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The Internal Environment: Resource-Based View

This document discusses the resource-based view of strategy, which emphasizes an organization's internal capabilities rather than external industry forces. It focuses on how resources, competencies, and capabilities can help achieve a sustainable competitive advantage. Key aspects covered include defining resources and competencies, developing core and distinctive capabilities, applying the resource-based view to strategy formulation, and attaining a sustainable advantage through valuable, rare, inimitable, and non-substitutable resources. The role of knowledge management is also addressed.

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sarmitha
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185 views

The Internal Environment: Resource-Based View

This document discusses the resource-based view of strategy, which emphasizes an organization's internal capabilities rather than external industry forces. It focuses on how resources, competencies, and capabilities can help achieve a sustainable competitive advantage. Key aspects covered include defining resources and competencies, developing core and distinctive capabilities, applying the resource-based view to strategy formulation, and attaining a sustainable advantage through valuable, rare, inimitable, and non-substitutable resources. The role of knowledge management is also addressed.

Uploaded by

sarmitha
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 24

CHAPTER 5:

THE INTERNAL ENVIRONMENT:


RESOURCE-BASED VIEW
Learning Objectives
After completing this topic area you should be able to:
 Discuss the resource-based view of strategy;
 Explain the role of resources, competencies and
capabilities in helping an organization achieve a
sustainable competitive advantage;
 Explain how the resource-based view can guide
strategy;
 Evaluate the importance of knowledge management
within organizations.
Introduction

 Previously…..

 This lecture……
Lecture Preview

 Resource-based view of strategy;


 Resources, competencies, capabilities and sustainable competitive
advantage
 Resource-based view and strategy
 Knowledge management within organizations.
Resource-Based View of Strategy

THE RESOURCE-BASED VIEW OF STRATEGY


EMPHASISES THE INTERNAL CAPABILITIES OF
THE ORGANIZATION IN FORMULATING
STRATEGY TO ACHIEVE A SUSTAINABLE
COMPETITIVE ADVANTAGE IN ITS MARKETS
AND INDUSTRIES
(INSIDE-OUT APPROACH TO STRATEGY)

AN ALTERNATIVE TO PORTER’S FIVE FORCES


FRAMEWORK WHICH STARTS WITH THE
INDUSTRY STRUCTURE
(AN OUTSIDE-IN APPROACH TO STRATEGY)
Key contributors
EARLY CONTRIBUTION ATTRIBUTED TO EDITH
PENROSE IN 1959

MORE COMMONLY ASSOCIATED WITH:


• PRAHALAD AND HAMEL (1990)
• RUMELT (1991)
• BARNEY (1991)
• GRANT (1991)
• PETERAF (1993)
• KAY (1993)
“Inside-out” or “outside-in”

•RELATIVE FIRM PERFORMANCE, AND THEREFORE


PROFITABILITY, IS DETERMINED BY AN ORGANISATION’S
RESOURCES AND COMPETENCIES (AN INSIDE-OUT
APPROACH)

• IT IS OFTEN SEEN AS AN ALTERNATIVE PERSPECTIVE TO


PORTER’S FIVE FORCES FRAMEWORK WHICH STARTS
WITH THE INDUSTRY STRUCTURE
(AN OUTSIDE-IN APPROACH TO STRATEGY)
Internal capabilities

AN ORGANIZATION’S INTERNAL CAPABILITIES


DETERMINE THE STRATEGIC CHOICES IT MAKES IN
COMPETING IN ITS EXTERNAL ENVIRONMENT
AN ORGANIZATION’S CAPABILITIES MAY ALLOW IT TO
CREATE NEW MARKETS AND ADD VALUE FOR THE
CONSUMER
EXAMPLES INCLUDE, APPLE’S I-POD AND TOYOTA’S
HYBRID CARS
Resources
RESOURCES ARE THE INPUTS THAT ENABLE AN
ORGANIZATION TO CARRY OUT ITS
ACTIVITIES.

• TANGIBLE RESOURCES
-physical resources, financial resources, and human resources

• INTANGIBLE RESOURCES
- intellectual/technological resources and reputation
Competencies

• IT IS THE EFFICIENT CONFIGURATION OF RESOURCES THAT


PROVIDES AN ORGANISATION WITH COMPETENCIES

• A COMPETENCE IS THE ATTRIBUTES THAT FIRMS REQUIRE


IN ORDER TO BE ABLE TO COMPETE IN THE MARKETPLACE

• ALL FIRMS POSSESS COMPETENCIES

•IT IS A PREREQUISITE FOR COMPETING WITHIN AN


INDUSTRY
Core Competencies
PRAHALAD AND HAMEL (1990) ARGUE:

• THECRITICAL TASK OF MANAGEMENT IS TO CREATE AN ORGANIZATION


CAPABLE
OF CREATING PRODUCTS THAT CUSTOMERS NEED BUT HAVE NOT YET EVEN
IMAGINED

• MANAGEMENT MUST OPERATE ACROSS ORGANIZATIONAL BOUNDARIES RATHER


THAN FOCUS ON DISCRETE, INDIVIDUAL STRATEGIC BUSINESS UNITS (SBUS)

• CORE
COMPETENCIES DERIVE FROM THE COLLECTIVE LEARNING OF INDIVIDUAL
MEMBERS WITHIN AN ORGANIZATION AND THEIR ABILITY TO WORK ACROSS
ORGANIZATIONAL BOUNDARIES

EXAMPLE, THE JAPANESE MOTOR MANUFACTURER TOYOTA HAS ACHIEVED A


CORE COMPETENCE IN THE PRODUCTION OF PETROL-AND-ELECTRIC HYBRID
CARS
Core Competencies

PRAHALAD AND HAMEL (1990) PROVIDE THREE TESTS


FOR CORE COMPETENCIES:
1. A CORE COMPETENCE SHOULD PROVIDE ACCESS TO
A WIDE VARIETY OF MARKETS. FOR EXAMPLE,
HONDA COMPETE IN MARKETS SUCH AS CARS,
LAWNMOWERS AND POWERBOATS
2. A CORE COMPETENCE SHOULD MAKE A SIGNIFICANT
CONTRIBUTION TO THE PERCEIVED CUSTOMER
BENEFITS OF THE END PRODUCTS
3. A CORE COMPETENCE SHOULD BE DIFFICULT FOR
COMPETITORS TO IMITATE
Distinctive capabilities
KAY (1993) ARGUES IT IS THE DISTINCTIVE CAPABILITIES OF AN
ORGANIZATION THAT GIVE IT A COMPETITIVE ADVANTAGE

CAPABILITIES ARE ONLY DISTINCTIVE WHEN THEY EMANATE FROM A


CHARACTERISTIC WHICH OTHER FIRMS DO NOT HAVE

POSSESSING A DISTINCTIVE CAPABILITY IS A NECESSARY BUT NOT


SUFFICIENT CRITERION FOR SUCCESS

IT MUST ALSO BE SUSTAINABLE AND APPROPRIABLE


- For a distinctive capability to be sustainable it needs to persist
over time
- For a distinctive capability to be appropriable it needs to benefit the
organization
Distinctive capabilities
DERIVE FROM:
ARCHITECTURE
- the system of relational contracts that exist inside and outside the
organization
REPUTATION
- important in those markets where consumers can only ascertain the quality
of a product from their long term experience
INNOVATION
- an organization may develop innovative processes which are imbedded
within the routines of the organization and therefore difficult for competitors
to copy
Resources, capabilities and strategy

GRANT (1991) PROPOSES A FRAMEWORK FOR STRATEGY


FORMULATION THAT COMPRISES FIVE STAGES:
1. IDENTIFY AND CLASSIFY THE ORGANIZATION’S
RESOURCES
2. IDENTIFY THE ORGANIZATION’S CAPABILITIES
3. APPRAISE THE RENT GENERATING POTENTIAL OF
RESOURCES AND CAPABILITIES
4. SELECT A STRATEGY WHICH BEST EXPLOITS THE
ORGANIZATION’S RESOURCES AND CAPABILITIES
5. IDENTIFY WHETHER ANY RESOURCE GAPS EXIST
Resources, capabilities and strategy
formulation

A RESOURCE-BASED VIEW OF STRATEGY ANALYSIS – GRANT


(1991)
Sustainable Competitive Advantage

FOUR ATTRIBUTES OF A RESOURCE FOR


SUSTAINABLE COMPETITIVE ADVANTAGE
1. VALUABLE
2. RARE
3. DIFFICULT TO IMITATE
– unique location, path dependency, causal ambiguity,
social complexity
4. NO STRATEGIC SUBSTITUTE
(BARNEY, 1991):
Difficult to imitate

A resource will be difficult to imitate if it embodies any of the


following
 unique location,
 path dependency,
 causal ambiguity,
 social complexity
Sustainable Competitive Advantage

FOUR ATTRIBUTES OF A RESOURCE FOR


SUSTAINABLE COMPETITIVE ADVANTAGE –
VRIO ANALYSIS

1. VALUABLE (V)
2. RARE (R)
3. DIFFICULT TO IMITATE (I)
–unique location, path dependency, causal ambiguity, social
complexity
4. NO STRATEGIC SUBSTITUTE (O)
(BARNEY, 1991):
Criticisms of the Resource-Based View

IT SAYS VERY LITTLE ON THE IMPORTANT ISSUES OF HOW


RESOURCES CAN DEVELOP AND CHANGE OVER TIME.

THE DYNAMIC ROLE PLAYED BY INDIVIDUALS WITHIN


ORGANIZATIONS IS OFTEN ASSUMED TO BE SELF-EVIDENT
AND SELDOM ADDRESSED.

THE RESOURCE-BASED VIEW OF STRATEGY LACKS DETAIL


AND IS THEREFORE DIFFICULT FOR ORGANIZATIONS TO
IMPLEMENT.

NO FORMAL RECOGNITION OF EMERGENT STRATEGIES AND


THE ROLE THESE MIGHT PLAY.
Knowledge Management

‘old’ and ‘new’ economies

‘Old economy’ – importance of capital assets

‘New economy’ – importance of intellectual assets

Importance of knowledge management in sustainable


competitive advantage
Lecture Review

 Resource-based view of strategy;


 Resources, competencies, capabilities and sustainable competitive
advantage
 Resource-based view and strategy
 Knowledge management
Virtual Learning and Seminar

VLH
See the question on the discussion board, do
your research and make at least one
contribution to the discussion

Seminar
Come along prepared to discuss the lecture
material and in particular the review questions
and the discussion question at the end of
Henry chapter 5
Review and Discussion Questions

Review Questions:
1. Evaluate the key differences between Porter’s five forces
framework and the resource-based view of competition.
2. What do you believe is the contribution of the resource-based
view to strategic management?

Discussion Questions:
1. To what extent does the resource-based view represent a new
paradigm within strategic management?
2. What is the role of knowledge within modern corporations and
how can it be managed effectively?

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