Lecturer 2 – chapter 6 Internal

resources - basic

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 LEARNING OUTCOMES
● Identify the key factors for success in an industry;
● Explore the main resources of an organisation and the strategic decision on whether
to make or buy;
● Explain the concept of value added;
● Analyse the value chain and value system of an organisation and comment on their
strategic significance;
● Outline the concept of economic rent and its relationship with sustainable
competitive advantage;
● Explain how resources deliver sustainable competitive advantage to the
organisation;
● Identify and explain the seven main concepts of sustainable competitive advantage;
● Explain the roles of different resources in the organisation and relate them to
sustainable competitive advantage;
● Outline three methods for improving the sustainable competitive advantage of the
organisation’s resources.
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 CASE 6.1: Glaxo Wellcome –
SmithKline Beecham Merger
Q1 What are the key factors for success in this market?
And what are the implications of your answer for large
and generic drug manufacturers?

Q2 What was the nature of the competitive advantages held by Glaxo

Wellcome? And SmithKline Beecham? Were
they sustainable?

Q3 Do cost savings in themselves represent substantive

competitive advantage?

Q4 What lesson, if any, on the development of sustainable

competitive advantage can be drawn from the case for
other companies outside pharmaceuticals?
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 KEY FACTORS FOR SUCCESS

Key factors for success in an industry are those resources,

skills and attributes of the organisations in an industry that
are essential to deliver success in the market place.

Custom
ers

Success

Corporati Competi
on tion

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IDENTIFYING KEY FACTORS

Exhibit 6.1 (page 196)

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 HOW TO DEFINE INDIVIDUAL
COMPANY RESOURCES?
Viewpoint 1:
Each organisation needs to analyse and develop the
individual resources that will allow it to survive and
compete in the environment.

Viewpoint 2:
This emphasis on the importance of resources in delivering
the competitive advantage of the organisation is called the
resource-based view of strategy development.

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 HOW TO POSSESS INDIVIDUAL
COMPANY RESOURCES?
What is made-or-buy decisions?

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CASE 6.2: How three European companies
attempt to utilise their resources?

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 ADDED VALUE
Definition:
Added value can be defined as the difference between the
market value of the output of an organisation and the cost of
its inputs.

Value is added here 9

 VALUE CHAIN - CONCEPT

Definition: The value chain identifies where the value is added

in an organisation and links the process with the main functional
parts of the organisation.

ADDED
VALUE

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 VALUE CHAIN – PRIMARY
ACTIVITIES
● Inbound logistics. These are the areas concerned with receiving the goods from suppliers,
storing them until required by operations, handling and transporting them within the
company.
● Operations. This is the production area of the company. In some companies, this might
be split into further departments – for example, paint spraying, engine assembly, etc., in
a car company; reception, room service, restaurant, etc., in a hotel.
● Outbound logistics. These distribute the final product to the customer. They would clearly
include transport and warehousing but might also include selecting and wrapping
combinations of products in a multiproduct company. For a hotel or other service company,
this activity would be reconfigured to cover the means of bringing customers to the hotel
or service.
● Marketing and sales. This function analyses customers’ wants and needs and brings to the
attention of customers the products or services the company has for sale. Advertising and
promotions fall within this area.
● Service. Before or after a product or service has been sold, there is often a need for
preinstallation or after-sales service. There may also be a requirement for training, answering
customer queries, etc. 11
 VALUE CHAIN – SUPPORT ACTIVITIES

● Procurement. In many companies, there will be a separate department (or group of

managers) responsible for purchasing goods and materials that are then used in the
operations of the company. The department’s function is to obtain the lowest prices
and highest quality of goods for the activities of the company, but it is only responsible
for purchasing, not for the subsequent production of the goods.
● Technology development. This may be an important area for new products in the
company. Even in a more mature industry, it will cover the existing technology, training
and knowledge that will allow a company to remain efficient.
● Human resource management. Recruitment, training, management development and
the reward structures are vital elements in all companies.
● Firm infrastructure. This includes the background planning and control systems – for
example, accounting, etc. – that allow companies to administer and direct their
development. It includes corporate strategy.

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 VALUE SYSTEM - CONCEPT
Definition: The value system shows the wider routes in an
industry that add value to incoming supplies and outgoing
distributors and customers.

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ALUE CHAIN – VALUE SYSTEM LINKAGES

Analysis
of the
value
chain and
the value
system
will
provide
informati
on on
value
added in
the
company.

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ECONOMIC RENT - EXAMPLE

Why CR is
extremely
well-paid?

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 ECONOMIC RENT - CONCEPT

Economic rent is defined as any excess that a factor earns

over the minimum amount needed to keep that factor in its
present use.

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 ECONOMIC RENT - TYPES

Ricardian rents (after David Ricardo) derive from the resources

of the organisation; they are rents generated from resources that
possess some real competitive advantage, allowing the company
to generate significant additional returns.

Monopoly rents derive from the markets in which the

organisation operates. They are the rents associated with a
company’s unique position in the market place that allows it to
earn exceptional returns.

Schumpeterian rents. These are rents that derive from a new and
innovatory product or service that allows the organisation to
charge considerably above its costs of production.
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 ECONOMIC RENT – IMPLICATONS
FOR RECOURCES ANALYSIS
1 Scarcity of resource. It identifies this concept and
raises the possibility of developing resources that are so
scarce that they can earn substantial economic rent.

2 Alternative use for resources. The concept explores

other and more profitable uses for any
resource beyond the one that is currently being pursued.
Specifically, it considers the
possibility that using the resource for another purpose
might produce more rent.
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ECONOMIC RENT – IDENTIFICATION

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CASE STUDY 6.3

Competitive Advantages

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 RESOURCE-BASED VIEW
(STRATEGIC VIEWPOINT)

The RBV stresses the importance of the individual

resources of the organisation in delivering the
competitive advantage of the organisation

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ELEMENTS OF RBV SUSTAINABLE
COMPETITIVE ADVANTAGE

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 7 ELEMENTS

Prior or acquired resources. Value creation is more likely

to be successful if it builds on the strengths that are already
available to the organisation, rather than starting from
scratch in a totally new area.
Innovative capability. Innovation is important because it is
particularly likely to deliver a real breakthrough in
competitive advantage that others will have difficulty in
matching for a lengthy period.
Being truly competitive. the resource must be
comparatively better than the competition.
Substitutability. Resources are more likely to be
competitive if they cannot be substituted.
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 7 ELEMENTS (cont’)

Appropriability. Resources must deliver the results of their

advantage to the individual company and not be forced to
distribute at least part of it to others.
Durability. Useful resources must have some longevity.
Imitability. Resources must not be easy to imitate if they
are to have competitive advantage.

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IDENTIFYING WHICH RESOURCES DELIVER
S SUSTAINABLE COMPETITIVE ADVANTAGE

Tangible Intangible Organisational

resources resources capability
• physical • No physical • skills,
• Plant, presence routines,
equipment… • Brand names, management
service levels and
and leadership
technology

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RESOURCES - EXAMPLE

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TWO APPROACHES TO EVALUATE RESOURCES -
DISTINCTIVE CAPABILITIES

Architecture
Reputation

Innovative
capability

DISTINCTIVE
CAPABILITIES
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 DISTINCTIVE CAPABILITIES – THREE AREAS

Architecture is the network of relationships and contracts

both inside and outside the firm.

Reputation is the strategic standing of the organisation in

the eyes of its customers and other stakeholders.

Innovative capability is the special talent possessed by

some organisations for developing and exploiting innovative
ideas

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TWO APPROACHES TO EVALUATE RESOURCES -
CORE COMPETENCIES

Customer
value
Competitor
differentiation

Extendable

CORE COMPETENCIES
(production skills and technology)

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 CORE COMPETENCIES - THREE AREAS

Customer value. Competencies must make a real impact on

how the customer perceives the organisation and its
products or services.

Competitor differentiation. This must be competitively

unique. If the whole industry has the skill, then it is not core
unless the organisation’s skills in the area are really special.

Extendable. Core skills need to be capable of providing the

basis of products or services that go beyond those currently
available.
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 IMPROVING RESOURCES’ COMPETITIVE
ADVANTAGES

Benchmarking – the comparison of practice with that of

other organisations in order to identify areas for
improvement.

In any organisation, it is essential to exploit its existing

resources to the full – this is sometimes called leveraging
resources.

Organisation continues to add some value to its inputs

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 HOMEWORKS

Questions in pages 234-235

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