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Porters 5 forcester’s Five Forces Model)
Risk of
entry by
potential
competitor
s
Bargaining
power of
suppliers
Intensity of
rivalry among
established
firms
Bargaining
power of
buyers
Threat of
substitutes
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Strategic management - History
Three generic strategies
1. Cost leadership
2. Differentiation
3. Market segmentation
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Strategic management - History
The resource-based view – Wernerfelt (1984)
Strategic factor markets – Marketplaces where resources can be bought and
sold (Barney 1986)
This was criticized by Dierickx & Cool (1989) – Some resources are difficult to
move between firms and therefore can not be bought and sold on a market.
Ex. of resources; Reputation, Custom relationships.
Barney answered 1991 in an article that changed the field. In his article
Barney challenged Porter by assuming that:
1. Firms within an industry may be heterogeneous with respect to the
strategic resources they control.
2. Resources may not be perfectly mobile across firms, and thus
heterogeneity can be long lasting.
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The resource-based view
• The resource-based view looks at the internal resources in firms.
• Based on the internal resources researchers try to understand what creates
successful firms.
• Success is defined as sustained competitive advantage, inspired by Porter.
• Sustained competitive advantage is measured as higher profit than the
competitors over time.
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The resource-based view
What is a resource?
Firm resources include all assets, capabilities, organizational processes,
firm attributes, information, knowledge etc (Barney 1991)
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The resource-based view
However, all resources are not able to create a sustained competitive
advantage. In order to succeed, a resource needs to have four characteristics.
Those are defined in the VRIN-framework.
• Valuable
• Rare
• Imperfectly imitable
- Unique historical conditions
- Causal ambiguity
- Social complexity
• Non substitutability
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The resource-based view
Valuable
A resource is considered valuable when it allows a firm to implement a value
creating strategy e.g. Low-cost strategy or differentiation.
A resource must use the firms strengths to create opportunities or neutralize
threats if to be considered valuable.
Rare
A valuable resource possessed by many firms cannot be a source of
competitive advantage.
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The resource-based view
Imperfectly imitable
Valuable and rare resources will be exposed to imitation from competitors.
Therefore they need to be imperfectly imitable.
Unique historical conditions
If a resource is dependent on a firms unique historical conditions, it can be
hard to imitate.
Causal ambiguity
When the link between a firm’s resources and its competitive advantage is
poorly understood, it is difficult for competing firms to imitate their resources.
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The resource-based view
The competitors do not know what resource they should try to copy.
To be a source of competitive advantage, both the firm that possess resources
that generate a competitive advantage and the competitors are faced with the
same level of casual ambiguity.
Social complexity
Resources that are social complex is hard to imitate. Examples, a company’s
culture, the relationship between managers.
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The resource-based view
Non substitutability
A resource that is valuable, rare and hard to imitate can note be a source of
competitive advantage if it easily can be replaced by another resource.
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The resource-based view
H&M can be argued to be a successful company. In the end of 2012 it had a
market value of 370 mdkr.
Examples of H&M resources. But are those VRIN-resources?
- Strong ownership (the Persson family controls approximately 70 % of the
votes in H&M)
- Financial assets (H&M holds no long-term liabilities)
- Cheap workforce (The minimum wage in Bangladesh is 250 SEK/month
Christian Jansson VT 13
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Dynamic capabilities
The dynamic capabilities approach is argued to be an extension of RBV.
RBV has been criticized for being to static, by assuming that firms with VRINresources automatically, independent of the environment, will create a
sustained competitive advantage.
The dynamic capabilities approach helps us understand how a firm’s resource
stock evolve over time and thus how advantage is sustained.
It focuses on how an organization, facing a rapidly changing environment, has
to renew or alter its resource mix.
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Dynamic capabilities
Teece & Pisanso (1994) argued that RBV was not able to provide explanations
as to how some successful firms demonstrated timely responsiveness and
rapid/flexible product innovation.
Many once successful firms are later struggling or failing as their environments
changed; they were unable to adapt successfully.
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Dynamic capabilities
If a firm possesses VRIN-resources but does not use any dynamic capabilities,
its superior returns cannot be sustained.
Without dynamic capabilities, a firm’s returns may be short lived if the
environment exhibits any significant change.
Core rigidities are resources that used to have VRIN-characteristics, but was
not able to change and therefore have became liabilities to the firm.
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Dynamic capabilities
Dynamic capabilities can be said to be organizational processes and their role
is to change the firm’s resource base.
Dynamic capabilities are rather built, than bought in the market. They are also
path dependent and embedded in the firm.
Some important distinctions between resources and dynamic
capabilities
A dynamic capability is a process that impacts upon resources.
Dynamic capabilities are future oriented, while resources are about competing
today.
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Dynamic capabilities
Different types of dynamic capabilities
1. Some are used to integrate resources
2. Some to reconfigure resources
3. Some are about creating new resources
Some examples of dynamic capablities
1. R&D
2. Acquisition processes
3. Product innovation that leads to organizational renewal
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Normann – Distinctive competences
RBV has been criticized of being to narrow, only focusing on the internal part
of the firm.
Dynamic capabilities are trying to incorporate changes in the external
environment.
Normann is taking on an even broader perspective. He wants to understand
how an organization can find consonance or fit with its environment.
Just as the Dynamic capability approach, Normann is concerned with change.
He states: Consonance is not forever. When the context change the
organization must change.
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Normann – Distinctive competences
An organization can emerge and exist if it stands for values, mission, or
purpose, which are meaningful in a larger context – which gives the
organization a distinctive role in the external world.
However, it’s not enough with a fit between purpose and values, on the one
hand, and the external world, on the other.
An organization’s purpose and values must also be embodied in a social
structure. The purpose or mission then becomes institutionalized.
Distinctive competences are the ability to achieve fit between the external
world, the purpose and values, and the social organization.
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Normann – Business idea
By business idea Normann means the functioning pattern of factors and their
interaction which together determined and explained a company’s way to
make money.
A business idea must consist of:
1. The external environment (the market or the industry)
2. The offering (the product or service offered)
3. Internal factors (such as organization structure, resources, leadership)
The core process of a company (in the long run) is to form new dominating
ideas which are inline with the evolution of the external context.
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Normann – Some things need to be retained
If we want things to stay as they are, things will have to change.
But not everything will have to go. Some things needs to be retained. Those
things that are retained must be reframed and put into the new business idea.
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How to calculate competitive advantage?
The purpose of most strategic management theories are to create a
sustained competitive advantage. This is usually defined as above
normal returns - higher profit than the competitors.
But how do we calculate return?
The most common way is to calculate different key ratios, based on the
income statement and balance sheet in the annual report.
Examples of key ratios:
Return on sale (ROS) = Operating profit/Net sale
Return on asset (ROA) = Operating profit + financial income/Tot. assets
Christian Jansson VT 13
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How to calculate competitive advantage?
Volvo
Return on sale
9%
Scania
ROS
14 %
H&M
ROS
18 %
(best in the company’s history)
A key ratios must be put in relation to another key ratio in order to
determine if its strong or weak.
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How to calculate competitive advantage?
ICA
ROS
3,4 %
COOP
ROS
1%
Axfood
ROS
3,3 %
The food-chain industry has small margins and not everyone is making a
profit.
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How to calculate competitive advantage?
Miljardförluster för lågprismat (Dagens industri, dec 2012)
Den tyska dagligvarujätten Lidl har gått med förlust i Sverige varje år
sedan den första etableringen 2003. Förlusterna efter tio år uppgår
sammanlagt till drygt 3 miljarder kronor före skatt.
Nettos samlade förlust sedan Sverigeetableringen uppgår till 676
miljoner kronor före skatt,
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Calculate by yourself?
Mobile phone industry
The mobile phone industry is in constant change. Nokia, who was the
frontrunner for several years have seen themselves being left behind by
both Apple and Samsung.
Who is most profitable by Nokia, Apple and Samsung?
Apple
Samsung
Nokia
Return on sale
31 %
10 %
-3%
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2013-05-06
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Growth – another way of calculation
competitive advantage
The clothing industry – H&M vs Inditex (Zara)
140
120
100
80
H&M
Inditex
60
KappAhl
40
20
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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Investor’s portfolio
Company
ROS
Astra Zeneca
40 %
Mölnlycke Health Care
29 %
Atlas Copco
21 %
Wärtsilä
10 %
SAAB
8%
Husqvarna
5%
Electrolux
4%
(Investment year, 2012)
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Investor’s portfolio
Company
Market value
Operating profit
Astra Zeneca
430 mdkr
73 mdkr
Atlas Copco
217 mdkr
19 mdkr
Wärtsilä
55 mdkr
4 mdkr
Electrolux
53 mdkr
4 mdkr
Husqvarna
23 mdkr
2 mdkr
SAAB
14 mdkr
2 mdkr
Mölnlycke HC
Not listed
2 mdkr
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Ericsson
2010
2011
2012
Net sales, SEK
m.
203,348
226,921
227,779
EBIT, %
8.7
9.6
9.7
Net debt
(+)/net cash (), SEK m.
-51,295
-39,505
-38,538
Market cap.,
SEK bn.
248,993
224,73
208,963
Value of
holding, SEK
m.
12,396
12,112
11,12
Share of
capital, %
5.0
5.3
5.3
Share of
votes, %
19.3
21.5
21.4
7
6
Share of
Investor's
total assets, %
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Ericsson’s solidity
Ericsson’s solidity since 2000
60%
50%
40%
30%
Ericsson
20%
10%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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Ericsson’s solidity
Ericsson’ s solidity without new issue?
60%
50%
40%
30%
Ericsson
20%
10%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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The history behind the high solidity of Ericsson
Ericssons nyemission i hamn (Affärsvärlden, juli 2002)
Ericssons sätter teckningskursen i sin kommande emission till 3,80 kronor
per aktie och hela beloppet på 30 miljarder kronor är redan garanterat. Det
meddelade bolaget i samband med sin kvartalsrapport, där förlusten blev
betydligt mindre än väntat.
Industrivärden och Investor har tillsammans åtagit sig att teckna aktier
för 8 miljarder kronor, medan Alecta, Skandia Liv, Andra AP-fonden och
Tredje AP-fonden tillsammans åtagit sig att teckna aktier för 2 miljarder
kronor.
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The crises in Ericsson
200
2001
Revenue
210
Num. of employees 85
150
Op. profit, 2001-2003:
250
2003
120
52
60 mdkr
Omsättning (mdkr)
100
Rörelseresultat (mdkr)
Antal anställda (tusen st)
50
0
2000
2001
2002
2003
2004
-50
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The crises – Probably the cause behind
Ericsson’s high solidity
Ericsson’s solidity since 2000
60%
50%
40%
30%
Ericsson
20%
10%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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