Student Learning Notes
MCR008 – Corporate Strategy
Student Learning Notes
Topic 3: Analysing Resources and Capabilities
(Chapter 5 – Analysing Resources and Capabilities)
1. Define competitive advantage.
Competitive advantage is defined asa characteristic, feature or opportunity that an organisation
possesses that will make it more attractive than its competitors.
Competitive advantage is displayed by superior performance and value created for the
organisation’s customers. Value creation can be defined in many ways; for example, the ability to
increase shareholders’ wealth by charging higher prices and achieving higher profits, the ability to
achieve greater customer satisfaction via improved product attributes, or the ability to increase a
company’s profit by reducing manufacturing costs. Although a competitive advantage of the
organisation is manifested in superior customer satisfaction and higher profit, in some cases an
increased profit may be a result of reduced expenses on research and development (R&D), which
in the long term will lead to lost competitive advantage and reduced profit.
2. Why do companies use the value chain analysis?
There are many activities and functions of the organisation (e.g. R&D, logistics, production,
marketing and sales) that enable it to create value for customers. An organisation’s value chain is
divided into primary and support activities. Value chain analysis enables organisations to
understand which activities create value and which do not. The value chain is an analysis used by
an organisation to identify its cost position, and the means or ways that might be used to facilitate
the implementation of a chosen business level strategy. The value chain shows how a product
moves from the raw materials stage to the end customer. A competitive advantage can be created
if the company’s value chain creates additional value without incurring significant extra costs.
The value-chain activities enable an organisation to create customer value. To be able to create a
superior perception in a customer’s mind, organisations need to develop a unique set of activities
that reinforce each other in use and, therefore, cannot be copied by competitors. For example, the
Commonwealth Bank of Australia is determined to offer the best customer service, and is
committed to making a difference in the community. DuPont Australia, on the other hand, builds
its value chain around R&D in order to stay competitive and maintain its superior performance.
The importance of the value chain is found in its ability to assist managers to identify valuecreating activities, both current and future. By understanding where the company creates its value
at each element or stage of the value chain, it can link value-creating activities to the
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organisation’s strategies and customers’ needs. A unique set of value chain activities and the way
they are integrated makes it difficult for competitors to copy the value chain of an organisation,
thereby enabling the organisation to achieve sustainable competitive advantage.
3. How does the resource-based view (RBV) explain the role of resources and capabilities in the
ability of companies to create competitive advantage?
Resource-based view of the company (RBV): research into the role of a company’s resources and
competitive capabilities in crafting strategy and in determining company profitability. The central
question of the RBV is ‘Why do some companies in the same industry outperform others?’. It
ismore likely that the internal resources and capabilities will provide a secure foundation for longterm strategy. In fast-moving, technology-based industries, new companies are built around
specific technological capabilities. The markets where these capabilities are applied are a
secondary consideration. Motorola, the Texas-based supplier of wireless telecommunications
equipment, semiconductors and direct satellite communications, for example, has undergone
many transformations, from being a leading provider of TVs and car radios to its current focus on
telecommunications equipment. Yet, underlying these transformations has been a consistent
focus on wireless electronics.
The distinction between industry attractiveness and competitive advantage (based on superior
resources) as sources of a company’s profitability corresponds to economists’ distinction between
different types of profit (or rent). The resource-based approach has profound implications for
organisations’ strategy formulation. When the primary concern of strategy was industry selection
and positioning, organisations tended to adopt similar strategies. The resource-based view, by
contrast, emphasises the uniqueness of each company and suggests that the key to profitability is
not through doing the same as other companies, but rather through exploiting differences.
Establishing competitive advantage involves formulating and implementing a strategy that exploits
the uniqueness of a company’s portfolio of resources and capabilities.
4. What are core competencies of companies?
In order to build competitive advantage, organisations should also understand what they are good
at, and what capabilities they possess for competing against their rivals. An organisation’s
competence is the product of learning and experience and represents the organisation’s real
proficiency in performing an internal activity. Organisations deliberately develop their
competencies over time by making efforts to do something however imperfectly or inefficiently at
first.
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Core competencies are activities that a company performs better than its other internal activities
and that are the most important for the organisation’s competitiveness and profitability. Core
competencies may reside, for example, in the company’s people, technology, ability to build
networks and systems which enable electronic commerce, or skills in manufacturing innovative
products.
The concept of distinctive competencies is related to the concept of core competencies: a core
competence is something that a company does well relative to other internal activities; a
distinctive competence is something a company does well relative to its rivals. Most organisations
perform some important activities better than others. These activities are core competencies.
However, what the organisation does best internally only translates into a distinctive competence
it the company performs these activities better than its competitors.
5. What role do dynamic capabilities play in the ability of companies to create competitive
advantage in rapidly changing environments?
The RBV of a competitive advantage emphasises the deployment and protection of unique
resources rather than the need for resources and competencies to develop over time. Rapid and
unpredictable environmental changes and market complexity require companies to accumulate
competitive advantage through learning and knowledge creation processes in order to respond to
such dynamics. These requirements are addressed by and referred to as the knowledge-based
organisation. The concept of dynamic capabilities is relatively new and still evolving.
Although the dynamic capabilities view is a relatively recent stream in the strategic management
literature, it has attracted increasing attention from researchers and practitioners who explore the
role of dynamic capabilities in obtaining competitive advantage. Dynamic capabilities are the
ability of organisations to integrate, build, and reconfigure internal and external competencies to
address rapidly changing environments. This definition opens the opportunity to incorporate
managerial action into discussions of the sources of competitive advantage.
6. Discuss the difference between ordinary and dynamic capabilities, and the difference
between routines and capabilities.
Ordinary capabilities are the result of the use of organisation’s resources for a desired result.
However, while these capabilities are developed over time, they are rather static and
organisations often alter their capabilities rather slowly. Examples of organisational capabilities
include research and development, management information thorugh the use of Management
Information Systems network, operations, product design, and so on.
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Dynamic capabilities, on the other hand, reflect the changing nature of external environments. It is
essentially the ability of the firm to integrate, build and change their international and external
competencies to address these changes. Apart from the various types of organisational
capabilities, dynamic capabilities also can incorporate managerial action as a source of
competitive advantage. Ongoing collaboration with customers is also opening up opportunities to
reconfigure the firm’s existing resources to develop dynamic capabilities.
Organisational capability requires the expertise of various individuals to be integrated with capital
equipment, technology and other resources. But how does this integration occur? Virtually all
productive activities involve teams of people undertaking closely coordinated actions — typically
without detailed direction. Organisational routines is the term used to refer to these regular and
predictable patterns of activity made up of a sequence of coordinated actions by individuals.
Routine is behaviour that is learned, highly patterned, and repetitious.
Such routines form the basis of most organisational capabilities. At the manufacturing level, a
series of routines governs the passage of raw materials and components through the production
process to the factory gate. Sales, ordering, distribution and customer service activities are
similarly organised through a number of standardised, complementary routines. Even top
management functions comprise routines for monitoring business unit performance, capital
budgetingand strategic planning. Like individual skills, organisational routines develop through
learning-by-doing. Just as individual skills become rusty when not exercised, so it is difficult for
organisations to retain coordinated responses to contingencies that arise only rarely. Hence, there
may be a tradeoff between efficiency and flexibility. A limited repertoire of routines can be
performed highly efficiently with near-perfect coordination. The same organisation may findit
extremely difficult to respond to novel situations. Routinisation is an essential step in translating
directions and operating practices into capabilities.
7. The main capabilities of Hancock Prospecting Pty Ltd (HPPL) relate to the exploration and
development of mineral resources. Does the company’s current major project – Roy Hill,
which will include construction of a rail line – indicate that its strategy is departing from its
principal resources and capabilities? Why or why not?
Hancock Prospecting Pty Ltd (HPPL) is still committed to its capabilities in terms of the exploration
and development of mineral resources.Successful companies do not rely on their current resource
base but rather must continuously re-invent their resources base to develop new organisational
capabilities. It is clear that the Roy Hill mine is not only a mine but a small community that needs
to be served by rail infrastructure to distribute a high volume of iron ore in the region. In addition,
HPPL reckons that this project will be a significant contributor to the WA’s resource industry, with
its resource base expected to last more than 20 years. Thus, ensuring that HPPL is involved in the
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development of such community is important for HPPL’s sustainability and future growth so that
they can do the same (leverage their skills and knowledge) in other future projects
HPPL’s current plan is obviously about investments in new projects and at the same time building
infrastructure to suppport businesses, such as transportation and logistics. They also form
numerous international partnerships with investors and construction companies which once again
is crucial in developing their capabilities. The answer to the question therefore is that the strategy
of the company does not depart from its principal resources and capabilities – they are aligned
and further developed through the company’s intention to develop new capabilities to compete in
the resources industry.
8. What are the dynamic capabilities of suppliers and customers in the Indian IT management
industry? What competencies are needed to exploit those capabilities? Can a competitor
imitate those capabilities? Explain why.
The dynamic capabilities of suppliers and customers in the Indian IT management industry is
embedded in the ongoing collaboration between the suppliers and clients in the co-production of
IT products and services. Information is exchanged between them, they are coordinated to ensure
the smooth process and delivery of products and services, contracts are negotiated, and their
technical know-how is developed and leveraged continously to improve the industry’s
performance.
The dynamic capabilities in the ongoing collaboration between suppliers and clients also provide
new opportunities for all involved in terms of growth and earnings potential. Risks and costs
across IT projects can be shared by those who are involed, which certainly help improve the
industry’s performance. Moreover, in the Indian IT management industry, not only suppliers
collaborate with their clients, but they also collaborate with universities and research
organisations to identify new markets and changes in their markets through extensive market
research.
9. In 2009, Walt Disney acquired Marvel Entertainment (a company known for its comics and
movie characters, such as Spider-Man, the Avengers and Captain America) for US$4 billion.
What risks did Disney face in achieving the goals of this acquisition? How has Disney’s
resources base changed as result of this acquisition?
The risks of this acquisition are related to the limitation of competition in the industry, and the
difficulties of integration of Marvel in to the Disney’s global entertaining network. There are also
some risks that Marvel as part of the large corporation might lose its competitive urge and
innovation. As result of this acquisition, the Disney’s resource base has been further extended by
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including new great characters, stories and brand, as well as by getting access to new knowledge
of these characters and how to leverage them.
Adding Marvel to Disney’s portfolio of brands provides significant opportunities for long-term
growth and value creation. At the same time, by accessing Disney’s global infrastructure, Marvel
can further build upon its vibrant brand and characters.
10. Which is more important in explaining the success and failure of companies in the rapidly
changing environment: the ability to improvise or strategise? Why?
Two planning approaches to strategy development and implementation are supported by
academics and practitioners. On the one hand the rational design or strategise, and on the other,
improvise or learning, organisational emergence. The “strategise” approach emphasises the
importance of strategic analysis and forecasting tools. Those who support this view link successful
performance of organisations to their ability to plan the future based on the past. There is strong
research evidence that planning is a crucial aspect of high risk decision making. In contrast, the
“improvise” school argues that formal planning is ineffective in dynamic or high velocity
environments. In the rapidly changing environment the best performing organisations are those
that act out of their future. Moreover, some advocates of this approach argue that relying on the
past represents a threat to the future. In spite of these arguments, there is research evidence that
suggests that planning can improve firm performance in either dynamic or stable environments
(Eisenhardt, 1989). In practice these two approaches – ‘rational design’, or strategise, and
‘emergent process’, or improvise, support organisational strategy formulation and implementation
and contribute into an increased corporate responsiveness and adaptation to environmental
turbulence.