figure 6.1 Culturally Informed RBV (CRBV) N O T DI S T R O I B D UT - © P E A RS O N E MCMASTER.... 1@ FO IA R HE L T PR G IVAT F MA E US E O arney, Jay B. Gaining and Sustaining Competitive Advantage. Reading, Mass.: ddison-Wesley, 1995. 145. arney, Jay B. Gaining and Sustaining Competitive Advantage, 2nd ed. Upper addle River, NJ: Prentice Hall. https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 10/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities ackson, David S. “Apple’s New Crop.” Time (May 18, 1998). Accessed Sept. 29 011. www.time.com/time/magazine/article/0,9171,988346-1,00.html. chlender, Brent, and Lenore Schiff. “Steve Jobs: The Graying Prince of a Shrink ngdom.” Fortune (May 14, 2001).NO T DI S T R O IB D tp://money.cnn.com/magazines/fortune/fortune_archive/2001/05/14/302936 UT - © P E A RS O N E ccessed Sept. 29, 2011. M CMASTER.... ailshery, L.S. “iPhone Sales Share of Apple’s Total Revenue Worldwide from 4th 1@ FO uarter 2009 to 2nd Quarter 2021.” Statista (May 27, 2021). IA R HE L T PR G IVAT F MA ww.statista.com/statistics/253649/iphone-revenue-as-share-of-apples-tota E US E O venue/, accessed December 09, 2020. https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 11/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities ova, A. “Uber Drivers Block Traffic in Manhattan, Protesting Low Pay and Poor orking Conditions.” CNBC (Sept. 17, 2019). www.cnbc.com/2019/09/17/uber- rivers-are-protesting-again-heres-what-the-job-is-really-like.html, accessed ecember 09, 2020. hidley-Hill, J. “Hockey Equipment Company Brian’s Custom Sports Shifts to OT (Mar. roducing Medical Supplies.” CBCNSports ISTR 28, 2020). D O IB D ww.cbc.ca/sports/brians-custom-sports-producing-medical-supplies- UT - © P E A RS O N 5513828, accessed April 10, 2020. E CMASTER.... arker, James F. Do The Right Thing: How Dedicated Employees Create Loyal M 1@ FO ustomers and Large Profits. Reading, Mass.: Pearson Education, 2008. IA R HE L T PR G IVAT F MA E US E O aurer, Cara, Pratima Bansal, and Mary Crossan. “Creating Economic Value rough Social Values: Introducing a Culturally Informed Resource-Based View.” rganization Science 22 (March–April 2011): 432–448. https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 12/13 11/18/24, 1:19 PM Competitive Advantage from Resources and Capabilities ouglas, Paul. “Diversity and the Gay and Lesbian Community: More Than Chas e Pink Dollar.” Ivey Business Journal Online (September–October 2007) ww.iveybusinessjournal.com, accessed Sept. 29, 2011. N O T DI S T R O I B D UT - © P E A RS O N E MCMASTER.... 1@ FO IA R HE L T PR G IVAT F MA E US E O https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b26eb190-4c7b-11ec-8a99-35c646304573?iesCode=39wEKyZkme 13/13 11/18/24, 1:19 PM The Dual Role of Resources and Capabilities The Dual Role of Resources and Capabilities Resources both constrain and drive strategy. Inadequate N O T DI S T R resources may prevent O IB you from implementing strategic D proposals that otherwise make sense in light of the UT - © P E A RS O N E opportunities and challenges in your firm’s external CMASTER.... environment. Powerful resources may drive strategy if they represent a potential for sustained competitive advantage that can be exploited with the right strategic approach. M 1@ FO IA R HE L T PR G IVAT F MA E US E O The Constraining Role of Resources Most managers are all too familiar with the powerful role that resources can play in constraining strategy. Often, a strategic proposal promises to take the business into growing markets with good profit potential, but a look at its resources suggests https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b2843560-4c7b-11ec-88e1-da4f2bf8f079?iesCode=39wEKyZkme 1/4 11/18/24, 1:19 PM The Dual Role of Resources and Capabilities that the firm does not really have the resources that it needs to implement the strategy. How long would it take to develop or acquire the needed resources? Is it possible to modify the strategy to take advantage of the resources that are available? On one hand, you do not want to overstretch your resources; on the other, you cannot afford to enter into the new market too late, or risk making customer promises that you cannot meet. Consider the situation facing N DISJobs OTSteve T when he reassumed RI D O control of Apple Computer B in 1997. Apple’s resources had been UT - © P E A RS O N ravaged by years of unsettled management—among other E CMASTER.... things, finances were stretched, market share was down to around three percent, many program developers had stopped producing for the Apple line, and customers were questioning M the credibility of the business as an ongoing proposition. In the 1@ FO face of this, AppleHwas compounding its problems by stretching IA R L T EP G RIacross its remaining resources VATE 15 MA computer products. different F US E O With an understanding that Apple would surely fail if it continued to try to operate beyond its resource constraints, Jobs pressed for simplification of the product line to focus on just two market categories and four new products. This move had its own risks, as Jobs acknowledged: “We’re the last company left that can bet a company on a new idea—this is Apple’s future.”14 But these were necessary risks given the https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b2843560-4c7b-11ec-88e1-da4f2bf8f079?iesCode=39wEKyZkme 2/4 11/18/24, 1:19 PM The Dual Role of Resources and Capabilities company’s need to work within its resource limitations. As Jobs reflected on the turnaround in 2001, he said, “I’m actually just as proud of what Apple hasn’t done as what it has done, because it hasn’t squandered resources since I’ve been back. And that’s really easy to do in our industry.”15 Ultimately such product focus and concentration of resources produced an astonishing breakthrough—an iPhone— a device that revolutionized mobile phone and computer industries and a product that generated more STpercent NO than 60 R T DI in total revenues IB DO for Apple over the last five years.16 UT - © P E A RS O N E arney, Jay B. Gaining and Sustaining Competitive Advantage. Reading, Mass.: M CMASTER.... ddison-Wesley, 1995. 145. 1@ FO IA R HE L T PR G IVAT F MA E US E O arney, Jay B. Gaining and Sustaining Competitive Advantage, 2nd ed. Upper addle River, NJ: Prentice Hall. https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b2843560-4c7b-11ec-88e1-da4f2bf8f079?iesCode=39wEKyZkme 3/4 11/18/24, 1:19 PM The Dual Role of Resources and Capabilities ackson, David S. “Apple’s New Crop.” Time (May 18, 1998). Accessed Sept. 29 011. www.time.com/time/magazine/article/0,9171,988346-1,00.html. chlender, Brent, and Lenore Schiff. “Steve Jobs: The Graying Prince of a Shrink ngdom.” Fortune (May 14, 2001). tp://money.cnn.com/magazines/fortune/fortune_archive/2001/05/14/302936 ccessed Sept. 29, 2011. N O T DI S T R O I B D UT - © P E A RS O N E CMASTER.... ailshery, L.S. “iPhone Sales Share of Apple’s Total Revenue Worldwide from 4th uarter 2009 to 2nd Quarter 2021.” Statista (May 27, 2021). ww.statista.com/statistics/253649/iphone-revenue-as-share-of-apples-tota M 1@ FO venue/, accessed December 09, 2020. IA R HE L T PR G IVAT F MA E US E O https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b2843560-4c7b-11ec-88e1-da4f2bf8f079?iesCode=39wEKyZkme 4/4 11/18/24, 1:19 PM Resource Analysis Resource Analysis We now turn to the process of testing your strategic proposal against your firm’s resources. The logical flow of this process is presented in Figure 6.2. In this process we concentrate on the N O T DI S T R constraining role of resources. O IB of the Diamond-E This phase D analysis ultimately boils down to whether you have, or can UT - © P E A RS O N E develop, the resources needed to support your strategic CMASTER.... proposal. If the immediate answer is no, you may turn to an examination of your existing resource base for inspiration regarding new strategic ideas. Then, any resulting proposal will M 1@ still have to be recycled through the Diamond-E analysis. The FO IA R HE proposal was inspired by fact that a particular GL the identification T PR MA IVAT F E USE O that the business will of a unique resource is no guarantee have the full set of resources required for its successful execution. Figure 6.2 Resource Analysis https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b285e310-4c7b-11ec-82db-5065c69b8e97?iesCode=39wEKyZkme 1/24 11/18/24, 1:19 PM Resource Analysis N O T DI S T R O I B D UT - © P E A RS O N E CMASTER.... The process outlined in Figure 6.2 takes you through three phases of analysis to (1) determine the resource requirements of the strategic proposal, (2) identify gaps between the required M 1@ and available resources, and (3) evaluate the risks associated FO IA R HE with closing the gaps. L T PR G IVAT F MA E US E O There are two subsidiary formats that you will find helpful in working through the analytic process. The first format, presented in Table 6.3, focuses on the use of the proposed strategy to identify and describe the relevant resource considerations. The second format, which is intended for concurrent use and ultimately as a summary document, is illustrated in Table 6.4. It helps you to highlight the resource https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b285e310-4c7b-11ec-82db-5065c69b8e97?iesCode=39wEKyZkme 2/24 11/18/24, 1:19 PM Resource Analysis categories in which there are going to be bottlenecks and reflects your assessment of the likelihood of solving the problem. Table 6.3 Resource Analysis by Strategy Component N O T DI S T R O I B D UT - © P E A RS O N E CMASTER.... M 1@ FO IA R HE L T PR G IVAT F MA E US E O https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b285e310-4c7b-11ec-82db-5065c69b8e97?iesCode=39wEKyZkme 3/24 11/18/24, 1:19 PM Resource Analysis Strategic Required Available Gaps Risks Proposal Goals What are the most critical resources required by the goals of the strategic proposal (e.g., for growth, risk, market dominance); what are the gaps between these requirements and available resources; and what are the risks and consequences of not being able to close these gaps in a timely way? Product/ What are the most critical resources required by the product Market market focus of the strategic proposal (e.g., for a specific Focus market focus, diversification); what are the gaps between these O T DI S T R requirements and available resources; and what are the risks N I and consequences of not being able to close these gaps in a O D timely way? B UT - © P E A RS O N Value What are the most critical resources required by the value E CMASTER.... Proposition proposition of the strategic proposal (e.g., for price, features, execution); what are the gaps between these requirements and available resources; and what are the risks and consequences of not being able to close these gaps in a timely way? Core What are the most critical resources required by the core M Activities activities of the strategic proposal (e.g., for activities to 1@ FO internalize, degree of integration); what are the gaps between IA R theseHrequirements L T EP G and observed resources; A and what are the RIV risks and consequences M able to close these gaps in ATE USofEnot OF being a timely way? Table 6.4 Resource Analysis by Resource Category https://plus.pearson.com/courses/66cf51e84364cc3a4fb04044/pages/b285e310-4c7b-11ec-82db-5065c69b8e97?iesCode=39wEKyZkme 4/24 11/18/24, 1:19 PM Resource Analysis Resource Required Available Major Gap-Closing Category Resources Resources Gaps A