MGMT 4000 Chapter Notes - Chapter 5: Explicit Knowledge, Imitation, Sales Promotion
12 Nov 2018
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MGMT*4000 Alex Kremer Chapter 5
ORGANIZATIONAL ANALYSIS
AND COMPETITIVE ADVANTAGE
A RESOURCE-BASED APPROACH TO ORGANIZATIONAL ANALYSIS – VRIO • • •
Organizational Analysis: Internal scanning concerned with identifying an organization’s strengths and
weaknesses
CORE AND DISTINCTIVE COMPETENCIES
Resources: A company’s physical, human, and organizational assets that serve as the building blocks of a
corporation
Capabilities: A corporation’s ability to exploit its resources
Competency: A cross-functional integration and coordination of capabilities
Core Competency: A collection of corporate capabilities that cross divisional borders and are
widespread within a corporation, and that a corporation can do exceedingly well
Distinctive Competencies: A firm’s competencies that are superior to those of their competitors
• Resources and capabilities are only of value if they make extraordinary returns
VRIO Framework: Barney’s proposed analysis to evaluate a firm’s key resources in terms of value,
rareness, imitability, and organization
1. Valuable (does it provide value and competitive advantage?)
2. Rareness (do one, none, or many other companies possess the same competencies?)
3. Imitability (do competitors have the financial capacity to imitate?)
4. Organization (is the firm organized to exploit the resource?)
• A Resource/Capability (R/C) is valuable if they allow you to charge a premium or have a lower
cost structure than the competitors
• A Resource/Capability is still rare if there is only one other firm with equivalent R/Cs
TERMS FOR IMITABILITY
• The less transparent, transferrable, and replicable a R/C is, the less imitable it is
• A Resource/Capability is more imitable if it is harder to reverse-engineer
Transparency: The speed with which other firms can understand the relationship of resources and
capabilities supporting a successful firm’s strategy
Transferability: The ability of competitors to gather the resources and capabilities necessary to support
a competitive challenge
Replicability: The ability of competitors to use duplicated resources and capabilities to imitate the other
firm’s success
Explicit Knowledge: Knowledge that can be easily articulated and communicated
MGMT*4000 Alex Kremer Chapter 5
Tacit Knowledge: Knowledge that is not easily communicated because it is deeply rooted in employee
experience or in a corporation’s culture
• Organizational capability is rooted in policies, procedures, culture, and norms in the company
• An organization must be aligned with their objectives/competencies to truly be competitive
STEPS IN EVALUATING A COMPANY’S RESOURCES/CAPABILITIES/COMPETENCIES
1. Evaluate the company’s past performance
2. Evaluate the company’s key competitors
3. Evaluate the industry as a whole
• Strengths do not necessarily indicate a distinctive competency
USING RESOURCES/CAPABILITIES TO GAIN COMPETITIVE ADVANTAGE
4 ways to gain access to a distinctive competency:
1. Asset Endowment (key patent or IP)
2. Acquired from Elsewhere (acquiring a company in an industry you would like to enter)
3. Shared Competency (using an existing competency to enter a new, related market)
4. Built and Accumulated (building up effectiveness/efficiency slowly over time)
• Firms tend to prefer organic growth over acquisitions and takeovers
• Clusters are geographic groupings of close competitors and intertwined industries
o Being close to competitors allows easier comparison of performance
o Being in clusters offers more specialized resources, employees, and capital
BUSINESS MODELS • • •
Business Model: The mix of activities a company performs to earn a profit, comprised of 5 elements:
1. Who it serves
2. What it provides
3. How it makes money
4. How it provides G&S
5. How it sustains competitive advantage
MGMT*4000 Alex Kremer Chapter 5
TYPES OF BUSINESS MODELS
1. Customer Solutions Model: Selling not products, but selling expertise to improve its customers’
operations, like a consultation model (Ex. IBM)
2. Profit Pyramid Model: Creating a pyramid of diverse products by which the goal is to attract
customers to low-price point models and move them up to more expensive goods (Ex. Ford)
3. Multicomponent System/Installed Base Model: Focusing sales efforts on additives to the
primary product, such as ink cartridges carrying higher margin than printers (Ex. Canon)
4. Advertising Model: Offering the physical product for free to engage more consumers with the
advertising, which is where the money is being made (Ex. Newspapers)
5. Switchboard Model: Acting as an intermediary between multiple sellers and multiple buyers
(Ex. Amazon)
6. Time Model: Focusing on being the first to market with innovation and moving on when the rest
of the industry catches up (Ex. Google)
7. Efficiency Model: Waiting until a product or service is standardized and ubiquitous in the
markets and then entering with a low-priced, low-margin alternative (Ex. KIA Motors)
8. Blockbuster Model: Massive investment in only a couple projects or products with equally grand
potential returns (Ex. Pharmaceutical or movie studios)
9. Profit Multiplier Model: Developing a concept that may or may not make money on its own, but
using spin offs, it can be a profitable range (Ex. Walt Disney cartoons to Disney Land)
10. Entrepreneurial Model: Targeting market niches so small that they are largely ignored by the
larger competition, the potential to grow is vast (Ex. Local breweries tailoring to local needs)
11. De Facto Industry Standard Model: Offering free of very low-margin products to develop
themselves into the industry standard, and then offer higher-margin products (Ex. LinkedIn)
VALUE-CHAIN ANALYSIS • • •
Value Chain: A linked set of value-creating activities that begins with basic raw materials coming from
suppliers and ends with distributors getting the final goods into the hands of the ultimate consumer
• It is very rare for companies to have their entire value-chain in-house
INDUSTRY VALUE-CHAIN ANALYSIS
• Value chains can be broken into 2 segments, upstream and downstream
• Upstream refers to the supply-chain actions required before the organization gets the goods
• Downstream refers to where the products go once the organization is done with them
• Supply-chains can also be viewed as the respective profit margins at each point in the chain
• A company’s center-of-gravity is the point in the supply chain where their expertise lie and
where their primary activities lie
Document Summary
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