Chapter 2 Corporate Strategy, Apuntes de Administración de Empresas

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Chapter 2:

Strategic Resources:

Resource-Based View of a Firm

Prof. Dr. Artur Baldauf

Chapter 2: Resources and Rents

Course goals:

 The meaning of the resource-

based view (RBV) for

businesses.

 What are „valuable“ resources

and where do they come from?

Do they generate or reduce

value?

 Meaning of key resources:

shared, transferred, leveraged,

renewed & networked.

 VISION

 GOALS

STRUCTURE SYSTEMS PROCESS

CORPORATE

ADVANTAGES

Business-Unit Strategy

 Markets are imperfect: shrinking number of market

participants; heterogeneous products; asymmetric information;

and product scarcity.

 Strategy helps to exploit market efficiency

 Strategy fulfills the following tasks:

• External positioning of a corporation relative to the competitors in a

specific sector

• Porter’s model of competitor strengths (5-Forces)
• Entry- and mobility barriers (Mason/Bain, S-C-P)
• Generic strategies (differentiation and low cost)
• Internal alignment of corporate activities and investments (e.g.

Marketing, R&D)

D

ATC

MC

Q

P

(D=MR=Price)

Perfect competiton

Economic model:

Strategy – Free Trade Zone, Competitor Advantage

Q

P

D

MR

Imperfect competition

Competitive advantage

ATC

MC

Hawawini et al. (03) Ruefli/Wiggins (03) McGahan/Porter (02) Brush et al. (99) McGahan/Porter (97) Industry 6.5/11.4/8.1• 0.374'' 11' 7.86*** 18.7* Corporation 0.452'' 17.1' 4.12*** 4.3* Business unit 0.566'' 43' 39.02*** 31.7* IndustryxYear 4.2/2.9/3.1• n.a. n.a. n.a. n.a. Year 1.9/1.3/1.0• n.a. 0.5' 0.93*** 2. Market share n.a. n.a. n.a. n.a. n.a.

Brush/Bromiley (97) Roquebert et al. (96) Rumelt(91;S.A)† Rumelt (91;S.B)† Schmalensee (85) Industry n.a. 10.2* 8.3* 4.03* 19.5* Corporation 0.096/1.174** 17.9* 0.8* 1.64* n.a. Business unit 1.069/1.161** 37.1* 46.4* 44.17* n.a. IndustryxYear n.a. 2.3* 7.8* 5.38* n.a. Year n.a. 0.5 n.a. n.a. n.a. Market share n.a. n.a. n.a. n.a. 0.6*

' Variance in accounting profitability, 3+segs, N 3'430; 1985-1991. ' Cox regression estimates of cumulative hazard of exiting superior performance strata

• percent of variance accounted for **Model normal effects, all business units influenced by corporation: Scale 0.2 maximum variance component/Scale 1.0. ***Variance component estimates for samples of firms with three business segments

• Economic Profit / Capital Employed; Total Market Value / Capitla Employed; ROA †Rumelt uses two samples. Sample A is similar to Schmalensee and Sample B covers a larger set of firms than Sample A. n.a.=not accounted

27.1/32.5/35.8•

Industry, Corporate and Business Effects

Resource-Based View

 RBV clarifies why a firm exhibits both, a competitive advantage in a

single business sector and a corporate advantage that extends across

several business units.

• „a resource … anything which could be thought of as a strength or weakness of a given firm“ (Wernerfelt 1984)
• A firm’s resources and capabilities include all of the financial, physical, human and organizational assets used by a firm to develop, manufacture and deliver products or services to its costumers.

 Businesses control unique bundles of resources:

• Material/physical (tangible assets): are the easiest to value, are the only resources on a balance sheet, are seldom a source for competitive advantages.
• In-material (intangible assets): Brands, patents, etc. They are not listed on the balance sheet and are usually a source for competitive advantages
• Organizational skills (capabilities): complex combination of assets (inclusive of people and processes) required to change inputs into outputs.

 Resources are relatively immobile and heterogeneous; if resources were

homogeneous, then everyone could make the same thing!

1 Apple

2 Microsoft

3 Coca-Cola

4 IBM

5 Google

6 McDonald’s

7 General Electric

8 Intel

9 Samsung

10 Louis Vuitton

11 BMW

12 Cisco

13 Oracle

14 Toyota

15 AT&T

16 Mercedes-Benz

17 Disney

18 Wal-Mart

19 Budweiser

20 Honda

21 SAP

22 Verizon

23 Gillette

24 NIKE

25 Pepsi

26 American Express

27 Nescafe

28 L’Oréal

29 Marlboro

30 H&M

31 Hewlett-Packard

32 HSBC

33 Amazon.Com

34 Visa

35 Siemens

36 Facebook

37 ESPN

38 Gucci

39 Nestle

40 Frito-Lay

41 IKEA

42 Danone

43 Audi

44 Ford

45 Coach

46 Fox

47 UPS

48 Home Depot

49 Accenture

50 Thomson Reuters

Source: Forbes, 06.10.

The Top 50 Global Brands

1 Nescafé (10,7 Mrd. CHF)

2 Roche (7,7)

3 Novartis (6,9)

4 Nestlé (6,7) 5 Rolex (6,6)

6 Swisscom (5,0)

7 Credit Suisse (3,7)

8 UBS (3,6) 9 Zurich (3,5)

10 Omega (3,3)

11 Adecco (2,6)

12 Kantonalbank (2,4) 13 Nespresso (2,2)

14 Lindt (1,9)

15 Davidoff (1,9)

Top Swiss Brands

Source: Interbrand 10/

Brand (Country of Orgin) Product Category

Brand Value 2000 (in Bil. US- Dollar)

Brand Value 2002 (in Bil. US- Dollar)

Brand Value 2004 (in Bil. US- Dollar)

Brand Value 2006 (in Bil. US-Dollar)

…

Brand Value 2014 (in Bil. US-Dollar)

Coca-Cola (USA)

Soft drink 73 70 67 67 55 (+9% VJ)

Microsoft (USA)

Software 70 64 61 56.9 56.7 (+4%)

IBM (USA) Computer 53 51 54 56.2 50.7 (+5%)

General Electric (USA)

Electronics 38 41 44 48.9 34.2 (+2%)

Intel (USA) Computer 39 30 33 32.3 30.9 (-4%)

Nokia (FIN) Telecommunication 39 29 24 30.1 15. (in 2012)

Disney (USA) Entertainment 34 29 27 27.8 23.1 (+21%)

McDonald's (USA)

Fast food 28 26 25 27.5 39.4 (+5%)

Marlboro (USA)

Cigarettes 22 24 22 21.4 16.6 (+9%)

Mercedes (GER)

Automobile 21 21 21 21.8 23.5 (+8%)

- 2000 / 2002 / 2004/ 2006/ 2014 -

Value of Selected International Brands

Rationality for RBV

 Strategic decisions are affected through the businesses’ (actual)

resources; additional resources are generated through skills! Corporations

are not identical.

 If the external environment is volatile (uncertain, dynamic), then internal

resources and capabilities hold a more secure basis for the strategy than

the market focus (dynamic capabilities)

 Resources and capabilities are the primary profit generators. Corporate

strategy differences make up for around 50-70 percent of the observed

business yields.

RBV - Specifics

 Role of the manager

• Concepts of mental models
• Resources are used or assigned according to the decisions of the management
• The manager is an individual and has no ”black-box” decision-maker

 Dynamic capabilities are...

• ... the skills of a corporation, internal and external competencies used to integrate, build

and reconfigure in order to respond to the quick changes of the environment (Teece,

Pisano & Shuen 1997).

• Determining factors of dynamic capabilities:
  • Processes
    • Organizational und management processes (strategic decision-making, new product

development)

• Learning
• Reconfiguration and transformation
• Positions
• Assets
• Organisation boundaries
• Development (Paths)
• ”History matters”

Value of Demand

 Customer demand - Resource fulfills customer wants at

acceptable prices; which means this company is better than

competitors (pay attention also to „willingness to pay“).

• Willingness to pay = f (customer preference, competitors‘ products,

etc.)

 Demand reacts to possible substitutes—are there any?

 Distinctive competence – Difference compared to

competitors is important (resource valuation is not only

internal (internal benchmarking), it must also be undertaken

„relative“ - superior…)

Value of Scarcity

 The impossibility of imitation creates value, because it

reduces the intensity of competition.

 Value from scarcity exists when:

• Physical uniqueness: Location, Marriott
• Resource embeddeness: if complement to another product, (so-called

net effect – increasing returns to scale)

• Historical conditions (path dependent): ex. first-mover-advantage,

trust, loyalty, …

• Casual ambiguity : docking system (WalMart), short-haul (Southwest)
• Economic deterrence: one can imitate, but does not have the market

size

 Resources are the more valuable, the higher imitation barriers

exist.

Value from Acquisition (Appropriability)

 How are the profits split? (Who receives the profits generated

by the resources?) Stakeholders have first choice.

 If the source of the value creation can be identified and the

property rights exist, then the profits go to the owner(s) of the

resources.

 However, other corporations will also try to imitate the

resources.

 Thus: Corporations will try to build their own resources (ex.

Walt Disney & Mickey Mouse).

Scarcity

Relevance

Durability

Mobility

Replicability

Property rights

Relative bargaining

strength

Embeddedness of the

resource

Size of the attained

competitive advantage

Sustainability of the

competitive advantage

(not imitable)

Acquisition

Profit potential

from resources

and capabilities

Rent Earning Capacity – From Resources and

Capabilities