BUSI1633 – Strategy for Managers

Week 3 – Lecture

Resources and Capabilities

Slide materials courtesy Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy, 10th edition ©Pearson Education Limited 2014
Slide 2.3
1.3

Learning outcomes
• Identify strategic capabilities in terms of organisational
resources and competences and how these relate to
the strategies of organisations.
• Identify Stakeholders, Governance and Culture as
resources and capabilities
• Analyse how strategic capabilities might provide
sustainable competitive advantage on the basis of their
Value, Rarity, Inimitability and Organisational support
(VRIO).
• Diagnose strategic capability by means of VRIO analysis
• Use these various concepts and techniques to recognise
strengths and weaknesses (as half of SWOT) of the
organisation.

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 2.4
1.4

Resources and capabilities:

the key issues

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 2.5
1.5

Resource-based strategy

The resource-based view (RBV) of strategy

asserts that the competitive advantage and
superior performance of an organisation are
explained by the distinctiveness of its
capabilities.

It is sometimes also called the ‘capabilities view’.

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 2.6
1.6

Foundations of resources and capabilities

The resources and capabilities, of an

organisation contribute to its long-term survival
and potentially to competitive advantage.
• Resources are the assets that organisations have or
can call upon (e.g. from partners or suppliers), that is
‘what we have’.
• Capabilities (sometimes referred to as competences)
are the ways those assets are used or deployed, that
is ‘what we do well’ .

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 2.7
1.7

Table 4.1 Resources and capabilities

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 2.8
1.8

Core competences

Core competences1 are the linked set of

skills, activities and resources that, together:
• deliver customer value
• differentiate a business from its competitors
• potentially, can be extended and developed
as markets change or new opportunities arise.

1
G. Hamel and C.K. Prahalad, ‘The core competence of the corporation’, Harvard
Business Review, vol. 68, no. 3 (1990), pp. 79–91.

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Stakeholders & Types of stakeholder as
Resources and Capbilities
Stakeholders are those individuals or groups that
depend on an organisation to fulfil their own goals
and on whom, in turn, the organisation depends.

Stakeholder Types - internal stakeholders (e.g.

managers and employees) and external
stakeholders: Economic (e.g. suppliers, shareholders,
banks); Social/political (e.g. government agencies);
Technological (e.g. standards agencies); Community
(e.g. local residents) Use in
Strategic
Position in
analysing
your case
Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
 Corporate governance
Corporate governance is concerned with the
structures and systems of control by which
managers are held accountable to those who
have a legitimate stake in an organisation.

Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
 The role of boards (1 of 2)
Two key issues for boards:
• Delegation: strategy can be delegated to
management but it is easier to ensure other
stakeholders are protected with a supervisory
board.
• Engagement: The board can engage in the
strategic management process but board
members may have insufficient expertise.

Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
 The role of boards (2 of 2)
Accepted good practice for boards includes:
• Operating ‘independently’ of management – the
role of non-executives is crucial.
• Being competent to scrutinise the activities of
managers.
• Having time to do their job properly.
• Behaving appropriately given society’s
expectations for trust, role fluidity, collective
responsibility and performance.

Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Organisational culture as Capability

Organisational culture is the taken-

for-granted assumptions and
behaviours that are shared within a
particular group and help to make
sense of the organisational context.
Use in
Strategic
Position in
analysing
your case
Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
 Culture’s influence on strategy
Culture may have a major influence on strategy:
• ‘Cultural glue’ – employees often cohere around
the founding principles and values of an
organisation (e.g. IKEA).
• Captured by culture – faced with changes in the
environment, people may cling to solutions
within the existing culture.
• Managing culture – culture change is difficult to
manage.

Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Slide 5.15

Culture’s influence on strategy

Source: Adapted from P. Gringer and J.-C. Spender, Turnaround: Managerial Recipes for Strategic Success, Associated Business Press, 1979, p. 203

Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Slide 2.16
1.16

Strategic capabilities and

competitive advantage
The four key criteria by which capabilities can
be assessed in terms of providing a basis
for achieving sustainable competitive
advantage are: Use in
•value Strategic
Position in
•rarity VRIO1 analysing
your case
•inimitability and
•organisational support

Jay Barney: ‘Firm resources and sustained competitive advantage’, Journal of

1

Management, vol. 17, no. 1 (1991), pp. 99–120.

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 2.17
1.17

VRIO (1 of 5)

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 2.18
1.18

VRIO (2 of 5)

V – Value of resources and capabilities

Strategic capabilities are of value when they:
1. take advantage of opportunities and
neutralise threats;
2. provide value to customers;
3. are provided at a cost that still allows an
organisation to make an acceptable
return.

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 2.19
1.19

VRIO (3 of 5)

R – Rarity
• Rare capabilities are those possessed
uniquely by one organisation or only by a few
others.
(e.g. a company may have patented products,
have supremely talented people or a powerful
brand.)
• Rarity could be temporary.
(e.g. Patents expire, key individuals can leave or
brands can be de-valued by adverse publicity.)
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
 VRIO (4 of 5)
Slide 2.20
1.20

I – Inimitability
Inimitable capabilities are those that competitors find
difficult and costly to imitate, to obtain or to
substitute.
• Competitive advantage can be built on unique
resources (a key individual or IT system) but these
may not always be sustainable (key people leave
or others acquire the same systems).
• Sustainable advantage is more often found in
competences (the way resources are managed,
developed and deployed) and the way competences
are linked together and integrated.
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 2.21
1.21

VRIO (5 of 5)

O – Organisational support
The organisation must be suitably organised
to support the valuable, rare and inimitable
capabilities that it has. This includes
appropriate processes and systems.

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 2.22
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VRIO analysis
A VRIO analysis helps to evaluate if, how
and to what extent an organisation or
company has resources and capabilities that
are :
valuable rare inimitable supported by Competitive implications
the
organisation
No No Competitive disadvantage

Yes No No Competitive parity

Yes Yes No No Temporary competitive
advantage
Yes Yes Yes Yes Sustained competitive
advantage

Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
 Strength and Weaknesses

The critical issue in undertaking internal

analysis is the implications that are drawn
from this understanding in guiding strategic
decisions and choices.
Identifying strengths and weaknesses is
extremely valuable when thinking about
strategic choices.
Strengths and weaknesses form one half of
the SWOT analysis that shapes strategy.
Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Slide 2.24
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Learning outcomes
• Identify strategic capabilities in terms of organisational
resources and competences and how these relate to the
strategies of organisations.
• Identify Stakeholders, Governance and Culture as resources
and capabilities
• Analyse how strategic capabilities might provide sustainable
competitive advantage on the basis of their Value, Rarity,
Inimitability and Organisational support (VRIO).
• Diagnose strategic capability by means of VRIO analysis
• Use these various concepts and techniques to recognise
strengths and weaknesses (as half of SWOT) of the
organisation.

Next week we explore Bringing the last 4

weeks tools and analysis together for SWOT
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014