Internal Environment: Resource Based View - Meaning The Resource Based View (RBV) of the firm starts from the concept that a firm’s performance is determined by the resources it has at its disposal. The way these resources are used and configured enable the firm to perform and can provide a distinct competitive advantage.
The Resource-based View (RBV) of the Firm is an approach to
business strategic management that emerged in 1980s and 1990s RBV Approach The approach is based on the concept that firms consist of various types of tangible and intangible resources – assets, processes, skills, information, knowledge, etc. When these resources are combined, they create ‘Business Capabilities’ some of which, either individually, or in combination, create a set of “Core Competencies”, that provide a sustainable competitive advantage to the firm. What is a Resources In RBV model, resources are given the major role in helping companies to achieve higher organizational performance. There are two types of resources: tangible and intangible.
Tangible assets are physical things. Land, buildings, machinery, equipment and capital – all these assets are tangible. Physical resources can easily be bought in the market so they confer little advantage to the companies in the long run because rivals can soon acquire the identical assets.
Intangible assets are everything else that has no physical presence but can still be owned by the company. Brand reputation, trademarks, intellectual property are all intangible assets. Unlike physical resources, brand reputation is built over a long time and is something that other companies cannot buy from the market. Intangible resources usually stay within a company and are the main source of sustainable Sources of Competitive Advantage Competitive advantage is a superior ability or resource that allows one firm to out compete all others in some area.
Competitive advantage emerges from internal sources where companies have greater creative or innovative capabilities and from external sources around changing customer demands, prices and technological change.
Any change in the external environment brings with it an opportunity for profit and entrepreneurship is the ability to identify and respond to that opportunity. VRIO Framework Barney (1991) has identified VRIN framework that examines if resources are valuable, rare, costly to imitate and non-substitutable. The resources and capabilities that answer yes to all the questions are the sustained competitive advantages. The framework was later improved from VRIN to VRIO by adding the following question: “Is a company organized to exploit these resources?” Core Competencies The concept of core competencies was developed in the management field. Prahalad and Hamel (1990) introduced the concept in a Harvard Business Review article. They wrote that a core competency is "an area of specialized expertise that is the result of harmonizing complex streams of technology and work activity." It is important to distinguish between individual competencies or capabilities and core competencies. Individual capabilities stand alone and are generally considered in isolation. Gallon, Stillman, and Coates (1995) made it explicit that core competencies are more than the traits of individuals. They defined core competencies as "aggregates of capabilities, where synergy is created that has sustainable value and broad applicability." That synergy needs to be sustained in the face of potential competition and, as in the case of engines, must not be specific to one product or market. So according to this definition, core competencies are harmonized, intentional constructions. Characteristics of Core Competencies
The characteristics of core competencies are as follows:
● They provide a set of unifying principles for the
organization and they are pervasive in all strategies. ● They provide access to a variety of markets. ● They are critical in producing end products. ● They are rare or difficult to imitate. Distinctive Competency Distinctive Competence is a set of unique capabilities that certain firms possess allowing them to make inroads into desired markets and to gain advantage over the competition; generally, it is an activity that a firm performs better than its competition. To define a firm‟s distinctive competence, management must complete an assessment of both internal and external corporate environments. When management finds an internal strength and both meets market needs and gives the firm a comparative advantage in the market place, that strength is the firm‟s distinctive competence. Value Chain Analysis using porter's model The value chain also known as Porter’s Value Chain Analysis is a business management concept that was developed by Michael Porter. In his book Competitive Advantage (1985), Michael Porter explains Value Chain Analysis; that a value chain is a collection of activities that are performed by a company to create value for its customers. Value Creation creates added value which leads to competitive advantage. Ultimately, added value also creates a higher profitability for an organization. Porter’s generic value chain model is both broad and complete, but it is not absolute. Rather, the model is adaptable to the unique needs of each organization. Using the Porter’s Value Chain Analysis
Porter’s Value Chain Analysis: There are four basic steps that have to be followed if you wish to use the Value Chain as an analysis model. By following these basic steps the organization can be analyzed using the Value Chain. Step 1: identify sub activities for each primary activity (direct, Indirect, Quality assurance)
Step 2: identify sub activities for each support activity
Step 3: identify links
Step 4: look for opportunities/ solutions to optimize and create value
Every firm has strategic advantages and disadvantages. For
example, large firms have financial strength but they tend to move slowly, compared to smaller firms, and often cannot react to changes quickly. No firm is equally strong in all its functions. In other words, every firm has strengths as well as weaknesses. Strategists must be aware of the strategic advantages or strengths of the firm to be able to choose the best opportunity for the firm. On the other hand they must regularly analyse their strategic disadvantages or weaknesses in order to face environmental threats effectively.
The Strategist should look to see if the firm is stronger in these
factors than its competitors. When a firm is strong in the market, it has a strategic advantage in launching new products or services and increasing market share of present products and services. Concepts of stretch leverage and fit, The concepts of leverage, stretch, and fit can have a strong influence on how a company or firm positions itself in the market. The main difference is that "fit" strategic management attempts to take a realistic approach, which is more likely to take off. Leverage and stretch is more idealistic - and as such is less likely to be successful, but can yield higher growth and rewards if successful. Stretch - is when a firm doesn't have the resources or capability to take up the position it would like in the market, so it attempts to augment or alter its capabilities to better fit into the market. Leverage - is when a firm takes its current resources, and tries to make the most of them in order to get a "foot in the door" of the market it aspires to command. Fit - Is when a firm positions itself in an environment that suits its resources and capabilities. n an organisation, maximum strategic intent is achieved by looking and thinking out of the box. In other words, stretching and looking at innovative ways of using resources. This often calls for leveraging of available resources within the organisation and making the best use of them. A strategic fit is achieved by taking into account market opportunities and the capabilities of the organisation. Strategic Fit The extent to which the activities of a single organization or of organizations working in partnership complement each other in such a way as to contribute to competitive advantage. The benefits of good strategic fit include cost reduction, due to economies of scale, and the transfer of knowledge and skills. The success of a merger, joint venture, or strategic alliance may be affected by the degree of strategic fit between the organizations involved. Similarly, the strategic fit of one organization with another is often a factor in decisions about acquisitions, mergers, diversification, or divestment. Strategic fit could be classified into
1. Market related Fits.
2. Operating Fit 3. Management Fit. Market related Fits Market related fit arises when value chains of different businesses overlap so that the products can be used by same customers, marketed and promoted in a similar way and have a common distribution channel (common dealers and retailers) Market related fit could be of following types: 1. Common sales force to call on customers 2. Advertising related products together 3. Use of same brand names 4. Joint delivery & shipping 5. Joint after-sale service & repair work 6. Joint order processing & billing 7. Joint promotional tie-ins 8. Cents-off couponing, trial offers, specials 9. Joint dealer networks Operational Fit: Operational Fit arises when different businesses work along in order to explore opportunities for cost-sharing or skill transfer. Types of Operational Fits are: 1.Procurement of purchased inputs 2.R&D/technology 3.Manufacture & assembly 4.Administrative support functions 5.Marketing & distribution Management Fit:
This fit revolves around a comfort that is built among both the businesses in terms of some comparable units like Entreasures, Administration and various administrative activities , operating problems. It allows accumulated managerial know-how in one business to be used in managing another business. It is necessary that business management should take actions to capture benefits as they don’t just happen! Benefits with sharing potential must be recognized so that activities to be shared are merged and coordinated. When skill transfer takes place a means must be found to make it effective. Ways of resource leveraging BCG Matrix BCG matrix (or growth-share matrix) is a corporate planning tool, which is used to portray firm’s brand portfolio or SBUs on a quadrant along relative market share axis (horizontal axis) and speed of market growth (vertical axis) axis.
