Resource-Based View of a Firm PDF

Session 2: Strategic Resources: Resource-Based View of a Firm Prof. Dr. Artur Baldauf © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 1 Resources and Rents Learning Objectives After today’s session you will be able to answer the following questio...

Session 2: Strategic Resources: Resource-Based View of a Firm Prof. Dr. Artur Baldauf © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 1 Resources and Rents Learning Objectives After today’s session you will be able to answer the following questions: The meaning of the resource-based view (RBV) for businesses. What are „valuable“ resources and where do they come from? How resources and capabilities are relevant to corporate strategy? © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern VISION GOALS STRUCTURE SYSTEM PROCESS Corporate Advantage Corporate Strategy 2 Chapter 2: Content Business-Unit Strategy Resources: Resource-Based View (RBV) Resource Oriented Strategy and Internal Analysis © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 3 Value Creators and Destroyers 2000-2020 2003-2004 2019-2020 Source: liva-measure.com; Wibbens, PD, Siggelkow, N. Introducing LIVA to measure long-term firm performance. Strat. Mgmt. J. 2020; 41: 867– 890.; What's the Best Way to Create Long-Term Value? Nicolaj Siggelkow, Phebo Wibbens, HBR, 2021 © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 4 Business Unit Strategy © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 5 Business-Unit Strategy Markets are imperfect: limited number of market participants; heterogeneous products; asymmetric information; and product scarcity. Strategy helps to exploit market inefficiency Strategy fulfills the following purposes: External positioning of a corporation relative to the competitors in a specific sector Porter’s model of competitor strengths (5-Forces) Entry- and mobility barriers (Mason/Bain, S-C-P) Generic strategies (differentiation and low cost) Internal alignment of activities and investments (e.g., Marketing, R&D) © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 6 Influencing Variables of Competitive Advantage and Success Competitor Position Market-Based View (Industry and Competitive Positioning, entry- and mobility barriers) Stable (relative) superior success Strategy (Competitive Advantage) Resources and Resource-Based View (VRIO; „Isolating Mechanism“, Capabilities „resource position barriers“) © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern y = f (x1, x2) y… success x1 … external determinants (ex. sectors) x2 … internal determinants (ex. strategy) Corporate Strategy 7 Business vs. Corporate Level Decisions Business-unit strategy: To determine how to compete. Corporate strategy: To determine where to compete. RBV clarifies why a firm exhibits both: a competitive advantage in a single business sector and a corporate advantage that extends across several business units. © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 8 Business vs. Corporate Level Decisions Vanneste (2017): Meta Analysis in Strategy Science: Using 18 samples from 16 studies (N = 225,183), the variance findings are 0.08 for industry, 0.14 for corporate, and 0.36 for business effects; Corporate Headquarters Corporate Strategy Business Unit 1 Business Unit 2 Business Unit 3 Business Unit 4 Business-unit Strategy Business-unit Strategy Business-unit Strategy Business-unit Strategy © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 9 Corporate Level and Business Levels HACO Gruppe GFF Inc. USA GFF Inc. USA Plochman Inc. USA Narlda AG Schweiz HACO Swiss Canada Kanada Gutschermühle GmbH Österreich HACO Asia Pacific Malaysia Ravensberger B.V. Holland © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 10 The Resource-based View © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 11 Resources „a resource … anything which could be thought of as a strength or weakness of a given firm“ (Wernerfelt 1984) A resource or asset is anything the firm owns or controls. Loosely, “Asset” is to Accounting as “Resource” is to Management. Types of resources: Material/physical (tangible assets): are the easiest to value, are seldom a source for competitive advantages. In-material (intangible assets): Brands, patents, etc. They are not listed on the balance sheet and are usually a source for competitive advantages Organizational skills (capabilities): Complex combination of assets (inclusive of people and processes) required to change inputs into outputs. © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 12 Resource Types Tangible Assets Location of Marriott Cash reserves of Swisscom Easyjet’s aircraft Coca-Cola’s Coke recipe Intangible Assets Nike’s brand name Dell Computer’s reputation Steve Jobs (Tim Cook) as Apple’s CEO IBM’s management team Walmart’s culture Patents from 3M Organizational Capabilities Dell Computer’s customer service Walmart’s “Docking-System” Samsung’s productdevelopmentprocess Amazon’s global distribution coordination 3M’s innovation Red Bull’s marketing © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 13 Resource Types Capabilities Organizational capabilities govern the efficiency of activities or quality of outputs. A capability is usually considered as a “bundle” of assets or resources to perform a business process (which is composed of individual activities) E.g. The product development process involves conceptualization, product design, pilot testing, new product launch in production, process debugging, etc. All firms have capabilities. However, a firm will usually focus on certain capabilities consistent with its strategy. For example, a firm pursuing a differentiation strategy would focus on new product development. A firm focusing on a low cost strategy would focus on improving manufacturing process efficiency. The firm’s most important capabilities are called competencies. A competency is an internal capability that a company performs better than its other internal capabilities. A core competency is a well-performed internal capability that is central, to a company’s strategy, competitiveness, and profitability. A distinctive competence is a competitively valuable capability that a company performs better than its rivals. © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 14 Resource Types Example: Liebherr Liebherr's Resources Intangible Resources Tangible Resources Physical Resources Properties Organizational / technological Resources Financial Resources Facilities Technology, Innovation, Quality © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern HR Brand image / Corporate identity Patents Corporate Strategy 15 The Resource-based View (RBV) RBV can explain Why is one firm different from another? Why is one firm more profitable from another? What makes a competitive advantage sustainable? Why does a firm possess both a competitive advantage in a single business unit and a corporate advantage extending across business units? Assumptions of the RBV: Resources heterogeneity: different firms may have different resources Resources immobility: it may be costly for firms without certain resources to acquire or develop them some resources may not spread from firm to firm easily © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 16 Rationality for RBV Resources and capabilities are the primary profit (value) generators, i.e. they are expected to create rents. Unique bundles of resources are developed over time and explain performance differences between firms within an industry. The actual resources and capabilities influence what strategic options the management has available and thus create path-dependency. Because market positions can change rapidly in dynamic markets, internal resources and capabilities hold a more secure basis for the strategy than the market focus. © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 17 Overview of the Basics of RBV Corporations Market (heterogeneous, immobile) above average profits Resources social complexity casual ambiguity historical Scarce resources Choice and combination: competencies capabilities Valuable resources (Additional benefit with customers) Core competencies / core capabilities (unique resource bundle) unsubstitutable not imitable sustainable competitive advantage Adapted from Barney 1991; Rühli 1994, S.43 © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 18 Relationship between Assets, Capabilities and Competitive Advantage Competitive/ success advantage Key factors of the industry STRATEGY (I/O Model) Organizational capabilities (RBV Model) ASSETS (Resources) TANGIBLE Financial Physical INTANGIBLE Technology Reputation Culture © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern HUMAN Specialized abilities and knowledge Communication and interactive capabilities Corporate Strategy 19 What Makes Resources Valuable? Evaluating Resources using the VRIO Model Valuable? Exploited by Rare? Inimitable? Organization? No No Competitive Implications Disadvantage Economic Implications Below Normal No Parity Normal Yes Yes No Temporary Advantage Above Normal Yes Yes Yes Sustained Advantage Above Normal Yes Yes Assumption: Expenses are appropriated by the firm. © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 20 What Makes Resources Valuable? Evaluating Resources using the Value Creation Zone Model Scarcity Demand Appropriability Value creation zone Dynamic interaction of the three market strengths. Value creation depends on the assumption that a resource can lead to the development of a competitive advantage. © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 21 RBV: Summary © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 22 RBV: Summary Resource Endowment of a Corporation Assumptions Corporations have heterogeneous resource endowments. Valuable resources are the source of competitive advantage if they are not imitable, not substitutable, socially complex and imperfect in the factor market. Corporations with a superior resource endowment have lower costs (in comparison to corporations with an inferior resource layout) and/or obtain more differences and sustainable competitive advantages. Ricardo (Scarcity)-Benefits can be obtained. Rent-Earning Potential Tangible Resources Financial Resources Physical Resources Scarce Intangible Resources Non-imitable Technology Reputation Know-How Culture Not substitutable Immobile Casual ambiguity and social complexity Capabilities Customer service R&D process Implications for the Strategy process Identification and evaluation of the resources 1 Assess the value of each resource according to the three tests of competitive superiority, scarcity and appropriability © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern 2 Decision concerning resource use: (a) Integration, (b) Out-soucing or (c) Sale 3 Corporate Strategy 23 Critique of RBV RBV offers no analytical insights such as how competitive advantages are reached; concept is only descriptive Resources concept appears ”blurry” RBV is too simple. If one makes that, what one makes well for the market, one controls a competitive advantage. If one is obviously the best, then one possesses a durable competitive advantage. © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 24 Practice: Resource-based Strategy and Internal Analysis © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 25 Resource-oriented Strategy Management needs to… Identify and evaluate: Appraisal (tangible, intangible, …) Determine value (VRIO-Test) Identification of „Vacancies“ (ex. current position in comparison to strategic goals) – „audit“ Disaggregation Resource picking/selecting Invest in (ex. brands, technology), Upgrade, and Leverage (put unused resources into other sectors) Resource deploying (capability building) …valuable resources. © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 26 Disaggregation of the resources Identification of corporate capabilities Functional area Corporation control Management information Research & development Production Product design Marketing Sale, logistics Capability Example Capability in basic research Roche, Nestlé, Tesla Capability to produce innovative products Alphabet Speed of new product development Samsung Source: Robert M. Grant, Contemporary Strategy Analysis, Basil Blackwell, 1991. © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 27 Core (distinctive) Competencies from Amazon: Core competences Logistic management Package tracking Bar-code technology Wireless communications © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Network management Linear programming Corporate Strategy 28 Investing, Upgrading, and Leveraging Resources Investing in resources: to build and maintain competitively superior resources Keep up competitive parity Profits form resources invested will in part be dependent on the number of competitors that have made similar investments Continuity versus adaptability Commitment versus flexibility Upgrading resources: Strengthening existing resources Adding complementary resources Developing new resources © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 29 Investing, Upgrading, and Leveraging Resources Leveraging resources Concentration on resources: converge, focus and target Accumulation of resources: mining and borrowing to learn Complementation of resources: linking with complementary factors (at least one activity in the value chain: ex. the brand of Harley Davidson) Conservation of resources: recycling and co-optation (hard to imitate) Recovering resources: speeding up return horizon © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 30 Businesses, Products, Resources, Core Competences The Roots of Competitiveness End Products 1 2 3 Business 1 Business 2 Business 3 Business 4 Core Product 2 Core Product 1 Competence 1 Competence 2 Competence 3 Competence 4 (Prahalad and Hamel, HBR, 1990, p.81) © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 31 Components of Internal (Resource) Analysis Competitive advantage (distinctive competence) Core competencies Resources Tangible Intangible Capabilities Criteria Value Chain Scarcity, Feasability, Appropriability (or VRIO) Integration Out-sourcing Sale © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 32 Resources and Rents Learning Objectives After today’s session you will be able to answer the following questions: The meaning of the resource-based view (RBV) for businesses. What are „valuable“ resources and where do they come from? How resources and capabilities are relevant to corporate strategy? © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern VISION GOALS STRUCTURE SYSTEM PROCESS Corporate Advantage Corporate Strategy 33 © Artur Baldauf l Department of Management & Entrepreneurship l University of Bern Corporate Strategy 34