BS3100 – Strategy for Business
Week - 4
Module Leader: Dr. Senem Aydin
OUTLINE
■Looking Inside for Competitive Advantage
■Resource-Based Theory of Competitive Advantage
■Core Competencies of the Corporation
■Dynamic Capabilities
What is Internal Analysis?
Looking Inside for Competitive Advantage
Internal Analysis in Context
Adapted from Rothaermel, F. T., (2017). Strategic Management, McGraw-Hill Education; 3rd edition
Environmental Analysis is Only Half of the Story…
Strengths Opportunities
(areas an organisation does (external factors that may E
I
well in; advantages) contribute to an
N X
organisation and build up T
T
strengths)
E
E
R
SWOT R
N N
A A
L Weaknesses Threats L
(areas that need (Potential risks caused by
improvement) external factors)
SWOT Analysis
■Firms that use their internal strengths in exploiting
environmental opportunities and neutralizing environmental
threats, while avoiding internal weaknesses, are more likely
to gain a competitive advantage
■Emphasizes the importance of both external and internal
phenomena in understanding the sources of competitive
advantage
■SWOT analysis is not a sophisticated framework
■Development of tools for analysing a firm's internal
strengths and weaknesses had been insufficient (Barney,
1995)
A Tool to Analyse a Firm’s Internal Resources
Prof. Jay Barney (1995) identified four questions related to a
firm’s resource or capability in order to evaluate whether it is
a source of sustained competitive advantage
VALUE RARITY
IMITABILITY SUBSTITUTABILITY
VRIN or VRIO resources?
■ The VRIN framework is also called VRIO analysis
■Organisation: Is the resource supported by any existing
organisational processes and can the organisation exploit it
properly?
Tangible and Intangible Resources
Tangible Intangible
(Visible, Physical Attributes) (Invisible, No Physical Attributes)
Labour Culture
Capital Knowledge
Buildings Reputation
Equipment Brand
Components of S&P 500 Market Value (2015)
Resources and Capabilities
Resources Capabilities
Any assets such as: Organisational/ managerial skills
Machinery, cash, or required to coordinate the
intellectual property resources and deploy them
strategically
Can be either tangible or By nature intangible
intangible
What makes a resource or capability valuable?
Who owns the profits
that the resource
creates?
Appropriability Value Creation
zone
does it meet
Scarcity Demand customers’
needs, and is it
is it readily competitively
available and is superior?
it durable?
Valuable versus Non-valuable Resources
Valuable Not Valuable
Infrastructure for delivering Vehicles, Machinery
data (e.g. fiber-optic cable)
Company culture (e.g. Planes
Southwest Airlines)
Brand Reputation (e.g. Website
P&G)
However,
Value is determined by the interplay of market forces, and thus,
depends on the context of use
PollEv.com/senemaydin
Which of the following is the most valuable
resource in the world?
■ Oil
■ Data
■ Facilities
■ Logistics
The Economist
(2017). The world’s
most valuable
resource is no longer
oil, but data!
The VRIN Framework
To be applied to a specific resource or Competitive
capability, NOT to a company’s advantage
overall resources or capabilities
Yes
Yes Yes Yes Non-
Costly to
Valuable? Rare? Imitate?
substituta
ble?
No No No No
Temporary Temporary
Competitive Competitive
competitive competitive
Disadvantage parity
advantage advantage
Adapted from Rothaermel, F. T., (2017). Strategic Management, McGraw-Hill Education; 3rd edition, p.113
Google’s and Apple’s VRIN Capabilities
Excellent employee management (Google)
Excellent marketing (Apple)
Valuable? Rare? Costly to Non-
Imitate? substitutable?
Yes Yes Yes Yes
Result: Sustainable Competitive Advantage
Google’s Excellent Employee Management
■Its commitment to employee satisfaction and engagement
■Attracting and hiring smart and creative employees
■Creating successful products and ideas based on the
employees’ unique technical insights
■Retaining the employees with its unique workplace culture
Apple’s Excellent Marketing
■Superior technology products
■Brand equity
■Revenue over time
■Product R&D
Competitive Advantage of Marks & Spencer
Collis, D. J., & Montgomery, C. A. (2008). Competing on resources. Harvard business review.
The Resource-Based Theory of Competitive
Advantage
3. DEVELOP STRATEGY
POTENTIAL FOR
2. APPRAISE
COMP. ADV.
CAPABILITIES
1. IDENTIFY
RESOURCES
Resources, Capabilities, and Core Competencies
Resources Capabilities Core Competencies
Any assets such as: Organisational/ managerial Differentiate a company
Machinery, cash, or skills required to coordinate strategically, unique
intellectual property the resources and deploy strengths that are
them strategically embedded within a firm
The company’s collective
knowledge about how to
coordinate diverse
production skills and
technologies
Can be either tangible or By nature intangible
intangible
Resources, Capabilities, Core Competencies, and
Competitive Advantage
Resources
Reinforce
Core Competitive Superior Firm
Competencies Advantage Performance
differentiate a company strategically
Orchestrate
Capabilities
Core Competencies Examples
Company Core Competencies Application Examples
Coca-Cola Superior marketing and Using one of the world’s most
distribution recognised brands for a diverse
lineup of soft drinks
Global availability of products
Google Superior in creating algorithms Software products and services;
based on data collected online
Online Search Engine, Android
McKinsey Superior in developing practice- Management and strategy
relevant knowledge, insights, consulting for companies
and frameworks in strategy
What is the Core Competency of Dropbox?
■Cloud storage?
Used Amazon’s storage system in the past
Open source platform
Source code is publicly available
■Core Competency: Superior User Interface
■New Focus: Enterprise Collaboration Software Market
Example: Beats Headphones
Core Competency: Coolness
Differentiates the products from those
of its rivals
Competitive advantage
rewarded with a $3 billion acquisition by
Management Information Systems: A Source of
Competitive Advantage?
■Information represents a major source of competitive
advantage
■Collect, code, store, synthesize, and present information to
support managerial decision-making
Management Information Systems: A Source of
Competitive Advantage?
■A MIS receives raw material from both the external and
internal evaluation of an organisation
■It gathers data about marketing, finance, production, and
personnel matters internally, and social, cultural,
demographic, environmental, economic, political,
governmental, legal, technological, and competitive factors
externally
■Core Competency: Outstanding management information
system
■More than 7 million weekly transactions taking place at
Starbucks registers, and 16% of those are made from a
mobile device
Dynamic Capabilities
■A firm’s dynamic capabilities govern how it integrates,
builds, and reconfigures internal and external competences
to address changing business environments (Teece et al.,
1997:516; 2016:18)
■A firm’s ability to create, deploy, modify, reconfigure,
upgrade or leverage its resources in its quest for competitive
advantage (Rothaermel, 2017:122)
Sensing, Seizing, and Reconfiguring
■Three clusters of dynamic capabilities:
identification, development, co-development, and assessment
of technological opportunities and threats in relationship to
customer needs (the “sensing” of unknown futures)
mobilisation of resources to address needs and opportunities
and capture value from doing so (“seizing”)
continued renewal (“reconfiguring”)
■Dynamic capabilities are essential if the firm wants to sustain
itself in the longer term as customers, competitors, and
technologies change
