4. 4
What the Firm Might Do
What the Firm Can Do
External Environment
Five Forces Analysis, PESTEL, etc.
Internal Environment
Resources, Capabilities and Core
Competencies
Sustainable
Competitive
Advantage
5. Criticisms of
industry-based view
• Assumption of performance homogeneity among
firms in an industry…not supported by research, even
by Porter’s research
• Porter is only a part advocate for IBV…
‘Both industry attractiveness and competitive position
can be shaped by a firm, and this is what makes the
choice of competitive strategy both challenging and
exciting…’
6. • Rumelt 1991.Strategic Management Journal, 12:167-
186
– Industry Effects 9-16%
– Business Unit Effects 44-46%
– Corporate Parent Effects 1-2%
• McGahan & Porter.1997. Strategic Management
Journal, 18:15-30
– Industry Effects 19%
– Segment Specific Effects 32%
– Corporate Parent Effects 4%
Criticisms of
industry-based view
10. Value chains in
salmon farming
• First commercial harvest of salmon in 1987
• By 1996 feed costs had become the critical
point in the value chain (almost 50% of
production costs)
• Opportunity recognised by biologist employee
who formed a company with computer
programmer and a mathematician
• Result: automated feeder based upon fuzzy
logic control cut feed wastage by 30%
12. RBV
Consider the case of CSL. CSL is a global
biotechnology companied that was founded in
Australia with current headquarters in Melbourne.
In 2016, the company had revenues of nearly
USD$7 billion, making it one of the largest biotech
companies in the world.
See video
And the following articles…
15. RBV
So how has this Australian company transformed
itself into a market leader? Answer the following:
1) What is the resource-based view of strategy and
competition? What types of resources create a
sustained competitive advantage?
2) Apply the RBV to CSL. What resources do they
possess and how do these resources create a
competitive edge?
16. RBV
• Tangible resources: real estate, production
facilities, raw materials, etc.
• Intangible resources: reputation, brand names,
culture, knowledge, etc.
• Organisational capabilities: complex
combinations of assets, people and processes
used to transform inputs to outputs
17. RBV
Resources can generate competitive advantage
when they are…
• Valuable
• Rare
• Difficult to imitate
• Without substitutes
20. Imitation
• Physically unique
• Path dependency
– How accumulated over time
• Causal ambiguity
– Difficult to disentangle what it is or how it could be
recreated
• Social complexity
– Trust, interpersonal relationships, culture, reputation
23. Balanced
scorecard
Consider the case of Amazon, the Seattle-based e-
commerce company that was founded in 1994 and is
currently the world’s largest internet retailer and the
second largest employer in the U.S. (behind Walmart).
Somewhat amazingly, Amazon is the fourth most valuable
firm on the U.S. stock market, despite its profits being
less than 1% of Exxon Mobil’s over the past two decades.
Watch video
And see the following slides…
27. So what explains Amazon’s ‘profitless path to world
domination’?
1. What is the balanced scorecard? What are its
four perspectives?
2. How can the balanced scorecard help to explain
Amazon’s strategy and growth over the past 20
plus years?
Balanced
scorecard
28.
29.
30. Balanced
scorecard
Perspective Generic Measures
Financial Return on investment and economic
value-added
Customer Satisfaction, retention, market and
account share
Internal Quality, response time, cost and new
product introductions
Learning and growth Employee satisfaction and information
system availability
32. Mon – Quiz #5
1. Why did early (1990s) e-tailers often fail? (choose one)
a. Service
b. Human resource management
c. Logistics and operations
2. True or False: Arup’s quality is difficulty to imitate
because its resources are physically unique and path
dependent.
3. What is the core problem with financial measurements
that led to the introduction of the balanced scorecard?
Note that industry effects tend to matter more for middle-of-the-pack businesses. But for the real winners and losers in each industry, firm effects are much more important.
Understand the value chain
What are the key cost drivers in the chain?
What do customers want from the product/service and will pay for?
Economic surplus is not proportional to the value added in the individual stages of production
The highest value added stage (Transport) does not earn an adequate return on capital
Note also that economic surplus is concentrated upstream
See John’s recording, lecture 5
See also: https://www.bbc.com/news/business-43032542
CSL has patents on vaccines and pharmaceuticals but has blood collection centres in the USA that are highly regulated. Part of the answer also lies in their unique history, starting out as a gov’t research branch (see history of company and John’s recordings)
Barney & Hesterly 1996
“…..A firm’s resources and capabilities include all those attributes of a firm that enables it to conceive of and implement strategies….”
Idiosyncratic bundles of tangible and intangible assets, people and processes that a firm uses to create and sustain competitive advantage and hence value