2. Resource based view (RBV) internal perspective
1. I/O Model: (focus on opportunities and threats: External environment)
1. Study the external environment (Industry environment: 5 forces)
2. Locate attractive industry (to earn above-average returns)
3. Strategy Formulation
4. Assets & Skills
5. Strategy Implementation
6. Superior Returns
model suggests that firms can earn above-average returns by producing either standardized goods or
services at costs below those of competitors (a cost leader-
ship strategy) or by producing differentiated goods or services for which customers are
willing to pay a price premium (a differentiation strategy). The cost leadership and prod-
uct differentiation strategies are discussed more fully in Chapter 4. The fact that the fast
,food industry faces “higher commodity costs, fiercer competition, a restaurant industry
showing little to no growth, and a strapped lower-income consumer,”82 suggests that fast
food giant McDonald’s is competing in a relatively unattractive industry.
As shown in Figure 1.2, the I/O model suggests that above-average returns are earned
when firms are able to effectively study the external environment as the foundation for
identifying an attractive industry and implementing the appropriate strategy. For exam-
ple, in some industries, firms can reduce competitive rivalry and erect barriers to entry
, 2. RBV Model (internal perspective based on resources, capalities, core competencies)
Resources = inputs into a firm’s production process, such as capital equipment, the skills of individual
employees, patents, finances, and talented managers.
A capability = the capacity for a set of resources to perform a task or an activity in an integrative
manner.
Core competencies are capabilities that serve as a source of competitive advantage for a firm over its
rivals.
Core competencies = Source for competitive advantage
And after that locate attractive industry
Strategy formulation & implementation
Superior returns
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