Resource based view of firm


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Resource based view of firm

  1. 1.  Strategic Management  Brief History Of S.M.  Industrial Organization  Resource Based View of the firm and its Model  Literature Review of Competitive advantage  VRIO Frame of work.  Implications  Criticism and Suggestions
  2. 2. Overall Goal of Strategic Management for an Organization Deploy & allocate resources ==> competitive advantage
  3. 3. Process of Strategic Management
  4. 4. What is Strategic Management?  Analyze competitive situation  Develop strategic goals  Devise plan of action  Allocate resources  Implement plan  Evaluate results
  5. 5. Brief history of Strategic Management  Early Period o Study of general management o Largely descriptive o Not theory based { SWOT ANALYSIS}  Key Authors o Andrews… o Christiansen… o Ansoff.
  6. 6. Brief history of Strategic Management  First Revolution o Potter Frame work o Structure conduct performance o model (SCP) & Social Welfare. o Apply the SCP logic to strategic o Management o Five forces frame work for o industry analysis o Generic strategies
  7. 7. Brief history of Strategic Management  Limits of potter frame work o Market power versus efficiency (Demsetz) o Industry versus firm works (Wal-Mart) o The cost of entering attractive industries.  Central Conclusion It is not possible to evaluate the attractiveness of industry independent of the resources a firm bring to the industry.
  8. 8. Two Contrasting Approaches  Industrial Organization Model vs. ResourceBased View o Research provides support for both positions  What drives strategy? o I/O: External considerations o RBV: Internal considerations  I/O: Strategy drives resource acquisition RBV: Strategy determined by resources
  9. 9. Two Contrasting Approaches I/O Economics Industry Characteristics Profitability RBV Firm Characteristics Profitability
  10. 10. Industrial Organization (O/I) Model o External environment determinant of is organizational primary strategy rather than internal decisions of managers o Environment presents threats & opportunities o All competing organizations control or have equal access to resources o Resources are highly mobile between firms o Organizational success is achieved by Offering goods & services at lower costs than competitors o Differentiating products to bring premium prices
  11. 11. Resource-Based View (RBV) Definition  An organization’s resources & capabilities, not external environmental conditions, should be basis for strategic decisions  Competitive advantage is gained through acquisition & value of organizational resources  Organizations can identify, locate & acquire key valuable resources  Resources are not highly mobile across organizations & once acquired are retained  Valuable resources are costly to imitate & non-substitutable
  12. 12. Definition Jay Barney The resource-based view (RBV) argues that firms possess resources, a subset of which enable them to achieve competitive advantage, and a subset of those that lead to superior long-term performance. Resources that are valuable and rare can lead to the creation of competitive advantage. That advantage can be sustained over longer time periods to the extent that the firm is able to protect against resource imitation, transfer, or substitution. In general, empirical studies using the theory have strongly supported the resource-based view.
  13. 13. Resources Daft, 1983, Barney, J., 1991  Physical capital {Technology, plant, equipment, location, access to raw material}  Human capital {Training, expertise, judgment, intelligence, relationships and insights of managers and workers}  Organizational capital {Organizational structure, planning, controlling and coordinating systems, informal relations among groups within the firm and with outside groups} Wernerfelt, B., 1984, Hafeez, K., Malak, N. and Zhang, Y., 2002 Resource = anything that could be thought as a strength or a weakness for a firm. Tangible and intangible assets tied permanently or semi-permanently to the firm.
  14. 14. Hofer and Schendel, 1978, Grant, R., 1991 Mahoney, J. and Pandian, R., 1992  Physical resources  Financial resources  Human Resources  Organizational resources  Technological resources  Legal resources  Experience  Intangible resources Hafeez, K., Malak, N. and Zhang, Y., 2002 Physical assets  Intellectual assets  Cultural assets 
  15. 15. R. B. V. Definitions Competences  Selznick, 1957 Competence = things that an Organization does especially well in comparison to its competitors  Hamel, G. and Prahalad, C., 1990 Competence = collective learning of the Organization, especially how to coordinate diverse production skills and to integrate multiple streams of technology  Penrose, 1959 Resource = stock. A resource can be defined independently from its use Capability (competence) = flow. It implies function and activity and cannot be defined independently from its use. Capabilities are created over time and may depend on History and use of resources in an extremely complex (“pathdependent”) process  Hrebiniak, L. and Snow, C., 1980 Competence = aggregate of numerous specific activities that the organization tends to perform better than other Organizations in a similar environment
  16. 16. Durand, T. 1996 & (Penrose, 1959)  Elementary assets and resources, tangible and intangible Plant, equipment, products, software and brands  Cognitive competences, individual and collective, explicit and tacit Knowledge, know-how, technologies, patents  Organizational processes and routines). Coordination mechanisms in the organization to combine the action of individuals into collective tasks and achievements  Organizational structure Structure including its internal and external dimensions (links with suppliers and customers)  Identity (Culture) Corporate culture and behavior in the organization. Its shared values, its rites and taboos are manifestations of the firm’s identity
  17. 17. Porter 1980-1985 Ghemawat 1986 Lieberman and Montgomery 1988 Hamel and Prahalad 1994 Competitive Advantage Cost OR Differentiation Future Position Capabilities  Technology  Design  Production  Service  Distribution Polanyi 1962 Rumelt 1984 Teece 1987 Itami 1987 Andrews 1971 Hofer and Schendel 1978 Prahalad and Hamel 1990 Ulrich and lake 1991 Resources  Tangible Resources  In-tangible Resources  Competiences Wernerfelt 1984 Deiricks & Cool 1989 Reed and Defillipi 1990 Barney 1991
  18. 18. Prahalad and Hamel (1990): core competencies  Management’s ability to consolidate technology and production skills into competencies so the business can adapt quickly to changing opportunities/circumstances.  Core competencies = collective learning of the organisation about prod/tech/markets. e.g. Sony’s miniaturisation skills.  Competencies have to be built over a long period.  They are difficult to identify precisely and hard to imitate.  Many firms fail to identify their own core competencies and so fail to nurture them properly or exploit them fully.
  19. 19. Chandler (1990) initial risky investments Chandler (1990): successful giants such as IBM and Bayer derive from the initial heavy and risky investments in building organisational knowledge and capabilities which allowed them to exploit the opportunities available to exploit scale and scope economies.
  20. 20. Two Critical Assumptions of the RBV Resource Heterogeneity » different firms may have different resources Resource Immobility » it may be costly for firms without certain resources to acquire or develop them » some resources may not spread from firm to firm easily
  21. 21. Resource Heterogeneity  Heterogeneity of resources typically occurs as the result of ‘bundling’ several resources of a firm  Managers of a firm could take resources that seem homogeneous and ‘bundle’ them to create heterogeneous combinations
  22. 22. Resource Immobility  Resources may be immobile due to natural and/or intentionally created barriers to imitation  Costs of imitation o Imperfect imitability: the resource could be imitated but the cost of doing so would capitalize the full value of imitation o Inimitability: the resource cannot be imitated at any cost
  23. 23. The VRIO Framework If a firm has resources that are: • Valuable, • Rare, and • Costly to Imitate, and… • The firm is Organized to exploit these resources, Then the firm can expect to enjoy a sustained competitive advantage.
  24. 24.  First, the resource must be valuable in the sense that it exploits opportunities and/or neutralizes threats in the firm’s environment.  Second, it must be rare among the firm’s current and potential competitors.  Third, the resource must be difficult for competitors to imitate.  Fourth, the resource must have no strategically equivalent substitutes. 3-27
  25. 25. Competitive advantage Competitively valuable resources (Collis and Montgomery, 1995)  Reduction of costs,  The exploitation of market opportunities, and/or  The neutralization of competitive threats.     Inimitability -- is the resource hard to copy? Durability -- how quickly does the resource depreciate? Approprability -- who captures the value the resource creates? Substitutability -- can the resource be trumped by another resource?  Competitive superiority -- whose resource is really better?
  26. 26. Stalk, Evans, and Shulman (1992): capabilities Competitive advantage is based on the ability to respond to evolving opportunities which depends on business processes or capabilities. Business success involves choosing the right capabilities to build, managing them carefully, and exploiting them e.g. Honda, Canon.
  27. 27. Collis and Montgomery (1995): competing on resources  Competitive advantage derives ultimately from the ownership of a valuable resource.  Superior performance derives from developing a ‘competitively distinct’ set of resources and deploying them in a well conceived strategy.  Resources can be physical, intangible, or organisational capabilities.  Example: Marks and Spencer (poor timing!)
  28. 28. Empirical implications  Henderson and Cockburn (1994) {Why pharmaceuticals innovate then others.}  Rumelt (1991) { variance Decomposition}.  Mcghan and Potter {Industry effect size can but firm effects is generally larger.  Barnett et al (1994) { why some banks compete out during recession}.  Ray et al.(2004) {IT and Customer satisfaction in insurance firms}. {IT and CS management has direct and interaction effects.  Hatch and Dyer (2004) firm specific human capital can create the competitive advantage .because human capital is imitate.
  29. 29. Theoretical extension Applied to additional phenomenon  Vertical integration and theory of firm (Corner ,1994 , Corner and Prahalad ,2001, Barany 2002)..  Diversification (wireman and Robbins ).  Complementary extensions {heterogeneity}  HRM  Marketing  Enterpenuership  Operations management.
  30. 30. Practical Implications of RBT  Industry attractiveness cant be evaluated without the firm resources. (South west and Wal-Mart.  Competitive advantage is every employee responsibility (Koch industries of trading manufacturing investment).  Doing as well as just competition just shows the Mediocrity (Bench marking).  Product features cant not be used for sustained the competitive advantage as the ability to produce different features (Sony).  HP.. Mail Box Incorporation.. Xerox.
  31. 31. Criticisms on RBV and assessment Criticisms Assessment 1- The RBV has no managerial implications. 1- Not all theories should have direct managerial implications. Through its wide dissemination, the RBV has evident impact. 2- The RBV implies infinite regress. 2- Applies only to abstract mathematical theories. In an applied theory such as the RBV levels are qualitatively different.
  32. 32. Criticisms on RBV and assessment 3. The RBV’s applicability is too limited 3Generalizing about uniqueness is not impossible by definition. The RBV applies to small firms and startups as well, as long as they strive for an SCA. Path dependency is not problematic when not taken to the extreme. The RBV only applies to firms in predictable environments.
  33. 33. Criticisms on RBV and assessment 4- SCA is not achievable. By including dynamic capabilities, the RBV is not purely static. Though, it only explains ex post, not ex ante sources of SCA. While no CA can last forever, a focus on SCA remains useful.
  34. 34. Criticisms on RBV and assessment The VRIN/O criteria are not always necessary and not always sufficient to explain a firm’s SCA. 5- VRIN/O is neither necessary nor sufficient for SCA. The RBV does not sufficiently consider the synergy within resource bundles as a source of SCA. The RBV does not sufficiently recognize the role that judgment and mental models of individuals play in value assessment and creation.
  35. 35. Criticisms on RBV and assessment 7- The value of a resource is too indeterminate to provide for useful theory. The current conceptualization of value turns the RBV into a trivial heuristic, an incomplete theory, or a tautology. A more subjective and creative notion of value is needed.
  36. 36. Criticisms on RBV and assessment Definitions of resources are allinclusive. 8- The definition of resource is unworkable. The RBV does not recognize differences between resources as inputs and resources that enable the organization of such inputs. There is no recognition of how different types of resources may contribute to SCA in a different manner.
  37. 37. Suggestions for future research in RBV:  Demarcating and Defining Resources o Theorize the distinctions between the building, versus the processes of deploying that capacity. o Conduct more process-based empirical research within the RBV frame to probe how resource-based SCA and performance are related. o Identify types or characteristics of resources that help refine the predictions of the RBV – that differ in the manner they contribute to a firm’s SCA. Specifically:
  38. 38. Suggestions for future research in RBV: o Explore the distinction between rivalries and non-rivalries resources and the impact of this distinction on the predictions of the RBV. o Expand on the distinction between resources and integrative capabilities and on the hierarchical relationship between individual and collective resources.
  39. 39. Suggestions for future research in RBV:  Towards a Subjective and Firm-Specific Notion of Resource Value o Investigate the value assessment processes by which new ways to create and capture novel value are conceived. o Study whether and how human ideas ignite revolutionary modes of value creation. o Study the social influence mechanisms through which entrepreneurs create value by convincing others of the value of their products.
  40. 40. Suggestions for future research in RBV:  The RBV as a Theory of Sustained Competitive Advantage o Develop a resource-based explanation of SCA that focuses on the differences in people’s capacities to identify or imagine and judge the potential risks and benefits associated with the ownership of resources. o Develop refined propositions on the relationship between specific types of resources and a firm’s SCA. o Study how new resources are selected and how they can be matched with the existing resources in place in the organization.