1. Resources and Capabilities
Chapter 3
Resources and Capabilities
Global Strategic Management Mike W. Peng
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2. Understanding Resources and Capabilities
Tangible
Resources and capabilities that are observable and easily quantified
Broadly organized in three categories:
Financial
Physical
Technological
Intangible
Resources and capabilities not easily observed or difficult (or impossible) to quantify
Examples include:
Human
Innovation
Reputation
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3. Resources, Capabilities, and the Value Chain
The functional activities within the firm that create value in the goods and services produced
Components of the Value Chain
Primary activities
Are directly associated with the development, production, and distribution of goods and services
Support activities
Assist in the accomplishment of primary activities
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4. The Value Chain
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Figure 3.1

5. A Decision Model in Value Chain Analysis
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Figure 3.2

6. The VRIO Framework: Value and Rarity
Four fundamental questions of VRIO
Value: do the resources and capabilities add value?
Necessary for a competitive advantage
Rarity: how rare are the valuable resources and capabilities?
Valuable, but common parity, not advantage
Valuable and rare can lead to temporary advantage
If everyone has it, you can’t make money from it
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7. The VRIO Framework: Imitability
Easier to imitate tangible resources/capabilities than tangible ones
Why is imitation so difficult?
Hard to acquire in a short time what competitors have developed over a long time
Events earlier in time affect future events
Difficult to identify causal determinants of performance
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8. The VRIO Framework: Imitability (cont’d)
Valuable, rare, but imitable resources/capabilities = temporary advantage
Only valuable, rare and hard-to-imitate resources/capabilities = sustained competitive advantage
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9. The VRIO Framework: Organization
The Question of Organization
How is a firm organized to develop and leverage the full potential of its resources and capabilities?
Using complementary assets effectively
Managing social complexity effectively
Invisible relationships can add value - make imitation more difficult
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10. Strategic Sweet Spot Figure 3.5
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11. Offshoring vs. Non-Offshoring
Offshoring (international outsourcing) is an increasing movement
Outsourcing of high-end services such as IT and BPO is controversial because of the relatively recent rise of the internet—Long-term benefits are still unknown
Proponents argue that outsourcing saves firms enormous costs and allows them to focus more on their core business
Critics argue on 3 points
Strategic: If everything is outsourced, what is left for the US firm?
Economic: Do developed economies actually gain?
Political: Are we both exploiting cheap labor as well as willingly putting our own security at risk?
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