Unit 3rd

Resources in strategic management:

In strategic management, resources are assets, capabilities, processes, attributes,
information, and knowledge controlled by a firm that enable it to implement
strategies to improve efficiency and effectiveness. Resources are fundamental to
a firm’s strategy and its ability to achieve a competitive advantage. They are
categorized into three main types: tangible resources, intangible resources, and
human resources. This categorization is central to the resource-based view (RBV)
of the firm.

1. Tangible Resources:
• These are physical and measurable assets that a company uses to
produce goods and services.
• Examples include:
• Financial resources: Cash, investments, and access to capital.
• Physical assets: Buildings, machinery, inventory, and land.
• Technological resources: Equipment, hardware, and software.
2. Intangible Resources:
• These are non-physical assets that are often difficult to quantify but can
provide significant competitive advantages.
• Examples include:
• Brand equity: Reputation and brand loyalty.
• Intellectual property: Patents, trademarks, and copyrights.
• Organizational culture: Company values, traditions, and norms.
• Reputation: Perception of the firm by stakeholders.
3. Human Resources:
• These involve the skills, knowledge, and abilities of the firm’s employees.
• Examples include:
• Skills and expertise: Technical skills, managerial skills, and specialized
knowledge.
• Experience: Industry experience and expertise.
• Employee relationships: Teamwork, employee morale, and
communication within the firm.

Capability in strategic management

Capabilities are the firm’s abilities to effectively utilize its resources. They involve
processes, skills, and expertise that allow the firm to coordinate and deploy
resources to achieve its objectives. Examples include operational efficiency,
innovation capability, and strategic decision-making.
The relationship between resources and capabilities is multiplicative, meaning
that both must be present and effectively integrated to achieve competence,
which in turn leads to competitive advantage. This can be expressed as:

Resources*Capabilities = Competence

Competence: Competence refers to the firm’s proficiency in performing activities

that create value and differentiate it from competitors. This proficiency arises
when resources are effectively leveraged through the firm’s capabilities.
Competence are of two types:
1. Distinctive Competence refers to the unique strengths and abilities of a
firm that distinguish it from competitors. These competences are highly visible
and directly linked to the firm’s competitive advantage. They often stem from
unique resources or superior capabilities that competitors find difficult to
replicate. For example, Apple’s distinctive competence in product design and
innovation consistently sets it apart in the technology industry.

2. Core Competence encompasses the essential capabilities and skills that

underpin a firm’s fundamental business operations and strategy. Core
competences are deeply embedded in the firm’s processes and culture, providing
the foundation for sustainable competitive advantage. They enable the firm to
deliver unique value to customers and are critical to its long-term success. For
instance, Honda’s core competence in engine technology allows it to excel in
various markets, from motorcycles to automobiles.

9 M’s of resources:
Tangible Resources:

1. Men: Refers to the human workforce, including employees, contractors,

and laborers, who contribute their skills and expertise to the organization’s
operations.
2. Machinery: Includes all physical equipment and technology used in
production and service delivery, such as machines, tools, and hardware.
3. Material: Encompasses raw materials, components, and inventory
required for manufacturing products or delivering services.
4. Money: Represents the financial resources available to the organization,
including cash, investments, and access to capital.

Intangible Resources:

1. Management: Involves the leadership and administrative capabilities of

the organization, including strategic planning, decision-making, and organizational
culture.
2. Market: Refers to the firm’s understanding and positioning within its
industry, including market share, customer base, and brand reputation.
3. Methods: Consists of the processes, procedures, and best practices that
guide the organization’s operations and ensure efficiency and quality.
4. Management Information System: Involves the systems and
technologies used for collecting, processing, and disseminating information to
support decision-making and control.
5. Makeup: Enhances the organization’s unique characteristics, including
its culture, values, and identity, which contribute to its distinctiveness and
attractiveness in the market. This includes brand image and employee morale.

VRIO Framework:
This framework was developed in 1991 by Jay Barney
The VRIO framework is a strategy tool that helps organizations identify the
resources and capabilities that give them a sustained competitive advantage.
Valuable

First and foremost, resources must be valuable. Resources are valuable only when
they enable a firm to achieve sustainable competitive advantage. Resources
should help enable strategies, exploit opportunities or mitigate threats. Net
Present Value (NPV) appraisals help ascertain the quantitative value of resources.
A company is at a competitive disadvantage, if none of its resources are
considered valuable.

Rare

Secondly, resources must be rare. If only a few companies can acquire some
resources, then those resources are considered rare. If many players in an
industry have access to a certain valuable resource, then each of the players can
exploit that resource in the same way. Then none of the players gain a
competitive advantage through that resource. This situation is called competitive
parity or competitive equality. If a company has access to a large amount of
valuable and rare resources, it is likely to have, at least, a temporary competitive
advantage.
Inimitable

Valuable and rare resources help companies to engage in strategies that other
firms cannot pursue. However, this is no guarantee for long-term competitive
advantage. Such resources may give a company a first-mover advantage , but
competitors will probably try to imitate these resources. Resources that are hard
and costly to imitate or substitute are more valuable.

Organization-wide supported

The resources themself do not create any advantage for a company. To exploit
the advantages and derive value, a company should appropriately organized
itself. Therefore, the company should effectively assemble and co-ordinate its
resources. Some examples of these organizational components include the
company’s formal reporting structure, strategic planning and budgeting systems,
management control systems, logistics network, etc.

Appraising resources and capabilities:

Appraising resources and capabilities involves assessing how well they contribute to a
firm’s competitive position. This appraisal depends on three critical factors:

1. Establish competitive advantage: The initial ability of a resource or capability

to provide a firm with an edge over its competitors.

Relevance: Assess whether the resource or capability is relevant to the key success factors in the
industry. It should align with what is needed to compete effectively in the market.
Scarcity: Consider if the resource or capability is scarce or rare among competitors. Resources
that are not commonly available can provide a firm with a unique position in the market.

2. Sustaining Competitive Advantage: The firm’s ability to maintain its competitive advantage
over time despite changes in the market and competitive actions.
Durability: Evaluate how long the resource or capability will remain valuable. Durable resources
can provide long-term benefits.
Transferability: Determine how easily the resource or capability can be transferred or acquired by
competitors. Less transferable resources are more likely to sustain a competitive advantage.
Replicability: Consider if competitors can easily replicate the resource or capability. Resources
that are difficult to imitate help sustain the competitive advantage.

3. Appropriating a Competitive Advantage: The degree to which the firm can capture the
economic value generated by its competitive advantage.
Property Rights: Assess whether the firm has legal rights or protections (e.g., patents,
trademarks) that prevent competitors from using the resource or capability.
Relative Bargaining Power: Evaluate the firm’s power relative to suppliers, customers, and
competitors, which can influence how much value the firm can capture from its resources.
Embeddedness: Consider how deeply embedded the resource or capability is within the firm’s
processes, culture, and systems. Highly embedded resources are harder for competitors to
replicate or transfer.
BCG growth share matrix:
The BCG growth share matrix was introduced by the Boston Consulting Group in
1970. It is ia planning tool that uses graphical representations of a company’s
products and services to help the company decide what it should keep, invest
more money in, or sell.
It classifies a firm’s product and/or services into a two-by-two matrix. Each
quadrant is classified as low or high performance, depending on the relative
market share and market growth rate.

Question Marks – Construction (High Growth, Low Market Share)

The product group known as the “Question Marks” has a low market share but is
experiencing high growth. Although not currently very profitable, these products
have the potential for market share growth and can become cash cows and,
ultimately, stars with appropriate investments.

Stars – Holding (High Growth, High Market Share)

The product group under “Stars” has a significant market share and is
experiencing rapid growth. Investing in this group is beneficial in maintaining their
market share and further development.

Cash Cows – Harvesting (Low Growth, High Market Share)

“Cash Cows” have a high market share but minimal growth potential. The reason
is that they’re operating in a mature market that lacks innovation and growth.
However, they’re profitable and require minimal investment to maintain their
position.
Revenue from these products can be used to invest in Stars or Question Marks.

Dogs – Divestment (Low Growth, Low Market Share)

“Dogs” have a small market share and operate in a slow-growing market. They
don’t generate cash and don’t require large amounts of it either. They aren’t a
good investment because they have low or negative cash returns and may need
significant financial support. Their low market share also puts them at a cost
disadvantage.

Limitations of the BCG-Matrix:

 It neglects the effects of synergies between business units.

 High market share is not the only success factor.
 Market growth is not the only indicator for attractiveness of a market.
 Sometimes Dogs can earn even more cash as Cash Cows.
 The problems of getting data on the market share and market growth.
 There is no clear definition of what constitutes a “market”.
 A high market share does not necessarily lead to profitability all the
time.
 The model uses only two dimensions – market share and growth rate.
This
may tempt management to emphasize a particular product.
 A business with a low market share can be profitable too.
 The model neglects small competitors that have fast growing market
shares.

GE nine cell model:

The GE 9-Cell Matrix shown in the diagram is a strategic tool used to analyze a company’s
portfolio of business units or product lines based on two dimensions: industry attractiveness and
business unit strength. The matrix helps in making investment decisions by categorizing business
units into nine cells, each suggesting a strategic action.

Grow - If the business unit is strong against a strong attractiveness, you grow the business.
This means, that you are ready to invest a higher percentage of your resources in these
businesses. These business units have high market attractiveness and high business unit strength.
They are most likely to be successful if backed up with more resources. The quadrants marked in
green are the places where you can grow your business.

Hold
- If the business unit strength or attractiveness is average, than you hold the business as it is. It
might be that the market is dropping in value, or that there is much high competition which the
business unit will be hard put to catch up. In both the cases, the business unit might not give
optimum returns even if resources are invested. Thus, in this case, you wait and hold the business
unit to see if the market environment changes or if the business unit gains importance in the
market as compared to other players.

Harvest - If the business unit or market has become unattractive, than you either sell or liquidate
the business or you can hold it for any residual value that it has. This strategy is used in the GE
McKinsey matrix when the business unit strength is weak and the market has lost its
attractiveness. The best measure in this case is to harvest the weak businesses and reinvest the
money earned into business units which are in growth.

Corporate level strategies:

Corporate-level strategies are overarching plans that guide the overall direction of
an organization. These strategies determine how a company manages its
business units and resources to achieve long-term objectives. It is concerned with
the decisions that affect the entire organization, such as which markets to
compete in, how to create synergies between different business units, and how to
optimize overall corporate performance.

Types of corporate strategy levels:

 Expansion Strategies
 Stability Strategies
 Retrenchment Strategies
 Combination Strategy
1. Expansion strategies, are approaches companies use to increase their
market presence, revenues, and profitability. These strategies include market
penetration, product development, market development, and diversification.
 Expansion through concentration: involves efforts to increase market
share in existing markets using current products.
 Integration strategies involve combining with or acquiring other companies
to enhance competitive positioning and capitalize on synergies. Types include:
 Horizontal Integration: Acquiring or merging with competitors to
increase market share and reduce competition.
 Vertical Integration: Acquiring companies in the supply chain to reduce
costs and gain more control over the production process.
 Diversification strategies involve entering new markets with new products,
significantly increasing the potential for growth but also the risk. Types
include:
 Concentric Diversification: Diversifying into related businesses where
technological or marketing synergies can be exploited.
 Horizontal Diversification: Diversifying into products or services that
could appeal to the current customers, despite being in a different industry.
 Conglomerate Diversification: Diversifying into unrelated businesses,
spreading risk across different industries.

2. Stability Strategies
Stability strategies focus on maintaining the current status quo to ensure steady
growth and mitigate risks. These include:

 No-Change Strategy: Continues with the current business

strategies without any significant change to avoid risks.
 Profit Improvement Strategy: Focuses on improving profitability
through cost reduction and efficiency improvements.
 Pause Strategy: Takes a temporary break from growth to consolidate
resources and plan future strategies.

3. Retrenchment Strategies
Retrenchment strategies are adopted to reduce the scale or scope of a
corporation’s businesses. Examples include:

 Divestment Strategy: Selling off parts of the business that are

underperforming or not core to the strategic objective.
 Turnaround Strategies: Making drastic changes to cut costs and
reorganize operations in order to return to profitability.
 Liquidation Strategy: Cessation of operations and selling off assets as a
last resort when the business is unsustainable.

4. Combination strategies: A combination strategy is a hybrid of the previous

three strategies to create your business model. Its main purpose is to increase the
company’s performance and find out which areas of your company can grow and
retract based on market conditions. This approach makes it easier for you to make
adjustments to your strategy because you can be more flexible with your time
and how much should be allocated to each function of your strategy.