Business Strategy

Presentation by

Christopher
Lipp
Senior Lecturer
Innovation and
UMSDQ5-15-3
Enterprise

Study Unit 3:
RBV & Competences 1
Outline
1. So far: Strategy as a Choice. Short review

2. Resources
i. Activities vs. resources
ii. What are resources?
iii.What are competencies?

3. The Resource-Based view

i. An inside-out view
ii. How to identify core competencies
iii.VRIO test

4. Summary and critique

 So far… “Outside In” – Porter’s
View
 Competitive advantage results from choosing
market a position. Firms making trade off choice
with aligned activities sustain advantage.
 (Some more) critique
 Outside-in view of Competitive Advantage is
deterministic/passive. Growing evidence that internal attributes
better predict performance
 Narrow focus on privileged market position
 Market volatility (speed, disruption, blurring boundaries) –
advantage is temporary
 Assumes availability of inputs – market price matches value
 Assumes management choice/control over position and
activities
 How can you gain
Sustainable Competitive Advantage?
External environment
perceived as…
Constant
RBV
Complex System
Unique
of Activities
Resource(s) not
aligned to market
easily obtained
Internal source

Study Unit 3 needs

of advantage

Study Units 1 and 2

Resource Activity

Ability to
Ongoing series of recognise change
advantages from and “move”
changing activities more
resources quickly than
others
Dynamic
Webb (2018)
A firm is a ‘unique collection of
resources’ whose deployment gives it
ability to exploit market opportunities

(Barney, 1991)
Difference between
Resources and Activities
Activity: Resource:
A thing that a A stock/supply of
person or group assets, skills
does qualities that can be
drawn on when
required
Porter

RBV
Examples of Resources of
JetBlue?
Link between activities and
resources
While activities (flows) can be

Qu
adjusted instantaneously,

ali
Ad

ty
resources (stocks) need to be
ve

R&

Co
rti

acquired / accumulated over

D

nt
ins

ro
g

time through consistent patterns

Activities l of activities.
(= FLOWS)

Brand loyalty
Resources (= STOCKS)
Know-how, patents

Reputation for quality

Depreciation Source: Dierickx and Cool (1989), Penrose

What are “Resources”
“Resources include all assets,
capabilities, organizational
processes, firm attributes,
information, knowledge etc.
controlled by the firm”
Tangible/intangible
resources
Typically, resources are divided into tangible and
intangible.
Tangible defines things that can be “touched”
Tangible Intangible
Cash Patents
Land Trademarks
Machinery Relationships
Inventory Reputation
Bonds… Contracts…

 Which resources will most likely tend to be sources of competitive

advantage?
Why “Inside-Out”?

Firm Strategy Market

Market 2

How to be successful according to the RBV?

1. Identify the resources that provide sustainable competitive
advantage.
2. Use these key resources to gain competitive advantage in other
 Resources: the economic
argument
 Premise: Inelastic supply of resources drives competitive
advantage:

“Heterogeneous” = different.
 Resource Heterogeneity
Different firms have different specific (unique) resources combined in different
(unique) ways
 Economic Rent
Profits are appropriated by ownership of scarce (=rare) resources
 Resource Immobility
If resources are not easily imitated or substituted, they may not spread from firm to
firm easily or may be difficult to acquire/develop by others

Build your strategy around these unique resources

and then search for markets to exploit

Source: Barney (1991)

 Single resources not
enough!
“Core competencies are the roots of competitiveness and
are the collective learning in the organization, [the]
coordination of diverse skills and the integration of multiple
streams of technology”
INTEGRATED BUNDLES OF RESOURCES

• Example
A truck – tangible resource
+ A truck driver – tangible resource
+ Relationships with customers – intangible resource
+ Schedule and organization – intangible resources

= A distribution system – competency

Source: Prahalad and Hamel (1990)

 The ability to write is a ‘competency’ that one can
own

It is a bundle of resources
Some are tangible, some are intangible.
It can be used differently in different contexts.
 Role of competencies
 A long term advantage can come from the building of a
specific mix of core competencies and from the
deployment of the strategic capability they provide.
A distribution system (competency)
+
An outstanding reputation as a reliable distributor
(competency)

Enables:
Strategic capability (the reason why customers use
your service)

 Management’s role is to
 identify these competencies,
 provide long-term goals
 and facilitate the use and “stretching” of the firm’s
competencies to other areas/markets
Source: Prahalad and Hamel (1990)
 RBV’s inside-out view
• Organisations are made up of a small number of competencies.
• Together, these competencies enable the firm to do
something that customers value.

Even the most

successful firms
will only have 3
Why customers choose to 5
you competencies
that really drive
advantage

…each a bundle of resources

(Assets, Routines, Norms)
Based on: Prahalad and Hamel (1990)
How do we identify
core competencies?

In short:
From the “outside”…
and using the VRIO test
How to identify core
competencies?
Often easier - Why are customers choosing this firm?
this way - What is the job that the firm is doing for
those customers that is so good, they keep
What does the coming back?
company excel - What competencies allow it to do that job?
at?  BRAINSTORM AND TEST

Listing all the resources of a company is almost Can be hard

impossible. There are thousands of resources, tangible in this direction
and intangible.
Is it Valuable and
Unique?
1. “Something to hang on the wall”

2. “Any painting”

3. “A copy of the Mona Lisa painting”

4. “The Mona Lisa painted by Leonardo Da Vinci”

5. A pallet of paint from the 16th century

6. Powdered paint of that era…

Analyse competencies at the right level.

Avoid being too broad (too vague) or too specific (too

detailed)
 These are not core
competencies
As you brainstorm, be specific. The following are NOT core competencies:

 “Economies of Scale/Scope” – in which competency?

 “Technology” – be specific – what technology do you possess?
 “Innovation” – how contributes to current revenue? Be specific
 “First mover advantage” – what competency has been built by this?
 “Product diversification” – what competency lets you do this?
 “New market penetration” – what a competency lets you do
 “Low prices” – what competencies mean you can do this?
 “Diversification” – A strategy not a competency
 “Market Share” – a reward for possessing core competencies

Make sure the core competencies you identify meet VRIO

criteria.
20
The VRIO Test
To provide sustainable competitive advantage, a core competence (each
bundle of assets, values and routines) must pass four tests (V.R.I.O.)
 Valuable - competitively superior (i.e. valuable in the industry context
of opportunities and threats); making a significant difference to the
firm, currently.
 Rare - scarce or rare relative to competitors
 non-Imitable - Hard or costly to copy (inimitable) or easily substitute
e.g. historic circumstance, causal ambiguity, or complex social
relationships?
 Organisation – The firm captures (appropriates/integrates) the value
generated – possession/control may not be enough

each
s s
s s rce / y
e
A ou nc
s t e
re
m pe ally!
co ividu
ind
Some limitations to the
Resource-Based View
1. The Resource-Based View of Strategy is difficult for
oganisations to implement

2. No consistency/consensus in use of terminology

3. In a dynamic world, is any competency inimitable and/or

non-substitutable?
Resources are seen as fixed…

4. It says very little on the important issues of how

competencies can develop and change over time.
RBV in Summary
• Competitive advantage results from bundles of
different (“heterogeneous”) and immobile resources
within the firm (competencies)
• Core competencies are combinations of tangible and
intangible resources that are utilised in current
revenue generation and pass the VRIO test,
therefore delivering sustainable competitive advantage
• Managers should focus on competition at level of
competencies rather than short-term end-product
advantage
• BUT the RBV is criticised for providing little guidance
on how to build and manage competencies, and the
idea of ‘dynamic capabilities’ seeks to address this
issue
 will be addressed next week.
Next week
Lecture on Dynamic Capabilities View

Seminars on Resource-Based View

Mandatory preparation for seminars:

Read and take notes:
Barney, J. (1995). “Looking Inside for Competitive
Advantage”, Academy of Management Executive, 9, 4,
pp. 49-61

Case study:
prepare your answers to
the CEMEX case study Part 1