The Resource-Based View: Internal Analysis

The resource-based view (RBV)

RBV argues that any company that seeks a competitive advantage must first consider exploiting internal factors before considering the external factors/environment. According to the RBV theorists, it is more feasible to use the internal resources to exploit the external factors. The intangible assets in a company, such as trademarks, intellectual property, or even brand reputation are built in a company over time and are thus not easy to imitate competitors.

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Grant’s five-step resource-based approach to strategy analysis

Grant’s five-step resource approach proposes that a firm’s ability to sustain its competitive advantage mainly lies in its resource base. The five-step procedure includes: identifying and classifying the firm’s resources in terms of their strengths and weaknesses; identifying and appraising the firm’s capabilities; evaluating the sustainability of the firm’s resources and capabilities; formulating a strategy that utilizes the firm’s resources and; extending and upgrading the firm’s resource base.

Distinctive competency of a firm

The distinctive competency of a firm is determined both by the durability and imitability of its resources and capabilities. Durability looks at how long it takes before a company’s resources depreciate while imitability focuses on the duplication ability of the firm’s resources and capabilities. A firm should limit the extent to which its core competence is imitable to enhance its distinctive competency.

Tangible and intangible firm resources

The tangible firm recourses refer to the physical possessions of a firm such as buildings, equipment, and land. The intangible resources are non-physical possessions such as technology, intellectual property, and brand names. The intangible resources take time to develop and are thus not easy to imitate and are more likely to lead to sustainable competitive advantage.

Value-chain analysis

Value chain analysis is a process where a firm engages in identifying the internal activities that add value to its final product. The value chain is made of two groups of activities; the primary and the support activities. The primary activities comprise inbound logistics, operations, outbound logistics, marketing and sales, and services. The support activities, on the other hand, include procurement, human resource management, technology, and infrastructure.

Value-chain analysis can either be carried out using the cost advantage or the differentiation advantage, making it more appropriate in the identification of a firm’s strengths and weaknesses compared to the basic functions.

Functional analysis

This involves an analysis of the traditional functional resources as well as the ability of people in each of these areas to formulate and implement the necessary functional objectives, strategies, and policies.

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Business Strategy (Ch. 6)

Cost-leadership strategy

Cost leadership refers to a strategy used to create a low cost of operation within a niche. Businesses use this strategy to gain a competitive advantage by lowering operation costs. Cost leadership usually corresponds to the no-frills experience, and its goal is to out-manage competition either through increasing profits by reducing costs or increasing the market share by lowering prices of the product. Any firm that wants to successfully employ this strategy must be able to adopt more cost-effective ways of carrying out its value-chain.

Differentiation strategy

The strategy focuses on making a firm’s products/services dissimilar from its main competitors to appeal more to the customer base. The strategy corresponds to the luxury providers such as Mercedes-Benz and Nike Athletic Shoe Company. Firms that want to successfully engage in differentiation strategy will find investing in research and development, high-quality production, delivery services, and unique sales and marketing strategies inevitable.

Is cost leadership and differentiation strategies achievable concurrently? Why or why not?

No. This is because the differentiation strategy is best employed by luxury providers, who intend to command a premium price for their products, whereas the cost leadership strategy works best where there is fierce price competition among rivals.

Using time to develop new product/service ideas

Companies can use the time to their competitive advantage by ensuring that consumers spend the least possible time to access them. Incase products/services require a lot of time to access, they should be designed in a way that consumers enjoy the time they spend to access them. An example would be the provision of excellent customer care services for time-consuming services.

“The Most Common Strategy Mistakes”

  • The assumption that the best results come from competing to be the best, hence managers spend their resources on being the best instead of being unique
  • Confusing marketing with strategy
  • Overestimating strengths
  • Getting the definition of the business wrong
  • Not having a strategy at all

Corporate Strategy (Ch. 7)

Corporate strategy

Corporate strategy focuses on the direction taken by a firm in the management of its business/product portfolio.

Portfolio analysis

Portfolio analysis refers to the analysis of the expected returns about portfolio risks.

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Corporate-level strategies

Acquisition/merger

Acquisition refers to the process of acquiring one or more companies by another existing company. The move is considered to be a business strategy to foster the growth of the acquiring company, more so internationally. One recent example of a merger strategy is the recently announced agreement between Comcast Corporation and Time Warner Cable. An article appearing in the New York Times on February 13th announced the all-stoke deal is valued at an estimated 45.2 billion US dollars.

Liquidation

Liquidation involves the conversion of a firm’s free assets into liquid cash to settle the firm’s credits. The Green Place Electric Company is one of the latest companies to go down on dissolution. Releasing the news about the company’s liquidation, the company’s Chief executive officer, Dan Cohen, admitted in an article published in Reuters on May 26th, 2013 that the wider public take-up of the electric automobile would not be sufficient, thus prompting the company to be dissolved.

Strategy Evaluation and Control (Ch. 11)

Steps in the strategy evaluation and control process

The five steps in the strategy evaluation and control process include: determining what to measure; establishing standards of performance; measuring the actual performance; comparing the actual performance with the set standards; and taking corrective measures in case the actual results fall below the set standards.

Measure performance

Performance measurement is carried out in eleven steps. They include;

  • Identifying the process flow
  • Identifying the critical activity to be measured
  • Establishing performance goals or standards
  • Establish performance measurements.
  • Identifying responsible parties
  • Data collection
  • Analyzing the actual performance
  • Comparing actual performance to the goal(s)
  • Taking any necessary corrective actions
  • Making changes where corrective action is expected to be necessary
  • Implementing the necessary changes

The measures used to assess performance are selected based on organizational units to be appraised and the objectives that the firm expects to achieve. The best way to measure corporate performance is by establishing the steering controls. The importance of this measure is that it predicts future profitability. The return to investment and the earning per share can also be used to measure the firm’s performance.

Definitions: output controls, behavior controls, input controls

Output controls refer to the use of objectives to focus results on actual performance, e.g. the production targets or cost reduction targets

Behavior controls are most useful when the cause-effect relationship between activity and results are clear, but the performance results are not clear. A good example is the ISO 9000 quality management, which uses policies, rules, standard operating procedures, and directives.

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Input controls are used when output is difficult to measure, and the activity- result relationship is not clear. These controls emphasize resources such as skills, abilities, and values. A good example of such control is the number of years of experience and the level of education.

Problems in evaluating strategy

The use of Long-term vs Short-term performance orientation causes goal displacement. This shift in focus is also to some extent fostered by some accounts-based measures such as the EPS and ROI since many managers focus more on the current tactical or operational issues and the cost of long-term strategic measures.

“On the folly of rewarding A while asking for B.”

According to this article, folly is a problem that usually arises from a fascination with the firm’s strategy and objective. The long-term strategy is usually unachievable and performance measurement only focuses on short-term outcomes. This problem can be solved through a clear understanding of the firm’s operating environment and incorporating it into the strategy.

Sustainability questions

Most pressing environmental issues/problems.

  • Degradation of water quality
  • Climate change and its effects
  • The global dependence on nonrenewable energy
  • The biofuel crisis
  • Deforestation

One of the business solutions to climate change is the adoption of a green economy, i.e. the adoption of technologies that reduce GHG emissions.

As things currently are, do you think we meet the definition of sustainable development?

No. The world economies continue to employ production processes that are highly dependent on non-renewable, which not only causes environmental degradation but also is easily deplorable hence compromising the position of the future generation.

The Triple Bottom Line (people, planet, profit)

The triple bottom line approach incorporates the three sustainable development dimensions in performance. The framework is based on the sustainability concept as it not only measures company profits but also its impacts on the environment and shareholders.

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