Barney Chapter 3 for Spring 2011 - Chapter3...

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Evaluating a Firm’s Internal  Capabilities (and Resources) Chapter 3
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Internal Resources and Capabilities and Organization Performance Industry  Structure (Five Forces) Corporate- Level  Competencies Business-Unit Competencies Organization Performance Most important driver of performance is individual business unit’s ability to develop and exploit distinctive competencies (distinctive strengths)
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Understanding of Industry Structure (External Analysis) Understanding  Corporate-Level  Competencies (Internal Analysis)  Understanding  Business-Unit Competencies (Internal Analysis) Ability to  Develop Good  Firm Strategies Internal Resources and Capabilities and Organization Performance
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Tools of Internal Analysis Chapter 2 introduced tools for external analysis Five Forces Model Chapter 3 introduces foundational tools for internal  analysis: VRIO Framework Useful for evaluating firm resources and capabilities Value Chain Useful for identifying key firm activities E.g., product design, manufacturing, marketing
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The Resource-Based View of the Firm Resource-based view of the firm (RBV for short) is  the conceptual foundation for the VRIO framework Again, VRIO framework helps us to effectively evaluate internal  resources and capabilities of the firm What are resources and capabilities? Resources: the tangible and intangible assets that a firm  controls that it can use to conceive and implement strategies Capabilities: a subset of a firm’s resources and capabilities that  enable a firm to take full advantage of the other resources it  controls
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The Resource-Based View of the Firm  Four categories of resources: Financial resources: money Physical resources: includes all physical technology used in a  firm E.g., plant and equipment Human resources: includes training, experience, judgment, and  intelligence of  individual  managers and workers Organizational resources: an attribute of groups of individuals  within the firm E.g., formal reporting structure; control systems; culture;  reputation
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The Resource-Based View of the Firm Critical assumptions of the resource-based view  (RBV) Assumption 1: Firms in a given industry may possess different  bundles of resources and capabilities This is the assumption of “resource heterogeneity” Means that certain firms may be better than other firms at  particular activities (e.g., product design) Assumption 2: Differences between firms may persist over long  periods of time because it may be costly/hard for firms that  lack particular resources to develop them or acquire them This is the assumption of “resource immobility” Contrasts with standard assumptions in micro- economics
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