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Business Strategy Lecture 3

Business Strategy Lecture 3. Resources and Competitive Advantage John Birchall. The Resource-Based View of Business Strategy. Less a toolkit than a way of seeing: inside-out rather than outside-in (de Wit & Meyer 2005) Key theorists: Hamel & Prahalad (1994), Barney (1995)

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Business Strategy Lecture 3

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  1. Business Strategy Lecture 3 Resources and Competitive Advantage John Birchall

  2. The Resource-Based Viewof Business Strategy • Less a toolkit than a way of seeing: inside-out rather than outside-in (de Wit & Meyer 2005) • Key theorists: Hamel & Prahalad (1994), Barney (1995) • Firms can create or change their environment • Start by looking inside the firm itself • Develop distinctive strengths: resources and capabilities • Use these to build core competenc(i)es • Change the rules of the game …and win!

  3. Questions • Resource-based approach improves operational effectiveness, but is it strategy? (Porter,1996) • Operational effectiveness: doing the same things better, usually at functional level • is often cost focused • Strategic innovation: doing new things in ways that span functional boundaries • Can deliver a unique form of value (differentiation) • If we focus on our strengths, will we lose sight of customers and competitors? • How can we guard against complacency?

  4. Identifying Resource Strengths • Main categories: tangible/intangible • Physical assets are tangible • The skills needed to make use of them are intangible • Many assets cross categories • Relationships can be the most valuable assets of all

  5. Competences and Capabilities • Michael Porter’s breakthrough book Competitive Advantage (1985) • Looked for internal strengths • Invented a key analytical tool: The Value Chain • Talked about capabilities • Examples: relationships, reputation, innovation (Harrison 2003: 102-108) • Hamel & Prahalad’s bestseller Competing for the Future (1994) • Similar ideas, different attitude • Talked about competencies • Examples: delivering consistent quality, responding fast to customer orders (Harrison 2003: 76-78)

  6. Which is most important? • The experts disagree, so you can decide • Where there is debate, there is freedom to make up your own mind • When you do your research, you gain confidence in your own opinions • When you work through a case analysis, you begin to see how ideas relate to evidence • Evidence can be used to suggest which ideas are most useful

  7. Analyzing Internal Resources(Harrison 2003: Ch. 3) • Look inside the organisation and assess your resource advantages • Use the Value Chain: review the way resources are deployed • Given existing technology and markets, are you effectively turning resource advantages into competitive advantage? • Add dynamism by bringing in leadership and learning • Aim for the future, not for the benchmarks

  8. Examples of Firm Resources and Capabilities (Harrison 2003: 75) Human Financial Superior CEO characteristics Experienced managers Well trained, motivated, loyal employees High performance structure or culture Excellent cash flow Strong balance sheet Superior past performance Strong links to financiers Knowledge / Learning Superior technology development Excellent innovation processes / organizational entrepreneurship Outstanding learning processes Physical State-of-the-art plant or machinery Superiority in a value-adding process or function Superior locations or raw materials Outstanding products and/or services General Organisational Excellent reputation or brand name Patents Exclusive Contracts Superior linkages with stakeholders

  9. What makes a resource strategic? • Value – can create this for customers • Rarity – competitors may not have it • Hard to copy or substitute If all three qualities are present, we have a • strategic resource • core competence • distinctive capability and can use it to build and sustain…

  10. If all or most competitors have a resource… • It can still be valuable • It could even be necessary : essential for survival • A competence of this kind is called a threshold competence (Johnson, Scholes and Whittington 2005: 119-120)

  11. Managing the Process of Resource Use (Harrison 2003: 83) Administration (Firm Infrastructure) Human resource management Support activities Profit Technologydevelopment Resource procurement Service Profit Marketingandsales Outboundlogistics Inbound logistics Operations Porter’s Value Chain Primary activities

  12. Strategic Leadership • Create organisational vision • Establish core values and culture • Develop a management structure • Foster organisational learning and development • Serve as a steward for the organisation • Build team relationships

  13. Relationships • Link the whole chain together • Unite the system • Require orchestration and leadership • Are hard to copy Relationships between firms • Improve flows of goods and information through the system • Change the rules of the competitive game

  14. Supplier value chains Channel value chains Buyer value chains Organisation’s value chain Relationships between Firms: Porter’s Value System (Porter 1998: 140)

  15. Strategic Thinking • Deployment of resources • Strategic competences • Value chain and value system

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