MGF 3684

Business Strategy
Week 6
 What you need to know today
1. Strategy statement feedback 4. Case: Mobile Phone Industry
2. Internal analysis and the resource- Developments
based view 5. Capstone Competition Round 2
3. Vertical integration and transaction Debrief
cost theory

Concepts Case Studies MGF

3684

Concepts StratBusines
eg y s
Mgt

Take-aways Capstone
What we will be learning this week?
Housekeeping
Announcements
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 Where are we today?
Research &
Analyse the
External
Environment

Set the Formulate Implement

Enterprise the the
Strategy Actionable Actionable
Statement Strategies Strategies

Investigate &
Analyse the
Internal
Environment

To do Planning Tasks:

1. Set the strategy statement that defines the big picture future directions: vision, mission & generic strategies

2. Research and analyse the external environment drivers: The hows are:
• Week 4 – identify & profile the PESTLE drivers to identify profitable industries or countries
• Week 5 – Identify and analyse the firm’s industry lifecycle stage and underpinning external drivers; if firm is international, combine the global
product lifecycle and industry lifecycle theories to create an analysis matrix to identify which homeland products can be internationalised in target
countries or groupings, depending on each country or grouping’s industry lifecycle stage and underpinning drivers

3. Investigate and analyse the internal environmental drivers – how?

 Recall from Week 4:
Long-term profitability averages vary across industries…

Week 4 & 5 lessons indicate that the profitability of a

firm’s external environment, analysed from the
perspectives of a general environmental, industry,
country or any classified groups of countries is to
ultimately determine profitability levels.

It is a given that profitability varies across:

• Industries (see diagram example)
• Countries or group of countries
• Any management perspectives are required in
external analysis

Now, let’s identify and analyse the internal drivers that also impact the profitability levels of the said
external perspectives. These internal drivers are linked to the firm’s resources…….
 …but within a given industry (and country),
there are also marked differences in profitability across firms… WHY?

In any lifecycle stage of an industry, you can map

out the different profitability patterns of firms in
that industry.

This is done by plotting the number of firms and

the total profitability measures, as indicated in
the diagram.

The profitability patterns of firms in an industry I

follows a bell-shape model, indicating that firms,
even in a declining industry can still make
profits.

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 Also from Week 4:

Firm profitability is determined by:

1. industry structure
2. individual firm characteristics.

In virtually all studies: firm effects > industry effects

 Introduction to firm’s resource theories

• A firm’s characteristics are likely to matter more than its

industry’s characteristics.

• Interpretation of firm characteristics can focus on its

o Resources & capabilities (RBV)
or
o Strategy positioning (Porter on positioning)

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Some firms consistently outperform their industry – what is their common secret?

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Big Picture Use-Context of External Analysis Findings

Today we shall focus on introducing the

Resource Based theories for framing external
environment analysis and feed the analysis
findings into formulating:

1. Business level strategies (lecture

discussions)
2. Corporate level strategies (tutorial
discussions).

The resource based theories assist in choosing

the appropriate product mix and design
configuration in strategy formulation.
 S E C T I O N 1

Resource Based View

(RBV) analysis for aiding
business level strategy
planning
 Resource-Based View (RBV)
Human & Physical Resources

• Key concepts
Resources… what the company “has”, i.e. the productive assets
controlled by the firm.

Capabilities… what the firm “does” with its resources, i.e. its Capabilities Turn into Services
ability to bring together multiple resources for a particular
purpose.

Enterprise CRM/ERP Enterprise Software

• Thrust: services apps / services

Competitive advantage through the creation and exploitation

of distinctive resources and capabilities.

The SERVICE DESIGN of

Bundled Tangible Resources & Intangible Capabilities offers
aesthetic functional features and capabilities that uniquely
delight customers & sustain their product/service uses
 Key Assumptions of RBV

Resource heterogeneity – firms represent unique bundles of

resources/capabilities

Limited resource mobility – many resources and esp. capabilities

cannot be built rapidly (or bought in the market)

Become E.g. employee teamwork, technical know how, trust of customers and
design
drivers employees… can only be built over time, require sustained investments and incur
significant risk.
The SERVICE DESIGN of
Bundled Tangible Resources &
Intangible Capabilities offers
aesthetic functional features and Without these assumptions, any firm could follow any strategy !
capabilities that uniquely delight
customers & sustain their
product/service uses  profits would rapidly erode as desirable strategies are imitated.

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 Tangible Resources

Examples:

Financial resources
Cash, accounts receivable, capacity to
borrow…
Physical resources
Property, production facilities, raw
materials…

Tangible resources recorded

in financial statements.

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 Intangible Resources

• Information: customer data, competitor intelligence…

• Knowledge in its many forms: copyrights, trade secrets, patents, insights
into customers …
• Relationships with customers, employees, suppliers, alliance partners and
the public: brands, reputation as employer, buyer, partner, corporate
citizen
• HR: skills, knowledge and experience of employees, their ability to work as
a team, top management leadership…

Intangible resources mostly missing from financial statements

 (growing) gap between book values and values assigned by investors.

TANGIBLE RESOURCES Growing

Assigned $value INTANGIBLE RESOURCES
recorded in Financial Not valuated & recorded
Books in Financial Books
 Resources (on their own) and Performance: The Analogy of Soccer

Italian, Spanish and English premier soccer leagues (1998-2003)

League Teams with best on-field Teams with highest player expenditure
performance

Italy Juventus Lazio

Italy AC Milan Inter Milan
Italy Parma Juventus
Spain Valencia Real Madrid
Spain Real Madrid Barcelona
Spain Deportivo La Coruna Real Betis
UK Manchester United Chelsea
UK Arsenal Manchester United
UK Liverpool Arsenal Source: Grant 2005

Superior resources (here: highest-paid players) alone do not necessarily

translate into superior (on-field) performance  capabilities
 Capabilities: Definitions
Older Academic Definitions Today’s Service Design Oriented Definitions

• “…an organisation’s capacity to deploy tangible

and intangible resources… to bring about a
desired end.” (Dess et al. 2007: p.93)

• “…the ability to perform a task or activity that

involves complex patterns of coordination and
cooperation between people and other
resources.” (McGee et al. 2005: p.252)

Enterprise Service
Design Framework
 Capabilities: Examples

Legacy Case Example

Today’s Whole of Supply
Wal-Mart’s cross docking capability: Chain Capabilities aka
Service Models
The growing value of intangible resources (Bryan & Zanini, 2005)

Watching & learning the trend of “off-balance sheets” accounting….

Today all tangible &

intangible resources
that generates or
consumes $ are
accounted for in
Balance Sheet A&L
statements
 These older Resource concepts are now modernised as the notions of
Enterprise Resources

Enterprise resources can be tangible or intangible Tangible Products eg laptops

Tangible resources are:

• physical assets, such as properties, production facilitates and
equipment's, raw materials, cash, accounts receivable, etc
• Depreciable financially

UPDATE: But in today’s world, there are:

Intangible Products are your
Intangible resources, which refer to the functionally actionable subscribed or licensed apps
capabilities of or are enabled by tangible resources, which a firm
sells to its customer and purchases from its vendors. Examples are
software services that are your software licence and both software
and information subscriptions.

All tangible products and intangible services are enterprise

resources that are recorded in financial statements.
• Modern Tax laws have made all intangible resources taxation
transparent
 Distinctive Resources or Service-Capabilities
The Strategies
Create temporary
Today’s Theory
competitive advantage Application Context
DISTINCTIVE Resources that create sustainable features & functionality in
value, are rare, not easily copied & replaceable product/service design and
bundling mix within a time
period
Development projects with time to
market aligned start & end dates

The GOAL
GOAL: Above-Average The End Game Give Customer Value Add
Profit Potential
from an Enterprise Product/Service Offers That are Differently Rare
Product/Service DESIGN drivers of the That are Inimitable
Resource product features & service
functionalities That are Non-substitutable

Create strategies that

sustain the use of these
bundled products & services
in supply chain of partners

Implementation projects to setup business

models for delivering products/services
Product/Service Design Drivers for Competitive Advantage
The Academic Explanation

Today’s Practice Contexts

Creating value that matters to customer, not just fulfil their

needs, go beyond their expectations and delight them, etc

Is differently rare means being innovative to bring in new

product/service functional features & capabilities that are
unique eg see video.
Property 2 of Distinctive Resources

Contemporary case examples

Hybe Labels ie K-pop groups managed by Hybe

Each K-pop group are examples of

distinctive resources, further bundled to:
1. complicate, hence prevent easy
imitations

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Property 2 of Distinctive Resources

Contemporary case examples

Hybe Labels ie K-pop groups managed by Hybe

Each K-pop group are examples of

distinctive resources, further bundled to:
1. Leverage the groups’ artists’ different
tacit knowledge, personalities and
communications to increase barrier to
imitation

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Property 2 of Distinctive Resources…. continue

Contemporary case examples

Hybe Labels ie K-pop groups managed by Hybe

Each K-pop groups are examples of

distinctive resources, further bundled to:
1. Leverage the groups’ artists’ different
tacit knowledge, personalities and
communications to increase barrier to
imitation

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 Hybe’s Transmedia Enabling Distinctive Resources:
Various Levels of Bundled Tangible & Intangible Resources

The transmedia products and services of each K-pop group are examples of distinctive resources,
further bundled to increase a collective rareness, harder to duplicate and substitute

(Hybe, 2022)
Conditions and their Implications for CA

Is the resource/capability:
Valuable? Rare? Inimitable and Implications for CA
Non-
substitutable?
No * * Comp. Disadvantage

Yes No * Comp. Parity

Yes Yes No Temporary CA

Yes Yes Yes Sustainable CA

*…inconsequential (Yes or No) Adapted from Barney (1991)

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Resources vs. Capabilities
Capabilities are more likely to be distinctive than
resources, thus capabilities are a more likely source of
sustained competitive advantage than resources.

Musical & video

entertaining
activities Service Oriented Products

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 S E C T I O N 2

RBV as a
Corporate Strategy
The RBV and Corporate Strategy

Corporate Strategy -- What businesses to be in?

 Vertical scope: extent of vertical integration
 Horizontal scope: extent of diversification

 Geographic scope: extent of international diversification

Key issue: How to create synergy across businesses and

geographic regions?
Synergy… advantages for corporation’s business units that
they would not enjoy as independent businesses

The following slides will explain what the above means

 Lesson Conclusion

Resource Based View (RBV) Theory see

enterprise resources in the following New Take-away Message
perspectives:
During business level strategies:
1. Resources are tangible & intangible
in nature 1. Create distinctive resources to give
competitive advantage, ie you create and
2. Resources have performing
capabilities
offer strategically designed service oriented
products to your target markets/segments
3. Resources can be bundled to
become distinctive service oriented
products that possess the following
properties:
• Are rare
• Are not easily imitated
• Are no easily substitutable

RBV identifies the distinctive resources that are created &

deployed to markets by business level strategies
 And …. RBV meaning at a Corporate Level Strategy Formulation

Corporate Strategy -- What businesses to be in?

RBV identifies the distinctive resources
that define the core business lines of
Vertical scope: extent of vertical integration
the organisation Horizontal scope: extent of diversification
Geographic scope: extent of international diversification
Corporate Level Strategy
Formulation

Corporate Level Strategies are purposed to define the core-

business lines of an organisation. Hence RBV theory can be
Business Level Strategy used to define an enterprise’s
Formulation
• Business Unit Strategies 1. Vertical scope – Market/product mix – what products
for what target markets.
• Marketing Strategies
2. Horizontal scope – Diversity of product offerings across
RBV identifies the distinctive resources that are created & markets
deployed to markets by business level strategies

3. Geographic scope – what products across international

locations
Synergy – Creating Reusable Distinctive Resources for Maximising Profitability

BUT a key issue: How to create

synergy across businesses and
geographic regions?
Synergy… advantages for
corporation’s business units that
they would not enjoy as
independent businesses

Synergy is about distinctive resources reusability

based on the notion
“Least is Good”

Ie aiming for the least number of most profitable

distinctive resources to serve the most:
1. Number of Markets
2. Number of Locations
Tutorial – Continue more
insights about how RBV
extended theories can
guide the formulation of
Corporate Level Strategies
• Firm Resource Theory & Core Competency
• Firm Resource Theory & Knowledge
Management
• Value chain integration: vertical, forward
(downstream) & backward (upstream)
• Transaction Cost Theory
Case Studies
Translating Theories into Practice
Mobile Phone Vendors Case Study
Week 7 Case: Yunnan Baiyao

What are the current vertical and horizontal businesses of

the company?

Why diversify?

Any distinctive resources/capabilities/core competences to

rely on?

Where to diversify into (vertical, horizontal, international)?

What’s next?

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Next Week’s Lesson

Title