Analyzing Internal Firm Environment - Resource-Based View PDF

Assessing the Internal Environment of the Firm Copyright Anatoli Styf/Shutterstock  Learning Objectives 3-1 How value-chain analysis can help managers create value by investigating relationships among activities within the...

Assessing the Internal Environment of the Firm Copyright Anatoli Styf/Shutterstock  Learning Objectives 3-1 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers. 3-2 The primary and support activities of a firm’s value chain. 3-3 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities. 3-4 The four criteria that a firm’s resources must possess to maintain a sustainable advantage and how value created can be appropriated by employees and managers. 3-5 The usefulness of financial ratio analysis, its inherent limitations, and how to make meaningful comparisons of performance across firms. 3-6 The value of the “balanced scorecard” in recognizing how the interests of a variety of stakeholders can be interrelated. ©McGraw-Hill Education.  Resource-Based View of the Firm The resource-based view of the firm (RBV) integrates two activities. 1. An internal analysis of phenomena within a company 2. An external analysis of the industry & its competitive environment Goes beyond SWOT analysis. Resources can lead to a competitive advantage If they are 1) valuable, 2) rare, 3) hard to imitate, and 4) hard to substitute If tangible resources, intangible resources, & organizational capabilities are combined ©McGraw-Hill Education.  Types of Tangible Firm Resources Tangible resources are assets that are relatively easy to identify. Physical assets: plant & facilities, location, machinery & equipment Financial assets: cash & cash equivalents, borrowing capacity, capacity to raise equity Technological resources: trade secrets, patents, copyrights, trademarks, innovative production processes Organizational resources: effective planning processes, evaluation & control systems ©McGraw-Hill Education.  Types of Intangible Firm Resources Intangible resources are difficult for competitors to account for or imitate. They are embedded in unique routines & practices. Human resources: trust, experience & capabilities of employees; managerial skills & effectiveness of work teams, firm specific practices & procedures Innovation resources: technical & scientific expertise & ideas; innovation capabilities Reputation resources: brand names, reputation for fairness with suppliers, non-zero sum relationships; reputation for reliability & product quality with customers ©McGraw-Hill Education.  Types of Firm Resources: Organizational Capabilities Organizational capabilities are competencies or skills that a firm employs to transform inputs into outputs. It is the capacity to combine tangible & intangible resources to attain desired outcomes. Customer service Product development capabilities Innovation processes & flexibility in manufacturing processes Ability to hire, motivate, & retain human capital ©McGraw-Hill Education.  Question Gillette combines several technologies to attain great success in the wet-shaving industry. This is an example of their: A. tangible resources. B. intangible resources. C. organizational capabilities. D. strong primary activities. ©McGraw-Hill Education.  Firm Resources and Sustainable Competitive Advantages Strategic resources have four attributes. 1. Valuable in formulating & implementing strategies to improve efficiency or effectiveness; exploit opportunities and/or neutralize (minimize) threats in competitive environment 2. Rare or uncommon 3. Difficult to imitate or copy due to physical uniqueness, path dependency, causal ambiguity, or social complexity 4. Difficult to substitute with strategically equivalent resources or capabilities ©McGraw-Hill Education.  Sources of Inimitability Physical uniqueness: exclusive or exceptional resources (e.g. a resort location, drug patent) Path dependency: hard to duplicate because of all that has happened along the path followed in the development and/or accumulation of resources (e.g. QWERTY keyboard) Causal ambiguity: impossible to explain what caused a resource to exist or how to re-create it (e.g. innovative capabilities of Google or Apple) Social complexity: resources that result from social interactions and/or engineering (e.g. interpersonal relations, social networks, organizational culture). ©McGraw-Hill Education.  Criteria for Sustainable Competitive Advantage Is a resource or capability... Valuable? Rare? Difficult to Difficult to Implications for Competitive Imitate? Substitute? Advantage No No No No Competitive disadvantage Yes No No No Competitive parity Yes Yes No No Temporary competitive advantage Yes Yes Yes Yes Sustainable competitive advantage Exhibit 3.7 Criteria for Sustainable Competitive Advantage and Strategic Implications Source: Adapted from Barney, J.B. 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17:99 – 120. ©McGraw-Hill Education.  The Generation and Distribution of the Firm’s Profits Four factors help explain the extent to which employees and managers will be able to obtain a proportionately high level of firm’s profits (vs. firm’s shareholders): 1. Employee bargaining power ▪ high if employees are vital for firm’s unique capability 2. Employee replacement cost to the firm ▪ high if employee has idiosyncratic or rare skills 3. Employee exit costs ▪ reduce employees’ bargaining power ▪ e.g. firm-specific skills 4. Manager bargaining power ▪ e.g. access to unique info about firm’s resources ©McGraw-Hill Education.