Class Plan 3 “The early bird may get the worm, but the second mouse gets the cheese” AnonymousQuestions for the next caseBrief discussion of the Apollo caseReview of 5-forces, including exercise Move on to Chapter 3 on Internal Analysis + extra information on VRIO approachExercises & video on Internal Analysis Questions for the Nokia case Have Nokia’s mission and vision (or their implementation) been partially responsible for their faltering performance? Using the 5-forces model, what industry threats should Nokia have identified in their strategic pursuits? What can Nokia do to continue to compete globally and domestically? Porter’s Five Forces Model (Fig 2.2 p45 adapted) Rivalry among established firms Risk of entry by potential competitors Bargaining power of suppliers Bargaining power of buyers Threat of substitute products Special role of complements Product Lifecycle Time Demand Embryonic Growth Shakeout Mature Declining Macro-environmental Forces [Environmental Scanning] Macroeconomics: growth rate of the economy, interest rates, currency exchange rates, inflation rates Technological: “creative destruction”, shifting barriers to entry Social: lifestyles, trends and attitudes Demographics: composition of the population, factors such as income distribution, education, labour mobility, gender Political & Legal : deregulation and free trade Global: falling barriers to trade, new economic development More on 5-forces model Strategic Groups Def.: subsections of industry with the same basic strategy in-group Implications: closest competitors are in the same groupgroups, to some extent, face different 5+-forcesexit & entry barriers exist between groups Limitations of 5+-Forces & Strategic Groups models Static picture with limited attention to innovation. Industries evolve “unfrozen and reshaped” by technology : punctuated equilibrium hyper-competitive industries with no equilibriumdownplays individual company differencesstudies show that industry only accounts for 10%-20% of variance in firms’ profit rates Internal AnalysisThe purpose of internal analysis is to pinpoint the strengths and weaknesses of the organization. Strengths lead to superior performance. Weaknesses lead to inferior performance. Internal Analysis includes an assessment of:Quantity and quality of a company’s resources and capabilitiesWays of building unique skills and company-specific or distinctive competencies The Theory Behind Internal Analysis The Resource-Based View • developed to answer the question: Why do some firms achieve better economic performance than others? • assumes that a firm’s resources and capabilities are the primary drivers of competitive advantage and economic performance • used to help firms achieve competitive advantage and superior economic performance The Resource-Based View Resources and Capabilities Resources: • tangible and intangible assets of a firm » .

1. Class Plan 3 “The early bird may get the worm, but the second
mouse gets the cheese” AnonymousQuestions for
the next caseBrief discussion of the Apollo caseReview of 5-
forces, including exercise Move on to Chapter 3 on Internal
Analysis + extra information on VRIO approachExercises &
video on Internal Analysis
Questions for the Nokia case
Have Nokia’s mission and vision (or their implementation) been
partially responsible for their faltering performance?
Using the 5-forces model, what industry threats should Nokia
have identified in their strategic pursuits?
What can Nokia do to continue to compete globally and
domestically?
Porter’s Five Forces Model (Fig 2.2 p45 adapted)
Rivalry among established firms
Risk of entry by potential competitors
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute products
Special role of complements

2. Product Lifecycle
Time
Demand
Embryonic
Growth
Shakeout
Mature
Declining
Macro-environmental Forces [Environmental Scanning]
Macroeconomics: growth rate of the economy, interest rates,
currency exchange rates, inflation rates
Technological: “creative destruction”, shifting barriers to entry
Social: lifestyles, trends and attitudes
Demographics: composition of the population, factors such as
income distribution, education, labour mobility, gender
Political & Legal : deregulation and free trade
Global: falling barriers to trade, new economic development
More on 5-forces model

3. Strategic Groups Def.: subsections of industry with the same
basic strategy in-group
Implications: closest competitors are in the same groupgroups,
to some extent, face different 5+-forcesexit & entry barriers
exist between groups
Limitations of 5+-Forces & Strategic Groups models Static
picture with limited attention to innovation. Industries evolve
“unfrozen and reshaped” by technology : punctuated
equilibrium hyper-competitive industries with no
equilibriumdownplays individual company differencesstudies
show that industry only accounts for 10%-20% of variance in
firms’ profit rates
Internal AnalysisThe purpose of internal analysis is to pinpoint
the strengths and weaknesses of the organization.
Strengths lead to superior performance. Weaknesses lead to
inferior performance.
Internal Analysis includes an assessment of:Quantity and
quality of a company’s resources and
capabilitiesWays of building unique skills and company-specific
or distinctive competencies
The Theory Behind Internal Analysis
The Resource-Based View
• developed to answer the question: Why do some
firms achieve better economic performance
than others?
• assumes that a firm’s resources and capabilities

4. are the primary drivers of competitive advantage
and economic performance
• used to help firms achieve competitive advantage
and superior economic performance
The Resource-Based View
Resources and Capabilities
Resources:
• tangible and intangible assets of a firm
» tangible: factories, products intangible: reputation
• used to conceive of and implement strategies
Capabilities:
• a subset of resources that enable a firm to
take full advantage of other resources
» marketing skill, cooperative relationships
The VRIO ApproachValue: Do a firm’s resources & capabilities
in each section of the Value Chain enable the firm to respond to
environmental threats or opportunities?
Rarity: Is a resource currently controlled by only a small
number of firms?
(In)Imitability: Do firms without a resource face cost
disadvantages in obtaining or developing it?
Organization: Are a firm’s other policies and procedures
organized to support the exploitation of its valuable rare and
costly to imitate resources?
The VRIO Framework
• a resource or bundle of resources is subjected to
each question to determine the competitive

5. implication of the resource
Applying the Tool
• each question is considered in a comparative
sense (competitive environment)
For further application information, see
Conner, Tom (2002) “The resource-based view of strategy
and its value to practising managers” ,
Strategic Change 11, 307-316)
Applying the VRIO Framework
The Question of Value
• in theory: Does the resource enable the firm
to exploit an external opportunity or neutralize
an external threat?
• the practical: Does the resource result in an
increase in revenues, a decrease in costs, or
some combination of the two? (Levi’s reputation
allows it to charge a premium for its Docker’s pants)
Applying the VRIO Framework
The Question of Rarity
• a resource must be rare enough that perfect
competition has not set in
• if a resource is not rare, then perfect competition
dynamics are likely to be observed (i.e., no
competitive advantage, no above normal profits)
• thus, there may be other firms that possess the
resource, but still few enough that there is scarcity
(several pharmaceuticals sell cholesterol-lowering
drugs, but the drugs are still scarce—look at prices)

6. Applying the VRIO Framework
Valuable and Rare
If a firm’s resources are:
The firm can expect:
Not Valuable
Competitive Disadvantage
Valuable, but Not Rare
Competitive Parity
Valuable and Rare
Competitive Advantage
(at least temporarily)
Applying the VRIO Framework
The Question of Inimitability
• the temporary competitive advantage of valuable
and rare resources can be sustained only if
competitors face a cost disadvantage in imitating
the resource
» intangible resources are usually more
costly to imitate than tangible resources
(Harley-Davidson’s styles may be easily
imitated, but its reputation cannot)
Applying the VRIO Framework
The Question of Inimitability
• if there are high costs of imitation, then the firm
may enjoy a period of sustained competitive
advantage
» a sustained competitive advantage will last
only until a duplicate or substitute emerges if a firm has a
competitive advantage, others

7. will attempt to imitate it (Razor scooters
were a big hit and others quickly imitated them)
Applying the VRIO Framework
Value, Rarity, & Inimitability
If a firm’s resources are:
The firm can expect:
Valuable, Rare, but
not Costly to Imitate
Temporary
Competitive Advantage
Valuable, Rare, and
Costly to Imitate
Sustained
Competitive Advantage
(if Organized appropriately)
Applying the VRIO Framework
The Question of Organization
• a firm’s structure and control mechanisms
must be aligned so as to give people ability
and incentive to exploit the firm’s resources
• examples: formal and informal reporting structures,
management controls, compensation policies,
relationships, etc.
• these structure and control mechanisms complement
other firm resources—taken together, they can help a
firm achieve sustained competitive advantage

8. The VRIO Framework
Valuable?
Rare?
Costly to
Imitate?
Organization?
Competitive
Implications
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
Disadvantage
Parity
Temporary
Advantage
Sustained
Advantage
Economic
Implications
Below
Normal
Normal
Above
Normal
Above
Normal

9. Generic Value Chain
A Typical Value Chain (Oil-based refined products)
Exploring for crude oil
Drilling for crude oil
Pumping crude oil
Shipping crude oil
Buying crude oil
Refining crude oil
Sending refined products to distributors
Shipping refined products
Selling refined products to final customers
Value Chain Approach
Analyze each of the functions that lead to production of the
final product or service
How well do they each perform?
- quantitative & qualitative tools needed here
How effectively do the different functions interact?
Are the supporting functions adequate?

10. The Building Blocks Approach
(Figure 3.6, p 95)Efficiency: What is the usual measure of
efficiency?
Quality: Excellence and reliability
Innovation: Importance of both process and product innovation,
role of innovation in becoming unique
Customer responsiveness: Includes response time,
customization, and after sales service and support
Applying the Building Blocks ApproachItemize instance of
significant operational and managerial achievements and/or
deficiencies under each of the categories.
Use these noted observations to guide your recommendations.
Why companies failInertiaCompanies find it difficult to change
their strategies and structures
Prior Strategic CommitmentsLimit a company’s ability to
imitate and cause competitive disadvantage
The Icarus ParadoxA company can become so specialized and
inner directed based on past success that it loses sight of market
realitiesCategories of rising and falling companies:
• Craftsmen • Builders • Pioneers • Salespeople
Avoiding Failure
Focus on the Building Blocks of Competitive Advantage
Develop distinctive competencies and superior
performance in:

11. Institute Continuous Improvement and Learning
Recognize the importance of continuous learning within
the organization
Track Best Practices and Use Benchmarking
Measure against the products and practices of the most
efficient global competitors
Overcome Inertia
Overcome the internal forces that are barriers to change
Questions for Starbucks’ Video
1) List Starbucks’ major capabilities
and discuss the strategic implications of these capabilities.
2) How is Starbucks’ utilizing their resources and capabilities
to develop their brand overseas?
3) Describe Starbucks’ people-to-people business philosophy.
How has this resource/capability contributed to Starbucks’
strategic success?
Questions
1) What is the role of luck in gaining possession of a
particular resource or capability? Can a firm manage luck? Give

12. 3 examples of resources or capabilities that specific
organizations gained through luck.
2) Some firms’ products are so well known that the entire
category of products offered in the industry (including rivals’
products) is often referred to by the leading firm’s brand name
(which is called an eponym). Identify three such products, and
for each case discuss whether their brand recognition gives the
leading firm a competitive advantage. Why or why not?