Chapter 4

Resource Based Approach organizational

analysis

Motiur Rahman
Resource Based Approach organizational analysis
Resources: VRIO Framework
Resource : an asset, competency, process,
controlled by an corporation
1. Values: Does it provide competitive
advantage?
2. Rareness: Do other competitors possess it?
3. Imitability: Is it costly for others to imitate?
4. Organization: Is the firm organized to exploit
the resources

Chapter 4 2
 Core Competencies and Distinctive
Competencies
Core Competencies
• Things a corporation can do exceedingly well

Distinctive Competencies
• Core competencies that are superior to those of
competitors

Chapter 4 3
 Using Resources to Gain Competitive
Advantage
1. Identify and classify firms resources in terms of
strengths and weaknesses
2. Combine firm’s strength into core competency
and distinctive competency
3. Appraise the profit potential of these resources
and capabilities for sustainable competitive
advantage and the ability to harvest profits
resulting from the use these resources and
capabilities
4. Select the strategy that can best exploit the
firm’s resources and capabilities relative to
external opportunities
5. Identify resource gaps in upgrading weaknesses
Chapter 4 4
Determining The Sustainability Of An Advantage

1. Durability: The rate at which a firm’s underlying

resources and capabilities (core competencies)
depreciate or become obsolete.
2. Imitability: The rate at which firm’s core
competencies can be duplicated by others
 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 use
duplicated resources and capabilities necessary to
support competitive challenge
 Replicability: is the ability of competitors to use
duplicated resources and to imitate the other
firms success.

Chapter 4 5
 Types of Knowledge
1. Explicit knowledge:

 Type of knowledge that can be easily articulated

and communicated

 Competitive intelligence activities can easily

identify and communicate

2. Tacit Knowledge:

 Knowledge that cannot be easily communicated

 It is deep rooted in employee experience and

corporate culture
Chapter 4 6
 Continuum of Resources Sustainability

Level of Resource Sustainability

High Low
Hard to imitate (Easy to Imitate)

Slow-Cycle Standard-Cycle Fast-Cycle

Resources Resources Resources
• Strongly shielded • Standardized mass • Easily duplicated
production
• Patents, brand name • Idea driven
• Economies of scale
• Gillette: Sensor razor Complicated processes • Sony: Walkman
• Chrysler: Mini-van

Source: Suggested by J. R. Wiliams, “How Sustainable Is Your Competitive Advantage?” California

Management Review (Spring 1992), p. 33.

Chapter 4 7
 Typical Value Chain for a Manufactured
Product

Raw Primary Product

Fabrication Distributor Retailer
Materials Manufacturing Producer

Chapter 4 8
 Corporate Value Chain

Firm Infrastructure
(general management, accounting, finance, strategic planning)

Human Resource Management

(recruiting, training, development)
Support
Activities
Technology Development
(R&D, product and process improvement)
Profit
Procurement Margin
(purchasing of raw materials, machines, supplies)
Source: Adapted/re
printed with the
Inbound Operations Outbound Marketing Service
Logistics (machining, Logistics and Sales (installation, permission of the
(raw assembling, (warehousing (advertising, repair, parts) The Free Press, an
materials testing) and promotion, imprint of Simon &
handling and distribution pricing, Schuster, from
warehousing) of finished channel Competitive
product) relations)
Advantage:
Creating and
Sustaining Superior
Performance by
Michael E. Porter, p.
Primary Activities 37. Copyright ©
1985 by Michael E.
Porter.
Chapter 4 9
 Steps in Corporate value chain analysis

1. Examine each product line’s value chain in terms

of various activities involved in producing that
product or service.
 Which activities can be considered core
competency or weakness
 Can any core competency be labeled as
distinctive competence
2. Examine the “linkages” within each products
value chain
 Linkages are the connections between the way
one value activity is performed and the cost of
performance of another activity
3. Examine the potential synergies among the value
chain different product lines/ businesses

Chapter 4 10
 Scanning Functional Resources

• Functional resource includes:

 Financial
 Physical
 Human assets
 Ability of people to formulate and implement
functional objectives
 Marketing
 Operations
 Human resources
 Information systems
 Structure and culture

Chapter 4 11
Basic Structures of Corporations:
Simple and Functional

I. Simple Structure

Owner-Manager

Workers

II. Functional Structure

Top Management

Manufacturing Sales Finance Personnel

Chapter 4 12
Basic Structures of Corporations: Divisional

III. Divisional Structure*

Top Management

Product Division A Product Division B

Manufacturing Finance Manufacturing Finance

Sales Personnel Sales Personnel

Chapter 4 13
 Strategic Business Unit
Independent product-market unit with:

1.Unique mission

2.Identifiable competitors

3.External market focus

4. Control of its business functions

Chapter 4 14
 Analyzing Corporate structure

1. How is the corporation structured at present:

a) Is the decision making authority centralized or
decentralized
b) is it organized on the basis of functions,
projects, geography, or some combination of these

2. Is the current structure consistent with current

corporate objectives, strategies, policies, as well
as with firms international operations

3. Summary : whether strength or weakness

Chapter 4 15
 Attributes of Corporate Culture

• Corporate culture is the collection of beliefs,

expectations, values learned and shared by a
corporation’s members and transmitted from one
generation of employees to another

• Intensity: is the degree to which members of a

accept the norms, values, or other culture content
associated with the unit

• Integration: Is the extent to which units through

out an organization share a common culture.
Breadth of culture
Chapter 4 16
 Functions of Corporate Culture
1. Conveys sense of identity

2. Generates employee commitment

3. Adds to organizational stability

4. Serves as a frame of reference

Chapter 4 17
 Analyzing Corporate Culture
1. Is there well defined or emerging culture composed
of shared beliefs, expectations and values

2. Is the culture consistent with current objectives,

strategies, policies and programs

3. What is the culture’s position on important issues

facing the corporation ( that is, on productivity,
quality of performance, adaptability to changing
conditions, and internationalization

4. What is your overall assessment whether culture is

an strength or weakness

Chapter 4 18
 Strategic Marketing Issues
• Market position and segmentation
(who are our customers)

• Marketing mix

• Product life cycle

Chapter 4 19
 Marketing Mix Variables
Product Place Promotion Price
Quality Channels Advertising List price
Features Coverage Personal selling Discounts
Options Locations Sales promotion Allowances
Style Inventory Publicity Payment
periods
Brand name Transport Credit terms
Packaging
Sizes
Services
Warranties
Returns
Source: Philip Kotler, Marketing Management: Analysis, Planning, and Control, 4th ed. (Englewood Cliffs,
N.J.: Prentice-Hall, 1980), p. 89. Copyright © 1980. Reprinted by permission of Prentice-Hall, Inc.

Chapter 4 20
Sales
The Product Life Cycle

*The right end of the

Growth stage is often
called Competitive
Turbulence because of
price and distribution
competition that shakes
out the weaker
competitors. For further
Introduction Growth* Maturity Decline information, see C. R.
Wasson, Dynamic
Time Competitive Strategy and
Product Life Cycles, 3rd ed.
(Austin, Tex.: Austin Press,
Chapter 4 21
1978).
 Analyzing Marketing Function
1. What are the corporation’s current marketing objectives,
strategies and programs.
2. Are they consistent with the corporations mission,
objectives, strategies, policies and with environment
3. How well the corporation performing in terms of analysis of
market position and marketing mix in both domestic and
international markets
4. What percentage of sales comes from foreign operations?
What are the current products in product life cycle
5. What trends emerge from this analysis
6. Does marketing provide with competitive advantage
7. What is your overall assessment of strengths and
weaknesses of marketing function

Chapter 4 22
 R&D Mix
• Basic R&D :
 Focus: theoretical problem areas
 Indicator of capability: number of patents and research
publications
• Product R&D
 Focus: Products and /or packaging improvements
 Indicator of capability: number of successful new
products introduced and profits coming from products
introduced within 5 years
• Process (Engineering) R&D
 Focus: Engineering concentrating on quality control,
development of design specifications and production
equipment
 Indicator of capability: Consistent reductions in unit
manufacturing costs, number of product defects
Chapter 4 23
 Analyzing R&D Function

1. What are the corporations R&D objectives,

strategies, policies and programs

2. Are they consistent with the corporation’s mission,

objectives, strategies

3. Is the mix of basic, applied and engineering

research appropriate given the corporate mission
and strategies.

4. What is your overall assessment of strengths and

weaknesses of R&D function
Chapter 4 24
 Technological Discontinuity

What the S-Curves Reveal

Product Performance

Mature
Technology

New
Technology

Research Effort/Expenditure

In the corporate planning process, it is generally assumed

that incremental progress in technology will occur. But past
developments in a given technology cannot be extrapolated
into the future, because every technology has its limits. The
key to competitiveness is to determine when to shift re-
sources to a technology with more potential.

Chapter 4 25
 Strategic Operations Issues

• Develop and operate a system that will produce the

required number of products or services with certain
quality, at a given cost, within allotted time

• Manufacturing can be intermittent shop or continuous

• In intermittent systems (job shop) the items are

generally processed sequentially, but the work and
sequence of the process vary.

• Usually can be labor intensive, little automated

machinery and thus a small fixed costs.

Chapter 4 26
 Strategic Operations Issues
• It has fairly low break-even point , but its variable
cost line has a relatively steep slope. Because most of
the cost associated with the product are variable , a
job shop’s variable cost is higher than the automated
firms

• Its advantage over other firm that it can operate at

low levels and still be profitable. In terms of strategy
the firm should look for a niche for which it can
produce and sell reasonably small quantity of goods

Chapter 4 27
• Continuous systems are those laid out as lines on which
product can be continuously assembled or processed
• A firm using continuous system invests heavily in fixed
assets investments.
• Its labor force is relatively small but highly skilled, earns
salaries rather than piece rate wages
• This firm has high amount of fixed costs and relatively high
breakeven point, but variable cost line rise slowly. This
called operating leverage, the impact of specific change in
sales volume on net operating income
• The advantage of high operating leverage is that once firms
reaches break even its profits rises heavily
• Continuous systems reap the benefit of economies of scale
• Its strategy, the firm should find high demand niche in the
market place for which it should produce and sell large
quantities of goods
Chapter 4 28
 Experience Curve
• Suggest that unit production cost declines by fixed
percentage ( commonly 20 – 30%) each time the total
accumulated production volume in units doubles
• The actual percentage varies by industry and is based
on many variables: the amount of time it takes a person
to learn a new task, scale economies, product and
process improvements, lower material costs.
• Management commonly uses the experience curve in
estimating the production cost
(1)A product never made before with present techniques
and processes
(2)Current products being produced by newly introduced
techniques or processes
• Many firms use experience curve extensively, an
unquestioning it could be risky and the experience
curve may not hold true for a particular company for a
variety of reasons

Chapter 4 29
 Flexible Manufacturing For mass
Customization
• The use of computer aided designs, computer
aided manufacturing, robot technology means
that learning times are shorter and products
could be manufactured economically in small
customized batches called mass customization
– the low cost of production of individually
customized goods or services
• Economies of scope : common parts of the
manufacturing activities of the various
products are combined to gain economies of
scale, even though small number of products
are made to replace economies of scale
• Flexible manufacturing: permits low volume
output of custom –tailored products at a
relatively low cost through economies of scope
Chapter 4 30
Economies of Scale versus Scope

Economies of Scale
versus
Economies of Scope

Chapter 4 31
 Analyzing Operations/ Logistic Function

• What are the corporations current manufacturing/ service

objectives, strategies, policies
• Are they consistent with corporation’s mission, objectives,
strategies, policies and with environment
• What is the type and extent of operations capabilities of the
corporation?
• How much is done domestically versus internationally? Is
the amount of outsourcing appropriate to be competitive?
• What is your overall assessment of corporations operations
in terms of strength or weaknesses

Chapter 4 32
 Analyzing Finance Function

• What are the corporation’s current financial

objectives, strategies and policies
• Are they consistent with the mission, and
strategies
• How well the corporation performing in terms of
financial analysis ( Ratios, common size
statements)
• What trends emerge from this analysis
• Does finance provide the company with
competitive strategy
• What is your overall assessment of corporation’s
strengths and weaknesses in finance function
Chapter 4 33
 Strategic Financial Issues
• Ascertaining the best sources of funds, uses of
funds and control of funds
• A firm’s capital structure can influence strategic
choices
( Increased debts increase risk aversion and
decrease the willingness of management to invest
in R & D)
• Financial Leverage:
 The mix of externally generated short-term and
long-term funds in relation to the amount and
timings of internally generated funds should be
appropriate to corporate objectives
 Financial leverage is helpful in describing how debt
is used to increase the earnings available to
common shareholder

Chapter 4 34
> when the company finances its activities by sales of
bonds or notes instead through stock, earning per
shares are boosted:
- The interest paid on debt reduces taxable income , but
fewer shareholders share profits than if the company
had sold more stock to finance its activities
- The debt however raise the breakeven point above
what it would have been than if the firm had financed
through internally generated funds
- High leverage may be perceived as corporate strength
in times of prosperity and ever increasing sales or
weakness in times of recession and falling sales
- Research indicates that greater leverage has positive
impact on performance for firms in a stable
environment, but a negative impact on firms in dynamic
environment

Chapter 4 35
 Capital Budgeting

• Analyzing and ranking of possible investments

in fixed assets in terms of additional outlays
and additional receipts that will result from
such investments
• A good finance department will prepare such
capital budgets and rank them on some
accepted hurdle rate for the purpose of
strategic decisions
• Many firms will have more than one hurdle
rate and vary as a function of the type of
projects being considered
• Projects with high strategic significance, such
as entering new markets or defending market
share will often have low hurdle rates
Chapter 4 36
 Analyzing Information Systems

• What are the corporation’s current IS

objectives, strategies, policies
• Are they consistent with corporation’ s
mission objective, strategies and policies
• How well the corporation’s IS performing in
terms of providing useful data base
• What is your overall assessment of
corporation’s strengths and weaknesses in
information systems

Chapter 4 37
 Internal Factor Analysis Summary (IFAS)

Weighted
Internal Factors Weight Rating Score Comments
1 2 3 4 5
Strengths

Weaknesses

Total Weighted Score 1.00

Notes: 1. List strengths and weaknesses (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not
Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to
1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply
each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. Use Column 5 (comments) for rationale
used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how
well the company is responding to the strategic factors in its internal environment.
Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and
Hunger Associates. Reprinted by permission. Chapter 4 38
 4.17 Internal Factor Analysis Summary (IFAS): Maytag as Example (Table
4.2)

Internal Factor Analysis Summary (IFAS):

Maytag as Example
Weighted
Internal Factors Weight Rating Score Comments

Strengths 1 2 3 4 5
• Quality Maytag culture .15 5 .75 Quality key to success
• Experienced top management .05 4 .20 Know appliances
• Vertical integration .10 4 .40 Dedicated factories
• Employee relations .05 3 .15 Good, but deteriorating
• Hoover’s international orientation .15 3 .45 Hoover name in cleaners

Weaknesses
• Process-oriented R&D .05 2 .10 Slow on new products
• Distribution channels .05 2 .10 Superstores replacing
small dealers
• Financial position .15 2 .30 High debt load
• Global positioning .20 2 .40 Hoover weak outside the
United Kingdom and
Australia
• Manufacturing facilities .05 4 .20 Investing now

Total Weighted Score 1.00 3.05

Prentice Hall, Chapter 4 39
2000
Thank you