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Global StrategyGlobal StrategyMike W. PengMike W. Peng

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Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community CollegeAll rights reserved.

Leveraging Resources

and CapabilitiesPart I: Foundations of Global Strategy

Global StrategyGlobal StrategyMike W. PengMike W. Peng

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Copyright © 2009 Cengage. All rights reserved. 3–2

Outline• Understanding resources and capabilities

• Resources, capabilities, and the value chain

• The VRIO framework

• Debates and extensions

• The savvy strategist


Understanding Resources and Capabilities

• TangibleResources and

capabilities that are observable and easily quantified

Broadly organized in four categories:FinancialPhysical TechnologicalOrganizational

• IntangibleResources and

capabilities not easily observed or difficult (or impossible) to quantify

Examples include:Human Innovation Reputational


Examples of Resources and Capabilities

Table 3.1

Sources: Adapted from (1) J. Barney, 1991, Firm resources and sustained competitive advantage (p. 101), Journal of Management, 17: 101; (2) R. Grant, 1991, Contemporary Strategy Analysis (pp. 100–104), Cambridge, UK: Blackwell; (3) R. Hall, 1992, The strategic analysis of intangible resources (pp. 136–139), Strategic Management Journal, 13: 135–144.

TANGIBLE RESOURCES AND CAPABILITIES EXAMPLES

Financial Ability to generate internal funds Ability to raise external capital

Physical Location of plants, offices, and equipment Access to raw materials and distribution channels

Technological Possession of patents, trademarks, and copyrights

Organizational Formal planning, command, and control systems

INTANGIBLE RESOURCES AND CAPABILITIES

Human Knowledge Trust Managerial talents Organizational culture

Innovation A supportive atmosphere for new ideas Research and development capabilities Capacities for organizational innovation and change

Reputational Perceptions of product quality, durability, and reliability among customers Reputation as a good employer Reputation as a socially responsible corporate citizen

EXAMPLES


Resources, Capabilities, and the Value Chain

• Value ChainThe functional activities within the firm that

create value in the goods and services produced• Components of the Value Chain

Primary activities Are directly associated with the development,

production, and distribution of goods and servicesSupport activities

Assist in the accomplishment of primary activities


The Value Chain

Figure 3.1Panel A. An example of value chain with firm boundaries


The Value Chain (cont’d)

Figure 3.1 cont’dPanel B. An example of value chain with some outsourcing


A Two-Stage Decision Model in Value Chain Analysis

Figure 3.2


The VRIO Framework: Features of a Resource or Capability

Table 3.2

Sources: Adapted from (1) J. Barney, 2002, Gaining and Sustaining Competitive Advantage, 2nd ed. (p. 173), Upper Saddle River, NJ: Prentice Hall; (2) R. Hoskisson, M. Hitt, & R. D. Ireland, 2004, Competing for Advantage (p. 118), Cincinnati: Thomson South-Western.

VALUABLE? RARE?COSTLY TO IMITATE?

EXPLOITED BYORGANIZATION COMPETITIVE IMPLICATIONS FIRM PERFORMANCE

No No Competitive disadvantage Below average

Yes No Yes Competitive parity Average

Yes Yes No Yes Temporary competitive advantage Above average

Yes Yes Yes Yes Sustained competitive advantage Consistently above average


The VRIO Framework: Value and Rarity

• Four fundamental questions of VRIO Value: do the resources and capabilities add

value?Necessary for a competitive advantage

Rarity: how rare are the valuable resources and capabilities?Valuable, but common parity, not advantageValuable and rare can lead to temporary

advantage If everyone has it, you can’t make money from it


The VRIO Framework: Imitability• Easier to imitate tangible resources/capabilities than

tangible ones

• Two ways to imitate - direct duplication and substitution Direct duplication - most difficult Substitution - less challenging, but not easy

•Why is imitation so difficult? Hard to acquire in a short time what competitors have

developed over a long time Events earlier in time affect future events Difficult to identify causal determinants of performance


The VRIO Framework: Imitability (cont’d)

•Valuable, rare, but imitable resources/capabilities = temporary advantage

•Only valuable, rare and hard-to-imitate resources/capabilities = sustained competitive advantage


The VRIO Framework: Organization

• The Question of OrganizationHow is a firm organized to develop and

leverage the full potential of its resources and capabilities?

• Using complementary assets effectively

• Managing social complexity effectively Invisible relationships can add value - make

imitation more difficult


Debates and Extensions • Firm- versus Industry-Specific Determinants of

Performance: Both views are complementary to each other

• Static Resources versus Dynamic Capabilities• The resource-based view: incorporating dynamic

capabilitiesTacit knowledge“Learning before doing” versus “learning by

doing”Simple rules to guide behavior and decisionsDevelop new resources/capabilitiesLess bundled resources/capabilities

• Offshoring versus Non-Offshoring• Domestic ResourcesVS International

Capabilities


This is a completely new business, so there’s only so much analysis you can do . . .It’s better to put something out there and see the reaction and fix it on the fly.You could spend six months getting it perfect in the lab . . . But we’re better off spending six days putting it out there, getting feedback, and then evolving it. (Meg Whitman, eBay’s CEO)



Dynamic Capabilities in Slow- and Fast-Moving Industries

Table 3.3

Sources: Adapted from (1) K. Eisenhardt & J. Martin, 2000, Dynamic capabilities: What are they? Strategic Management Journal, 21: 1105–1121; (2) G. Pisano, 1994, Knowledge, integration, and the locus of learning, Strategic Management Journal, 15: 85–100.

SLOW-MOVING INDUSTRIES FAST-MOVING (HIGH-VELOCITY) INDUSTRIES

Market environment Stable industry structure, defined boundaries,clear business models, identifiable players,linear and predictable change

Ambiguous industry structure, blurred boundaries,fluid business models, ambiguous and shiftingplayers, nonlinear and unpredictable change

Attributes ofdynamic capabilities

Complex, detailed, analytic routines that rely extensively on existing knowledge(“learning before doing”)

Simple, experiential routines that rely on newlycreated knowledge specific to the situation(“learning by doing”)

Focus Leverage existing resources and capabilities Develop new resources and capabilities

Execution Linear Iterative

Organization A tightly bundled collection of resourceswith relative stability

A loosely bundled collection of resources that arefrequently added, recombined, and dropped

Outcome Predictable Unpredictable

Strategic goal Sustainable competitive advantage(hopefully for the long term)

A series of short-term (temporal)competitive advantages


The Savvy Strategist • Developing resources/capabilities that are valuable, rare,

hard-to-imitate, and embedded in organizational structures and systems can help firms achieve successful performance

• Lessons from the VRIO framework Task for strategists - build firm strengths by identifying,

developing, and leveraging resources/capabilities Imitation is not likely to be a successful strategy Sustained competitive advantage will not last forever Firms should try to develop “strategic foresight”


The Savvy Strategist (cont’d)•Four fundamental questions: Resource Based

ViewsWhy do firms differ? Resource heterogeneityHow do firms behave? Take advantage of

strengths and overcome weaknessesWhat determines the scope of the firm? How a

firm performs relative to rivalsWhat determines the international success and

failure of firms? Firm-specific resources/capabilities and a bit of luck


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