WPC 480 CHAPTER 4 (BURGMAN) WITH 100% CORRECT ANSWERS ALREADY GRADED A+.

Core Competencies embedded strengths enabling value-creation Capabilities strategically orchestrating diverse resources Resources assets leveraged for strategy/ formulation Looking Inside the Firm for Core Competencies Competitive advantage derives from core competencies, which enable: 1. Differentiation of products/services creating perceived value, or 2. Cost leadership - offering products/services of comparable value at lower cost (Diagram) Looking Inside the Firm for Competitive Advantage inner circle: looking inside the firm - resources, capabilities, core competencies, and activities 2nd circle: strategic group 3rd circle: industry outer circle: Pestel environment - economic, sociocultural, technological, ecological, legal, political Activities add incremental value by transforming inputs The Resource-Based View Resources are key to superior firm performance. If resources and capabilities exhibit VRIO attributes, they become the building blocks for gaining and sustaining competitive advantage. VRIO (V) value (R) rare (I) costly to imitate (O) organized to capture the value of the resource/ capability Tangible visible, physical attributes labor, capital, land, buildings, plant, equipment, supplies Intangible invisible, no physical attributes culture, knowledge, brand equity, reputation, intellectual property Two Critical Assumptions The two assumptions - that firms may control - are critical in explaining superior firm performance for the resource-based model: 1. resource heterogeneity 2. resource immobility Resource Heterogeneity Model assumption that a firm is a bundle of resources and capabilities differ across firms Resource Immobility Model assumption that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm How to Sustain a Competitive Advantage 1. Better Expectation of Future Values: buy resources at a low cost 2. Path Dependence: current alternatives are limited by past decisions 3. Casual Ambiguity: causes of success or failure is not apparent 4. Social Complexity: two or more systems interact creating many possibilities Summary on How to Sustain Competitive Advantage Taken together, a firm may be able to protect its competitive advantage - even for long periods of time - when its managers have consistently: 1. Better expectations about the future value of resources. 2. Have accumulated a resource advantage that can be imitated only over long periods of time. 3. When the source of their competitive advantage is causally ambiguous or socially complex. Dynamic Capabilities Perspective A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage. FIT BETWEEN INTERNAL STRENGTHS AND EXTERNAL OPPORTUNITES Resource Stocks CURRENT LEVEL of intangible resources Resource Flows INVESTMENTS to MAINTAIN or build a resource (Diagram) Bathtub Metaphor Inflows: investments in resources Intangible Resource Stocks: new product development, supplier relationships Outflows: leakage, forgetting Value Chain The internal activities a firm engages in when transforming inputs into outputs Each activity adds incremental value and associated costs. This concept can be applied to any firm - goods or service. The value chain helps to assess which parts add value and which do not Value chain divided into primary and support activities Primary Activities Firm activities that add value directly by TRANSFORMING INPUTS INTO OUTPUTS as the firm moves a product or service horizontally along the internal value chain Support Activities Firm ACTIVITIES THAT ADD VALUE INDIRECTLY, but are necessary to sustain primary activities Primary Activities Examples 1. supply chain management 2. operations 3. distribution 4. marketing & sales 5. after-sales service = margins Support Activities Examples 1. research & development 2. information systems 3. human resources 4. accounting & finance 5. firm infrastructure, processes, policies, and procedures = margin Implications for the Strategist (Macro Pestel Porter) External Analysis: exploit opportunities, mitigate threats Matching: vision, mission & strategy (Micro VRIO) Internal Analysis: leverage strengths, minimize weaknesses SWOT Analysis internal analysis of the company's strengths and weaknesses (S and W) with those from an analysis of external opportunities and threats (O and T) SWOT = 1. VRIO framework plus 2. PESTEL plus 3. Porter's five forces analyses SWOT Limitations SWOT analysis - widely used management tool However, a strength can also be a weakness, and an opportunity can also be a threat. The answer is - it depends... To be an effective management tool, the strategist must conduct thorough external and internal analyses, grounding these analyses in rigorous theoretical frameworks, in order to derive a set of strategic options. Take-Away Concepts 1 Core competencies are unique, deeply embedded, firm-specific strengths that allow companies to differentiate their products and services and thus create more value for customers than their rivals, or offer products and services of acceptable value at lower cost. Resources are any assets that a company can draw on when crafting and executing strategy. Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources to deploy them strategically. Activities are distinct and fine-grained business processes that enable firms to add incremental value by transforming input into goods and services. Take-Away Concepts 2 Tangible resources have physical attributes and are visible.