Heterogeneity in a firm's resources and capabilities is a necessary but not sufficient condition for any source of competitive advantage to be sustainable (u3s5p53)
The basis of competitive advantage within an industry can change - example is what has happened to film/camera companies such as Kodak and Polaroid. Superior film manufacturing (for example) was no longer a source of competitive advantage when the market went digital. (Or the market for film photography shrank and a new digital market appeared).
Competing flexibly :- responding to the external environment. Organisations need to be able to adapt while remaining stable enough to exploit any changes made (Volberda 1998).
Dynamic capabilities (Teece, Pisano and Shuen, 1997) are "the firm's ability to integrate, build and reconfigure internal and external competencies to address rapiudly changing environments. Dynamic capabilities thus reflect an organisation's ability to achieve new and innovative forms of competitive advantage given path dependencies and market positions".... because:
Firms operate in rapidly changing environments
It is difficult to adapt capabilities or develop new ones when required
Capabilities are not tradable in markets, but must be built within the organisation (due to tacit knowledge etc)
Capabilities take time to build and develop
The process of learning to develop capabilities is path dependent (history matters, bygones are not bygones)
So firms most likely to gain competitive advantage in turbulent environments are those best able to reconfigure and transform themselves, which is a capability in itself.
No s**t sherlock.... :)
Dynamic capabilities are created in the same way as other capabilities. Organisational routines are the main components. So, make or buy your capabilities? After all, we have been building the argument here that capabilities are built not bought. So why are so many people outsourcing?
By outsourcing, it is possible to take advantage of greater expertise and potential scale economies. Companies like Wipro can take advantage of lower overhead costs in places like Bangalore than almost any "western" firm. So the decision to develop capabilities internally should always be subject to economies of scale questions.
Modularity is the principle unlerlying the potential for external capability development. Modularisation of components and services makes it easy for manufacturers to replace or re-use certain components across a wide product range or future products, or use external firms to supply those modularised products or services.
Transaction cost economics is central to the insource/outsource decision. They suggest that the most efficient way to carry out a transaction is whichever way will minimise the costs of that transaction to the organisation. These costs might include the setting up and running of an internal supply contract, internal costs of management of time and resource, costs of operating at less than optimal scale efficiency etc.
The dilemma is that it is often difficult to evaluate today the true cost of a decision to outsource given that we are uncertain of its impact on our future strategic flexibility. See also table u3s5p64
Sunday, 30 January 2011
RBV - Linking it to knowledge and learning u3s4p47
or.. the Knowledge Based View (as part of the Resource based View).
The KBV is considering knowledge the most important asset or resource under the RBV.
Spender (1996) said that the origin of all tangible resources lies outside the firm.
If you agree with this statement then it surely follows that competitive advantage is more likely to arise from the intangible firm-specific knowledge.
He says this is because it adds value to your production process in "a relatively unique manner".
Individuals tend to specialise in particular areas of knowledge and it can be difficult to transfer knowledge between individuals.
Explicit knowledge is the "know why" and is easier to articulate and pass on to other individuals.
Tacit knowledge is the "know how" and is more difficult to articular and pass on.
Grant (1996) says
Tacit knowledge is almost impossible for rivals to imitate or replicate. (non-imitable and non-substitutable).
If an organisation relies heavily on the tacit knowledge of its staff, the greater the potential to permanently lose this expertise within the organisation, leading to a heavier emphasis on knowledge management systems.
Routines are to the organisation what skills are to the individual (Grant 2002, p149). They embody the organisation's learning to date and they come to act as the organisation's memory and an important store of knowledge.
Caveat Emptor: Organisations that have demonstrated a capacity for organisational learning through the creation of efficient routines might also have difficulties with responding to new situations.
The KBV is considering knowledge the most important asset or resource under the RBV.
Spender (1996) said that the origin of all tangible resources lies outside the firm.
If you agree with this statement then it surely follows that competitive advantage is more likely to arise from the intangible firm-specific knowledge.
He says this is because it adds value to your production process in "a relatively unique manner".
Individuals tend to specialise in particular areas of knowledge and it can be difficult to transfer knowledge between individuals.
Explicit knowledge is the "know why" and is easier to articulate and pass on to other individuals.
Tacit knowledge is the "know how" and is more difficult to articular and pass on.
Grant (1996) says
- individuals are the source of knowledge creation
- efficiency in knowledge production requires that individuals specialise in a particular area of knowledge
- the essential task of the organisation is knowledge integration, ie to co-ordinate the efforts of specialists
Tacit knowledge is almost impossible for rivals to imitate or replicate. (non-imitable and non-substitutable).
If an organisation relies heavily on the tacit knowledge of its staff, the greater the potential to permanently lose this expertise within the organisation, leading to a heavier emphasis on knowledge management systems.
Routines are to the organisation what skills are to the individual (Grant 2002, p149). They embody the organisation's learning to date and they come to act as the organisation's memory and an important store of knowledge.
Caveat Emptor: Organisations that have demonstrated a capacity for organisational learning through the creation of efficient routines might also have difficulties with responding to new situations.
Saturday, 29 January 2011
RBV - The Resource Audit
Resource Audit u3s3p24
This allows you to identify and then evaluate your resources.
Based on Grant 2002.
Resources are classified as
Intangible - IPR, reputation, culture - can be used in more than one area or product without reducing their quantity or value. Although valuable, they can be difficult to value.
Human - skills, knowledge, reasoning, decision making, co-ordinating other resources & assets.
This allows you to identify and then evaluate your resources.
Based on Grant 2002.
Resources are classified as
- Tangible
- Intangible
- Human
Intangible - IPR, reputation, culture - can be used in more than one area or product without reducing their quantity or value. Although valuable, they can be difficult to value.
Human - skills, knowledge, reasoning, decision making, co-ordinating other resources & assets.
Wednesday, 26 January 2011
Value Appopriation (u3s2p18)
I've already stated in previous blogs that the importance of a strategic asset is linked to its ability to generate value. Surely, then, it is imperative that the organisation is able to "appropriate" that value?
Therefore, it follows that success not only depends on the ability to create that value but to be able to appropriate it.
This can be helped through legal means such as property rights, eg copyright or patents. This allows resourceful innovation to generate appropriatable value that cannot be (legally) imitated. If your intangible assets include significant intellectual property, this is valuable capital that you need to protect.
Therefore, it follows that success not only depends on the ability to create that value but to be able to appropriate it.
This can be helped through legal means such as property rights, eg copyright or patents. This allows resourceful innovation to generate appropriatable value that cannot be (legally) imitated. If your intangible assets include significant intellectual property, this is valuable capital that you need to protect.
The role of managers in the RBV
Barney (1991) says that it is possible to be "lucky" by being able to acquire the right resources at the right moment, however this is not something that should be left to chance. The manager's discrection is emphasised within RBV and managers have an important role in creating capabilities.
It's also important to consider, create, protect and nurture intangible assets. Brand is the example given; Disney's brand is an intangible asset of that company and it's not something that another company can exploit without entering into licencing arrangements or even acquiring Disney.
Your (strategic) assets cannot be adjusted instantaneously and have to be built over time. Because capability development is not a neat, controlled experiment but happens constantly and concurrently along with other capability development and other factors in the environment, there can be a lack of clarity as to exactly which factors lead to superior performance - this is causal ambiguity (Lippman and Rumelt, 1982)
Barney also says only valuable resources can contribute to competitive advantage. Such resources are:-
One thing to note about causal ambiguity is that it helps make resources imperfectly imitable and non-substitutable. This is because potential imitators do not necessarily know what it is they need to imitate. Examples are capabilities which develop due to the interconnectedness of resources within your organisation. These resources are generally tacit - less easily written down - eg the know-how required to ride a bicycle.
Path Dependency - the way in which organisations follow certain pathways of development to arrive at the resource bundle they now posess.
Another important concept is that of the mobility of resources. The more mobile the resources, the less they may be considered valuable (that is unless you are providing that resource!) Sticky, non-easily traded resources are usually considered to be immobile.
Examples of immobile resources may include land, custom fixtures & fittings, or even resources that make up co-specialised assets (Teece 1982), eg a scientist who requires equipment that is expensive to provide, or oil buried under the ice caps that needs specialist equipment and knowledge to extract.
It's also important to consider, create, protect and nurture intangible assets. Brand is the example given; Disney's brand is an intangible asset of that company and it's not something that another company can exploit without entering into licencing arrangements or even acquiring Disney.
Your (strategic) assets cannot be adjusted instantaneously and have to be built over time. Because capability development is not a neat, controlled experiment but happens constantly and concurrently along with other capability development and other factors in the environment, there can be a lack of clarity as to exactly which factors lead to superior performance - this is causal ambiguity (Lippman and Rumelt, 1982)
Barney also says only valuable resources can contribute to competitive advantage. Such resources are:-
- rare
- imperfectly imitable
- non-substitutable
One thing to note about causal ambiguity is that it helps make resources imperfectly imitable and non-substitutable. This is because potential imitators do not necessarily know what it is they need to imitate. Examples are capabilities which develop due to the interconnectedness of resources within your organisation. These resources are generally tacit - less easily written down - eg the know-how required to ride a bicycle.
Path Dependency - the way in which organisations follow certain pathways of development to arrive at the resource bundle they now posess.
Another important concept is that of the mobility of resources. The more mobile the resources, the less they may be considered valuable (that is unless you are providing that resource!) Sticky, non-easily traded resources are usually considered to be immobile.
Examples of immobile resources may include land, custom fixtures & fittings, or even resources that make up co-specialised assets (Teece 1982), eg a scientist who requires equipment that is expensive to provide, or oil buried under the ice caps that needs specialist equipment and knowledge to extract.
Unit 3 - RBV vs industry structure (market positioning) view
Market positioning view in the 1980s was that the fundamental factor affecting an organisation's profitability was industry structure. Rumelts (1991) found that industry effects ounly accounted for 8% of performance variance, whereas business unit effects accounted for 47%. So if profits are different amongst organisations in the same sector, then industry-level factors cannot be wholly responsible for differences in performance between organisations. Think about how Tesco overtook Sainsbury's in the 1990s.
McGahan and Porter (1997) challenged this, but still found industry effects were 19% and business unit were 32%. They state that environmental turbulence must also be taken into account, and that industry structure has less effect in stable sectors and more in turbulent sectors.
The debate is still raging. Neither is the sole "right approach". u3s2p8,9,10
Porter's 5F is a useful framework for asessing industry attractiveness through external environment analysis. RBV is the approach to use for internal analysis, however it is still complementary to market positioning.
Some definitions:-
Resources: tangible and intangible assets of the firm
Capabilities: the processes through which resources are combined and co-ordinated.
(Strategic) Assets: Resources and Capabilities
This definition seems a little circular!
Finally, Magnitude of Competitive Advantage of a Resource: The extent to which it reduces the cost structure or differentiates the offering of the organisation.
McGahan and Porter (1997) challenged this, but still found industry effects were 19% and business unit were 32%. They state that environmental turbulence must also be taken into account, and that industry structure has less effect in stable sectors and more in turbulent sectors.
The debate is still raging. Neither is the sole "right approach". u3s2p8,9,10
Porter's 5F is a useful framework for asessing industry attractiveness through external environment analysis. RBV is the approach to use for internal analysis, however it is still complementary to market positioning.
Some definitions:-
Resources: tangible and intangible assets of the firm
Capabilities: the processes through which resources are combined and co-ordinated.
(Strategic) Assets: Resources and Capabilities
This definition seems a little circular!
Finally, Magnitude of Competitive Advantage of a Resource: The extent to which it reduces the cost structure or differentiates the offering of the organisation.
Tuesday, 25 January 2011
Reflections on Unit 3 - Competing with Capabilities
Today I have been...
Looking over Unit 3 - "Competing with Capabilities"
Why?
Learning!
So What?
Unit 2 was about the Analysis stage of the J&S strategy cycle, in particular environmental threats and how to identify them - focus was the industry. Unit 3 stays at the analysis stage but is more about the organisation, and looking at organisational strengths and weaknesses with a Resource Based View (RBV).
RBV - a theoretical approach which assumes that organisations differ in respect of the resources they posess and the capabilities they have developed, and these differences account for the variation in performance between organisations.
So, the learning outcomes.
Popularised by Prahalad and Hamel (1990) - immediate competitiveness depends on price/performance of current products but long-term competitiveness depends on ability to develop a core competence around a key skill or skills. These skills, resources and capabilities are complementary.
RBV - critical difference between organisations irrelevant to industry is their assets (resources) and how they use them. Managers determine how well or not they are used. Applicable to commercial and NFP.
Assumption is that orgs are heterogeneous rather than homogeneous. Assets include tangible and intangible assets as well as skills and know-how. Ability to co-ordinate and use these assets is the org's capabilities.
Grant's diagram - Grant 2005 p139/ u3s2p8.
Looking over Unit 3 - "Competing with Capabilities"
Why?
Learning!
So What?
Unit 2 was about the Analysis stage of the J&S strategy cycle, in particular environmental threats and how to identify them - focus was the industry. Unit 3 stays at the analysis stage but is more about the organisation, and looking at organisational strengths and weaknesses with a Resource Based View (RBV).
RBV - a theoretical approach which assumes that organisations differ in respect of the resources they posess and the capabilities they have developed, and these differences account for the variation in performance between organisations.
So, the learning outcomes.
- Have a theoretical understanding of RBV (which can be considered complementary to an industry structure/market positioning approach)
- be able to apply the RBV through organisational analysis
- be able to show the basics of how RBV relates to knowledge and learning
- understand the notion of sustainability of competitive advantage
- appreciate the need to consider resourced and capabilities within a dynamic framework (strategic value of capabilities can change over time)
Popularised by Prahalad and Hamel (1990) - immediate competitiveness depends on price/performance of current products but long-term competitiveness depends on ability to develop a core competence around a key skill or skills. These skills, resources and capabilities are complementary.
RBV - critical difference between organisations irrelevant to industry is their assets (resources) and how they use them. Managers determine how well or not they are used. Applicable to commercial and NFP.
Assumption is that orgs are heterogeneous rather than homogeneous. Assets include tangible and intangible assets as well as skills and know-how. Ability to co-ordinate and use these assets is the org's capabilities.
Grant's diagram - Grant 2005 p139/ u3s2p8.
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