
Strategic Management
 Brief History Of S.M.
 Industrial Organization
 Resource Based View of
the firm and its Model
 Literature
Review
of
Competitive advantage
 VRIO Frame of work.
 Implications
 Criticism and Suggestions
Overall Goal of Strategic Management
for an Organization
Deploy & allocate resources ==> competitive advantage
Process of Strategic Management
What is Strategic Management?
 Analyze
competitive
situation
 Develop strategic goals
 Devise plan of action
 Allocate resources
 Implement plan
 Evaluate results
Brief history of Strategic
Management
 Early Period
o Study of general management
o Largely descriptive
o Not theory based { SWOT ANALYSIS}
 Key Authors
o Andrews…
o Christiansen…
o Ansoff.
Brief history
of Strategic
Management
 First Revolution
o Potter Frame work
o Structure conduct performance
o
model (SCP) & Social Welfare.
o
Apply the SCP logic to strategic
o
Management
o Five forces frame work for
o
industry analysis
o
Generic strategies
Brief history of Strategic
Management
 Limits of potter frame work
o
Market power versus efficiency (Demsetz)
o
Industry versus firm works (Wal-Mart)
o
The cost of entering attractive industries.
 Central Conclusion
It is not possible to evaluate the attractiveness of
industry independent of the resources a firm bring to
the industry.
Two Contrasting Approaches
 Industrial Organization Model vs. ResourceBased View
o Research provides support for both positions
 What drives strategy?
o I/O: External considerations
o RBV: Internal considerations
 I/O: Strategy drives resource acquisition
RBV: Strategy determined by resources
Two Contrasting Approaches
I/O Economics
Industry Characteristics
Profitability
RBV
Firm Characteristics
Profitability
Industrial Organization (O/I)
Model
o External
environment
determinant
of
is
organizational
primary
strategy
rather than internal decisions of managers
o Environment
presents
threats
&
opportunities
o All competing organizations control or
have equal access to resources
o Resources are highly mobile between
firms
o Organizational success is achieved by
Offering goods & services at lower costs
than competitors
o Differentiating products to bring premium
prices
Resource-Based View (RBV)
Definition
 An organization’s resources & capabilities, not external environmental
conditions, should be basis for strategic decisions
 Competitive advantage is gained through acquisition & value of
organizational resources
 Organizations can identify, locate & acquire key valuable resources
 Resources are not highly mobile across organizations & once acquired
are retained
 Valuable resources are costly to imitate & non-substitutable
Definition
Jay Barney
The resource-based view (RBV) argues that firms possess resources, a
subset of which enable them to achieve competitive advantage, and a
subset of those that lead to superior long-term performance. Resources that
are valuable and rare can lead to the creation of competitive advantage.
That advantage can be sustained over longer time periods to the extent that
the firm is able to protect against resource imitation, transfer, or substitution.
In general, empirical studies using the theory have strongly supported the
resource-based view.
Resources
Daft, 1983, Barney, J., 1991
 Physical capital {Technology, plant, equipment, location, access to raw material}
 Human capital {Training, expertise, judgment, intelligence, relationships and
insights of managers and workers}
 Organizational capital {Organizational structure, planning, controlling and
coordinating systems, informal relations among groups within the firm and with
outside groups}
Wernerfelt, B., 1984, Hafeez, K., Malak, N. and Zhang,
Y., 2002
Resource = anything that could be thought as a strength or a
weakness for a firm. Tangible and intangible assets tied permanently
or semi-permanently to the firm.
Hofer and Schendel, 1978, Grant, R., 1991
Mahoney, J. and Pandian, R., 1992
 Physical resources
 Financial resources
 Human Resources
 Organizational resources
 Technological resources
 Legal resources
 Experience
 Intangible resources
Hafeez, K., Malak, N. and Zhang, Y., 2002
Physical assets
 Intellectual assets
 Cultural assets

R. B. V. Definitions
Competences
 Selznick, 1957
Competence = things that an Organization does especially well in
comparison to its competitors
 Hamel, G. and Prahalad, C., 1990
Competence = collective learning of the Organization, especially how to
coordinate diverse production skills and to integrate multiple streams of
technology
 Penrose, 1959
Resource = stock. A resource can be defined independently from its use
Capability (competence) = flow. It implies function and activity and cannot be
defined independently from its use. Capabilities are created over time and
may depend on History and use of resources in an extremely complex (“pathdependent”) process
 Hrebiniak, L. and Snow, C., 1980
Competence = aggregate of numerous specific activities that the organization
tends to perform better than other Organizations in a similar environment
Durand, T. 1996 & (Penrose, 1959)
 Elementary assets and resources, tangible and intangible
Plant, equipment, products, software and brands
 Cognitive competences, individual and collective, explicit and tacit
Knowledge, know-how, technologies, patents
 Organizational processes and routines).
Coordination mechanisms in the organization to combine the action of individuals into
collective tasks and achievements
 Organizational structure
Structure including its internal and external dimensions (links with suppliers and
customers)
 Identity (Culture)
Corporate culture and behavior in the organization. Its shared values, its rites and
taboos are manifestations of the firm’s identity
Porter 1980-1985
Ghemawat 1986
Lieberman and
Montgomery
1988
Hamel and
Prahalad 1994
Competitive
Advantage
Cost OR
Differentiation
Future Position
Capabilities
 Technology
 Design
 Production
 Service
 Distribution
Polanyi 1962
Rumelt 1984
Teece 1987
Itami 1987
Andrews 1971
Hofer and
Schendel 1978
Prahalad and
Hamel 1990
Ulrich and lake
1991
Resources
 Tangible Resources
 In-tangible Resources
 Competiences
Wernerfelt 1984
Deiricks & Cool
1989
Reed and
Defillipi 1990
Barney 1991
Prahalad and Hamel (1990):
core competencies
 Management’s ability to consolidate technology and production skills
into competencies so the business can adapt quickly to changing
opportunities/circumstances.
 Core competencies = collective learning of the organisation about
prod/tech/markets. e.g. Sony’s miniaturisation skills.
 Competencies have to be built over a long period.
 They are difficult to identify precisely and hard to imitate.
 Many firms fail to identify their own core competencies and so fail to
nurture them properly or exploit them fully.
Chandler (1990)
initial risky investments
Chandler (1990): successful giants such as IBM and Bayer derive
from the initial heavy and risky investments in building
organisational knowledge and capabilities which allowed them to
exploit the opportunities available to exploit scale and scope
economies.
Two Critical Assumptions of the RBV
Resource Heterogeneity
» different firms may have different resources
Resource Immobility
» it may be costly for firms without certain
resources to acquire or develop them
» some resources may not spread from firm
to firm easily
Resource Heterogeneity
 Heterogeneity of resources typically occurs as the
result of ‘bundling’ several resources of a firm
 Managers of a firm could take resources that seem
homogeneous and ‘bundle’ them to create
heterogeneous combinations
Resource Immobility
 Resources may be immobile due to natural
and/or intentionally created barriers to imitation
 Costs of imitation
o Imperfect imitability: the resource could be
imitated but the cost of doing so would
capitalize the full value of imitation
o Inimitability: the resource cannot be imitated
at any cost
The VRIO Framework
If a firm has resources that are:
• Valuable,
• Rare, and
• Costly to Imitate, and…
• The firm is Organized to exploit
these resources,
Then the firm can expect to
enjoy a sustained
competitive advantage.
 First, the resource must be valuable in the sense that it
exploits opportunities and/or neutralizes threats in the firm’s
environment.
 Second, it must be rare among the firm’s current and potential
competitors.
 Third, the resource must be difficult for competitors to imitate.
 Fourth, the resource must have no strategically equivalent
substitutes.
3-27
Competitive advantage
Competitively valuable resources (Collis and Montgomery, 1995)
 Reduction of costs,
 The exploitation of market opportunities, and/or
 The neutralization of competitive threats.




Inimitability -- is the resource hard to copy?
Durability -- how quickly does the resource depreciate?
Approprability -- who captures the value the resource creates?
Substitutability -- can the resource be trumped by another
resource?
 Competitive superiority -- whose resource is really better?
Stalk, Evans, and Shulman (1992): capabilities
Competitive advantage is based on the ability to respond to
evolving opportunities which depends on business processes or
capabilities. Business success involves choosing the right
capabilities to build, managing them carefully, and exploiting
them
e.g. Honda, Canon.
Collis and Montgomery (1995): competing
on resources
 Competitive advantage derives ultimately from the ownership of a
valuable resource.
 Superior performance derives from developing a ‘competitively
distinct’ set of resources and deploying them in a well conceived
strategy.
 Resources can be physical, intangible, or organisational capabilities.
 Example: Marks and Spencer (poor timing!)
Empirical implications
 Henderson and Cockburn (1994) {Why pharmaceuticals innovate
then others.}
 Rumelt (1991) { variance Decomposition}.
 Mcghan and Potter {Industry effect size can but firm effects is
generally larger.
 Barnett et al (1994)
{ why some banks compete out during
recession}.
 Ray et al.(2004) {IT and Customer satisfaction in insurance firms}. {IT
and CS management has direct and interaction effects.
 Hatch and Dyer (2004) firm specific human capital can create the
competitive advantage .because human capital is imitate.
Theoretical extension
Applied to additional phenomenon
 Vertical integration and theory of firm (Corner ,1994 , Corner and
Prahalad ,2001, Barany 2002)..
 Diversification (wireman and Robbins ).
 Complementary extensions {heterogeneity}
 HRM
 Marketing
 Enterpenuership
 Operations management.
Practical Implications of RBT
 Industry attractiveness cant be evaluated without the firm resources.
(South west and Wal-Mart.
 Competitive advantage is every employee responsibility (Koch
industries of trading manufacturing investment).
 Doing as well as just competition just shows the Mediocrity (Bench
marking).
 Product features cant not be used for sustained the competitive
advantage as the ability to produce different features (Sony).
 HP.. Mail Box Incorporation.. Xerox.
Criticisms on RBV and assessment
Criticisms
Assessment
1- The RBV has no managerial
implications.
1- Not all theories should have
direct
managerial
implications. Through its
wide dissemination, the
RBV has evident impact.
2- The RBV implies infinite
regress.
2- Applies only to abstract
mathematical theories. In an
applied theory such as the
RBV levels are qualitatively
different.
Criticisms on RBV and assessment
3. The RBV’s applicability is
too limited
3Generalizing
about
uniqueness is not impossible
by definition. The RBV
applies to small firms and
startups as well, as long as
they strive for an SCA. Path
dependency
is
not
problematic when not taken
to the extreme. The RBV only
applies to firms in predictable
environments.
Criticisms on RBV and assessment
4- SCA is not
achievable.
By including dynamic
capabilities, the RBV is
not
purely
static.
Though, it only explains
ex post, not ex ante
sources of SCA. While no
CA can last forever, a
focus on SCA remains
useful.
Criticisms on RBV and assessment
The VRIN/O criteria are not always
necessary and not always sufficient to
explain a firm’s SCA.
5- VRIN/O is neither necessary nor
sufficient for SCA.
The RBV does not sufficiently consider
the synergy within resource bundles as a
source of SCA. The RBV does not
sufficiently recognize the role that
judgment
and
mental
models
of
individuals play in value assessment and
creation.
Criticisms on RBV and assessment
7- The value of a
resource is too
indeterminate to provide
for useful theory.
The
current
conceptualization
of
value turns the RBV into
a trivial heuristic, an
incomplete theory, or a
tautology.
A
more
subjective and creative
notion of value is
needed.
Criticisms on RBV and assessment
Definitions of resources are allinclusive.
8- The definition of
resource is unworkable.
The RBV does not recognize
differences between resources as
inputs and resources that enable
the organization of such inputs.
There is no recognition of how
different types of resources may
contribute to SCA in a different
manner.
Suggestions for future research in RBV:
 Demarcating and Defining Resources
o Theorize the distinctions between the building, versus the processes
of deploying that capacity.
o Conduct more process-based empirical research within the RBV
frame to probe how resource-based SCA and performance are
related.
o Identify types or characteristics of resources that help refine the
predictions of the RBV – that differ in the manner they contribute to a
firm’s SCA. Specifically:
Suggestions for future research in RBV:
o Explore the distinction between rivalries and non-rivalries resources
and the impact of this distinction on the predictions of the RBV.
o Expand on the distinction between resources and integrative
capabilities and on the hierarchical relationship between individual
and collective resources.
Suggestions for future research in RBV:
 Towards a Subjective and Firm-Specific Notion of
Resource Value
o Investigate the value assessment processes by which new ways to
create and capture novel value are conceived.
o Study whether and how human ideas ignite revolutionary modes of
value creation.
o Study the social influence mechanisms through which entrepreneurs
create value by convincing others of the value of their products.
Suggestions for future research in RBV:
 The RBV as a Theory of Sustained Competitive
Advantage
o Develop a resource-based explanation of SCA that focuses on the
differences in people’s capacities to identify or imagine and judge the
potential risks and benefits associated with the ownership of resources.
o Develop refined propositions on the relationship between specific
types of resources and a firm’s SCA.
o Study how new resources are selected and how they can be matched
with the existing resources in place in the organization.