Cheat sheet module 3 - Resources and capabilities
Basics
- Resources = what we have (nouns): physical, financial, human. Capabilities = what we do well (verbs). Memory aid: ingredients vs cooking.
- Threshold = qualifiers, gives parity. Distinctive = winners, source of competitive advantage.
- Outside-in: unique for which customers, market, competitors?
VRIO (all four needed)
| V | R | I | O | Outcome |
|---|---|---|---|---|
| no | - | - | - | competitive disadvantage (below normal) |
| yes | no | - | - | competitive parity (normal) |
| yes | yes | no | - | temporary competitive advantage |
| yes | yes | yes | yes | sustained competitive advantage |
- Valuable: value for the customer, opportunities/threats, costs not too high.
- Rarity: patent, unique location, unique team.
- Inimitability: imitating, obtaining or substituting is impossible or too expensive.
- Organisational support: structure, systems, sales/marketing turn it into advantage.
Sources of inimitability (CCC)
- Complexity: internal and external linkages.
- Causal ambiguity: characteristic ambiguity (what?) and linkage ambiguity (how connected?).
- Culture and history: taken-for-granted, path dependency.
Capabilities are usually harder to imitate than resources, but tangible resources (location, building) can be inimitable too.
Dynamic capabilities (lecturer: often an exam question!)
- Definition: ability to renew and recreate resources and capabilities for a changing environment (Teece).
- Sensing (scanning) - Seizing (grasping the opportunity) - Reconfiguring (adapting the organisation at scale).
- Eisenhardt and Martin: “the firm’s processes that use resources to match and even create market change”. Dynamic capabilities are specific, recognisable routines.
- Examples: product development Toyota, acquisition routine Cisco (about 10 per year), alliances, M&A at Amazon and Walmart.
- Criticism: older literature is vague and tautological.
- Wrong answers: “skills that change”; only the list without explanation.
- Test: one-off trick or repeatable skill?
- In fast markets advantage is transient: portfolio and pipeline.
- Risk: ordinary capabilities become rigidities (Nokia).
SWOT and TOWS
- SWOT = confrontation of internal (S, W) and external (O, T). Goal: generate strategic options; the step from analysis to choice.
- TOWS matrix: S x O, S x T, W x O, W x T gives options.
- Pitfalls: long lists, no replacement for PESTEL, Five Forces and VRIO.
- SWOT is no input for PESTEL (the other way round).
Amazon vs Walmart
- Amazon: AWS, Marketplace network effect, distribution, acquisitions. Walmart: scale, buying power, 4000+ stores, logistics.
- Advice: build on your own distinctive; choose your rivalry.
Exam rules
- Use English terms literally.
- Define first, then apply to the case.
- Extra material is not exam material. The value chain (4.4.2) is book material the lecturer skipped in Lecture 3: know the basics.